Order Code RL31668
CRS Report for Congress
Received through the CRS Web
Federal Pell Grant Program
of the Higher Education Act:
Background and Reauthorization
Updated February 16, 2005
Charmaine Mercer
Analyst in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

Federal Pell Grant Program of the Higher
Education Act: Background and Reauthorization
Summary
The Federal Pell Grant program, authorized by the Higher Education Act
(HEA), is the single largest source of grant aid for postsecondary education
attendance funded by the federal government. It is estimated to provide nearly $12.8
billion in FY2005 to about 5.3 million undergraduate students. For FY2005, the
maximum Pell Grant is funded at $4,050. With the expiration of the HEA, the
Congress is likely to debate what changes may be needed in the Pell Grant program
as part of its consideration of HEA reauthorization.
Pell Grants are need-based aid intended to be the foundation for all federal
student aid awarded to undergraduates (eligibility is limited to undergraduates).
There is no absolute income threshold that determines who is eligible and who is
ineligible for Pell Grants. Nevertheless, Pell Grant recipients are primarily low-
income. In FY1999, an estimated over 90% of Pell Grant recipients considered to
be dependent upon their parents had total parental income below $40,000. Of Pell
Grant recipients considered to be independent of their parents, over 90% had total
income below $30,000.
Among the issues that may be debated by the Congress during the HEA
reauthorization process is the extent to which the Pell Grant program continues to act
as the foundation for all federal need-based aid for undergraduates. Concern has
been raised about the diminished role that the Pell Grant may be playing. For
example, need-based aid recipients are as likely to borrow subsidized loans under the
Federal Stafford Loan program as they are to receive Pell Grants. This overarching
issue may trigger consideration of various steps to increase the amount of Pell Grant
aid flowing to the neediest students. This might include deliberation over raising the
Pell Grant minimum award (those with the smallest grants are the least needy of Pell
recipients), converting the program into an entitlement possibly with higher annual
maximum grants, and concentrating Pell Grant assistance on needy undergraduates
in their initial years of enrollment (so-called “front loading”) which may result in
substantially higher grants in those years. Converting the program to an entitlement
is also seen by some as a response to the periodic uncertainty about the adequacy of
the annual appropriation to meet program costs and resulting funding shortfalls.
Other issues that may engage the Congress include deciding the degree to which,
if any, the size of students’ Pell Grants should be sensitive to institutions’ tuition
charges, and whether some element of academic merit should be introduced into the
process of determining Pell eligibility and level of Pell assistance.
This report will be updated to reflect major legislative action to reauthorize the
Pell Grant program.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
How the Program Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Student Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Award Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Key Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Award Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Institutional Role . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Program Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Annual Appropriation and Program Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Authorized Maximums and Appropriated Maximums . . . . . . . . . . . . . . . . . 8
Surpluses and Shortfalls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
FY2001-FY2005Shortfall Experience . . . . . . . . . . . . . . . . . . . . . . . . . 11
Characteristics of Recipients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Enrollment Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Type and Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Role of the Pell Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Purchasing Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Pell Grant Recipients and Other Federal Aid . . . . . . . . . . . . . . . . . . . . . . . . 22
Possible Reauthorization Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Entitlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Front Loading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Minimum Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Tuition Sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Academic Merit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
List of Figures
Figure 1. Authorized Maximum Grants, Appropriated Maximum
Grants, and Average Awards, FY1973-FY2005 . . . . . . . . . . . . . . . . . . . . . 10
Figure 2. Estimated Annual Number of Pell Grant Recipients,
FY1973-FY2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Figure 3. Percentage of Tuition, Fees, Room, and Board
Covered by the Appropriated Maximum Pell Grant, FY1973-FY2001 . . . 21

List of Tables
Table 1. Application of Pell Grant Award Rules to Hypothetical Full-Time,
Full-Year Undergraduate Students — Award Year 2004-2005 . . . . . . . . . . . 5
Table 2. History of Pell Grant Appropriations and Program Costs,
FY1973-FY2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Table 3. History of Authorized Maximum Grants, Appropriated Maximum
Grants, and Average Awards, FY1973-FY2005 . . . . . . . . . . . . . . . . . . . . . . 9
Table 4. FY2001-FY2005 Pell Grant Shortfalls . . . . . . . . . . . . . . . . . . . . . . . . . 13
Table 5. Estimated Annual Number of Pell Grant Recipients,
FY1973-FY2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Table 6. Estimated Pell Grant Participation by Income, 1999-2000 . . . . . . . . . . 17
Table 7. Estimated Distribution of Undergraduates and Pell Grant
Recipients by Enrollment Status, 1999-2000 . . . . . . . . . . . . . . . . . . . . . . . . 19
Table 8. Estimated Distribution of Undergraduates and Pell Grant
Recipients by Type and Control of Enrolling Institution, 1999-2000 . . . . . 20
Table 9. Pell Grant Recipients’ Participation Rates and Average Awards
in Other Aid Programs, FY1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Table 10. Estimated Impact of Increasing the Minimum Pell Grant for
Award Year 2003-2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Federal Pell Grant Program
of the Higher Education Act:
Background and Reauthorization
Introduction
The Federal Pell Grant program is the single largest source of grant aid for
postsecondary education attendance funded by the federal government, providing
grants to undergraduate students estimated to total nearly $12.8 billion in FY2005.
Authorized by Title IV of the Higher Education Act (HEA), Pell Grants are need-
based aid intended to be the foundation for all federal student aid awarded to
undergraduates. The U.S. Department of Education (ED) estimates that, in FY2004,
Pell Grants constituted about 19% of all federally supported aid, including grants,
loans, and work opportunities, that benefit postsecondary education students at all
levels.1 Along with the rest of the HEA, the statutory authority for the Pell Grant
program expired during the 108th Congress; but, these authorities were extended for
a single year (through the end of FY2005).2 As it deliberates on the reauthorization
of the HEA, the Congress may debate what changes, if any, to make to the Pell Grant
program.
This report reviews how the program works and provides analysis of program
funding, recipients (numbers and characteristics), and the role being played by the
program in the distribution of federal student aid.3 It concludes with an examination
of several Pell-related issues that may be considered by the Congress in the HEA
reauthorization process. This report will be updated to reflect major legislative
action to reauthorize the Pell Grant program.
How the Program Works
This section provides an overview of the structure of the Pell Grant program and
the process through which grants are made to students. It describes student
1 Percentage calculated from data presented in U.S. Department of Education, Fiscal Year
2005 Budget Summary
, p. 50. Total federal student aid excludes $31.9 billion in
consolidation loans under which borrowers consolidate prior loans. If consolidation loans
are included, the Pell percentage falls to 13%.
2 CRS Issue Brief IB10097, The Higher Education Act: Reauthorization Status and Issues,
by James Stedman.
3 This is an updated version of a report originally written by James B. Stedman

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eligibility, the award rules for determining students’ grants, program funding, and the
role played by postsecondary institutions in the program.
Briefly, the Pell Grant program provides grants (i.e., aid that does not have to
be repaid) to needy undergraduates. In any year, federal funding is available to
ensure that all eligible students attending eligible institutions receive Pell Grants.4
To apply for these grants, students fill out the Free Application for Federal Student
Aid (FAFSA) with requested financial and other information, and submit it to a
“central processor” under contract to ED. The central processor provides each
applicant with a Student Aid Record (SAR) and each higher education institution
designated by the applicant with an Institutional Student Information Record (ISIR);
these documents contain the information submitted on the FAFSA and the calculated
expected family contribution (EFC). The EFC is what is expected to be contributed
by the student and his or her family toward postsecondary education expenses (the
EFC is described in detail below). Pell Grants are portable, that is, the grant aid
follows students to the eligible postsecondary education institutions in which they
enroll. Institutions that receive valid SARs or valid ISIRs for students meeting all
other program eligibility requirements must disburse Pell Grants to them. The size
of the grants is based, principally, on the financial resources that students and their
families are expected to contribute toward postsecondary education expenses, and the
maximum grant that the annual appropriations process sets for the program.
Student Eligibility
To be eligible for a Pell Grant, a student must meet requirements that apply to
federal student aid in general and requirements specific to the Pell Grant program.
Among the requirements generally applicable to federal student aid are the
following:
! Students must be enrolled for the purpose of earning a degree or
certificate at an eligible institution.
! Students must have a high school diploma or the recognized
equivalent.5 Absent such diploma or its equivalent, students must
demonstrate an ability to benefit from postsecondary education by
passing an examination approved by ED.
! Students have to maintain satisfactory academic progress while
enrolled in postsecondary education in order to be eligible for federal
student aid. Satisfactory progress is delineated by policies
developed by each participating higher education institution.
4 As explored below, if costs for the Pell Grant program exceed the current fiscal year’s
appropriation, additional funds can be used from the subsequent year’s appropriation. This
process of ensuring that grant payments will be made has led some to liken the program to
a “quasi entitlement.” The issue of making the program into an actual entitlement is
discussed later in this report.
5 Students completing home schooling as recognized under state law are considered to be
eligible.

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! Conviction for possession or sale of drugs can disqualify students for
federal student aid.
! Students are ineligible if they are in default on a Title IV student
loan or have failed to repay an overpayment on a Title IV grant.
! Students must meet citizenship requirements.6
! Males between 18 and 25 years of age must register with the
selective service system in order to eligible for federal student aid.
Pell-specific requirements include the following:
! Full-time and part-time7 undergraduates8 are eligible to receive Pell
Grants.
! There is no statutory limit on the number of years in which students
can receive grants.
! Students who are incarcerated in a federal or state penal institution
are ineligible for Pell Grants.
! The program provides assistance only to financially needy students
as determined under the program’s award rules (see below).
Award Rules
Key Concepts. An eligible student’s annual Pell Grant is determined on the
basis of a set of award rules. Certain concepts are key to an understanding of the
application of these award rules.
Appropriated Maximum Pell Grant. The appropriated maximum Pell
Grant is specified in the annual appropriations legislation for the U.S. Department of
Education. That legislation appropriates funding for the Pell Grant program and sets
the maximum award that can be made during the fiscal year. This maximum award
is different from the authorized maximum Pell Grant which is the annual maximum
Pell Grant specified in the HEA. This topic is explored further in the section below
on program funding.
Expected Family Contribution. The EFC is the amount that the federal
need analysis system determines can be expected to be contributed by a student and
his or her family toward the student’s cost of education. This calculation is based on
consideration of available income and, for some families, available assets. Basic
living expenses, federal income tax liability, retirement needs, and other expenses are
taken into account in this process. Different EFC formulas are applied to three
6 Generally, students must be U.S. citizens or U.S. permanent residents. Individuals with
several other entrance statuses can qualify for aid. Individuals in the U.S. on a temporary
basis, such as those with a student visa or an exchange visitor visa are not eligible for federal
student aid.
7 Less than half-time students are eligible.
8 Students enrolled on at least a half-time basis in a postbaccalaureate program required
by a state for K-12 teacher certification or licensure are also eligible. Such a program
cannot not lead to a graduate degree and the enrolling higher education institutions must not
offer baccalaureate degrees in education.

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different groups of students — those who are considered dependent on their parents
(the EFC formula assesses the financial resources of both the parents and the
dependent student); independent students with no dependents, other than a spouse,
if any; and independent students with dependents other than a spouse (e.g., children).9
The EFC determination utilizes financial information submitted on the FAFSA.
Cost of Attendance. The cost of attendance (COA) is a measure of a
student’s educational expenses. In general, it is the sum of tuition and fees; an
allowance for books, supplies, transportation, and miscellaneous personal expenses;
and a room and board allowance.10
Tuition Sensitivity Amount. The tuition sensitivity amount is intended to
reduce the Pell Grant for students attending higher education institutions with very
low tuition charges. By statute, it can apply only when the appropriated maximum
Pell Grant exceeds $2,700. It is calculated as follows:
$2,700 +
one-half of the difference between the appropriated maximum and $2,700 +
the lesser of (a) the remaining one-half difference or (b) tuition.11
For example, at a $4,050 Pell Grant maximum and a tuition level of $500, the tuition
sensitivity amount is $3,875, determined as follows:
$2,700 + $675 (one-half of the difference between $4,050 and $2,700) + $500
(the lesser of $675 and tuition of $500) = $3,875
As a result, the tuition sensitivity amount will be less than the appropriated
maximum Pell Grant only if tuition (plus, if relevant, allowances for dependent care
expenses or disability expenses) is less than one-half of the difference between the
appropriated maximum and $2,700. For FY2005 (award year 2005-2006) when the
appropriated maximum Pell Grant is $4,050, this tuition (and cited allowances)
threshold is $675 (see equation above). Tuition sensitivity is considered in more
detail among the reauthorization issues later in this report.
9 For federal student aid purposes and the calculation of the EFC, an individual is considered
independent of his or her parents (i.e., parental income and assets are not considered in
determining the EFC), if the individual is at least 24 years old by Dec. 31 of the award year,
is an orphan or ward of the state (or was until age 18), is a veteran of the armed forces, is
a graduate or professional student, is married, has dependents other than a spouse, or is
deemed independent by a financial aid officer for “other unusual circumstances.”
10 It can also include an allowance for dependent care expenses (for students with
dependents); costs associated with study abroad programs for students engaged in such
programs; expenses associated with a disability for students with disabilities; and the costs
associated with employment under a cooperative education program.
11 Specific allowances are added to tuition for students with dependent care expenses or
expenses related to a disability.

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Award Rules. The primary Pell Grant award rule is that a student’s annual
grant is the least of three different amounts:
! maximum appropriated Pell Grant minus EFC;
! COA minus EFC;12 or
! the tuition sensitivity amount.
An additional rule sets a minimum size to the Pell Grant. By law, a Pell Grant
award cannot be less than $400. For those students whose Pell Grant would be
between $200 and $400, the law provides a $400 grant. Those whose calculated Pell
Grant is less than $200 receive no grant.
The following table depicts the application of these award rules to several
hypothetical students with different tuition levels, COAs, and EFCs for FY2004
when the appropriated maximum was $4,050. The amounts provided in the table
were determined using ED Pell payment schedules.13
Table 1. Application of Pell Grant Award Rules to Hypothetical
Full-Time, Full-Year Undergraduate Students —
Award Year 2004-2005
Student 1
Student 2
Student 3
EFC
$250
$250
$250
COA
$8,700
$3,350
$8,700
Appropriated
$4,050
$4,050
$4,050
maximum Pell
Tuition
$1,700
$1,700
$338
Award rule calculations — value in bolded italics is the student’s Pell award
Appropriated
maximum Pell —

$3,800
$3,800
$3,800
EFC
COA — EFC
$8,450
$3,100
$8,450
Tuition sensitivity
$4,050
$4,050
$3,713
amount
Source: CRS estimates.
12 The HEA prohibits the Pell Grant from exceeding the difference between the COA and
the EFC. This precludes the awarding of a Pell Grant in excess of what a student might need
to cover COA after taking EFC into account.
13 The payment schedules are published annually by ED and used by financial aid officers
on college campuses to calculate students’ Pell Grants. The schedules for the 2004-2005
award year can be found at [http://ifap.ed.gov/dpcletters/P0401.html]. Please note that Pell
awards listed in the schedules are calculated based on $100 bands of COA and EFC (e.g.,
if a student’s EFC is $725, a financial aid officer will use the column for EFCs of $701-$800
which gives a single result regardless of where the EFC falls in that EFC band). As a result,
applying the formulas delineated in the text above without consideration of the use of these
bands may yield results that differ from those in the payment schedules. The examples in
the table in the text of this report were chosen so that the use of these bands did not affect
the calculations.

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In practice, most Pell Grant awards are determined by subtracting the
student’s EFC from the appropriated maximum Pell Grant. The other two
elements in this award rule are likely to apply only in relatively infrequent situations
— when COA falls below the appropriated maximum Pell Grant or when tuition is
less than $675, and other conditions apply.14
Finally, it should be noted that an important feature of the Pell Grant award rules
is that the grant is determined without consideration of any other financial assistance
a student may be eligible to receive or may be receiving. This reflects the intention
to make the Pell Grant the foundation to which other assistance is added.
Institutional Role
An eligible institution’s role in the Pell Grant program primarily involves
determining student eligibility, disbursing awards, adjusting awards to ensure that
students do not receive more assistance than they are eligible for, record keeping, and
reporting to ED.15
To be eligible for HEA Title IV programs, including the Pell Grant program, an
institution must be a public or private nonprofit higher education institution, a
proprietary postsecondary institution, or a postsecondary vocational institution.
Among other requirements, it must be legally authorized by its state to provide a
postsecondary education, must be accredited by a nationally recognized accrediting
agency or meet alternative requirements, and admit as regular students only
individuals with a high school diploma or the equivalent, or individuals beyond the
age of compulsory school attendance. ED certifies an institution for participation in
HEA Title IV programs based on consideration of its institutional eligibility,
administrative capacity, and financial responsibility. The institution must then enter
into a program participation agreement with ED which delineates the requirements
and responsibilities for participating institutions.
In addition to other Title IV eligibility requirements, a high student loan default
rate can render an institution ineligible for the Pell Grant program. This applies if an
institution is ineligible for the Federal Family Education Loan program or Direct
Loan program under HEA Title IV as a result of its loan default rate determined by
the Secretary of Education for FY1996 or subsequent fiscal years.
An eligible institution calculates a student’s Pell Grant award using the COA
and enrollment status it has determined for the student, and applying these values
with the student’s EFC to the Pell Grant payment schedules published annually by
ED. Pell Grants must be paid out in installments over the academic year. A student
receives a Pell Grant only for the payment period for which he or she is enrolled.
Generally, institutions credit a student’s account with the Pell payment to meet
14 The precise circumstances under which the tuition sensitivity amount may affect the Pell
Grant award are delineated in the subsequent discussion of potential reauthorization issues.
15 Much of the information in this section is based on the U.S. Department of Education’s
Student Financial Aid Handbook for 2003-2004, available on the web at [http://ifap.ed.gov/
IFAPWebApp/currentSFAHandbooksPag.jsp].

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unpaid tuition, fees, room, and board; any remaining Pell funds are paid directly to
the student to cover other living expenses.
Based on estimates of the funds an institution needs to cover initial Pell
payments, ED establishes an initial authorization of Pell Grant funding against which
an institution may request funds. This initial authorization level is adjusted as the
award year advances to reflect actual disbursements. Institutions can receive federal
payments for Pell awards in several different ways. For most schools, the advance
payment method
is used under which an institution receives federal funds prior to
making payments to students. Schools for which ED has concerns about their ability
to meet Title IV participation requirements may be required to use the reimbursement
payment method
under which the institution is paid back for funds it has disbursed
to students. In addition, the Pell Grant program pays participating institutions an
administrative cost allowance of $5 per enrolled Pell recipient.
Program Funding
The Pell Grant program is the federal government’s single largest source of
grant aid for postsecondary education students. This section reviews recent program
funding trends, exploring the difference between the annual appropriation for the
program and program costs, and the issue of annual shortfalls or surpluses in funding.
It also provides data on the appropriated maximum and authorized maximum Pell
Grants, as well as annual average awards. Pell funding appropriated for a particular
fiscal year is generally intended to support awards during an award year that begins
on the July 1 that falls in that fiscal year and ends the following June 30. For
example, FY2004 Pell appropriated funds are intended principally to support awards
made between July 1, 2004 and June 30, 2005. Further, Pell Grant appropriations are
available for obligation over a two-year period, e.g., the FY2004 appropriation is
available for obligation upon enactment of the FY2004 appropriations legislation and
can be obligated through September 30, 2005. As is discussed later in a separate
section on surpluses and shortfalls in the Pell Grant program, the annual Pell
appropriation has been used to meet prior year costs or carried over to meet future
costs.
Annual Appropriation and Program Costs
The table below provides the annual appropriation by fiscal year for the Pell
Grant program and the estimated annual costs of the program. Given the possible use
of a fiscal year’s appropriation for Pell Grants for multiple award years, or the
appropriation of funds specifically to meet shortfalls from prior years, it is not
surprising that the annual appropriated amount does not precisely equal the program
costs for any year. The question of annual surpluses or shortfalls has vexed the
program on many occasions. It is considered separately below. The estimates of
program costs for recent years are likely to change.

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Table 2. History of Pell Grant Appropriations and
Program Costs, FY1973-FY2005
(dollars in millions, rounded to nearest million)
Fiscal year
Appropriations
Estimated costs
1973
$122
$48
1974
$475
$358
1975
$840
$926
1976
$1,326
$1,475
1977
$1,904
$1,524
1978
$2,160
$1,541
1979
$2,431
$2,357
1980
$2,157
$2,387
1981
$2,604
$2,300
1982
$2,419
$2,421
1983
$2,419
$2,797
1984
$2,800
$3,053
1985
$3,862
$3,597
1986
$3,580
$3,460
1987
$4,187
$3,754
1988
$4,260
$4,476
1989
$4,484
$4,778
1990
$4,804
$4,935
1991
$5,376
$5,793
1992
$5,503
$6,176
1993
$6,462
$5,654
1994
$6,637
$5,519
1995
$6,147
$5,472
1996
$4,914
$5,780
1997
$5,919
$6,331
1998
$7,345
$7,233
1999
$7,704
$7,208
2000
$7,640
$7,956
2001
$8,756
$9,975
2002
$11,314
$11,642
2003
$11,365
$12,706
2004
$12,007
$13,033
2005
$12,365
$12,787
Sources: U.S. Department of Education, End of Year Report: 2002-2003 Title IV/Federal Pell Grant
Program
; U.S. Department of Education, Fiscal Year 2005 Justifications of Appropriation Estimates
to the Congress
, vol. II, p. N-25; U.S. Department of Education, Budget Service, Department of
Education Fiscal Year 2005 Congressional Action
, table dated Dec. 9, 2004.
Authorized Maximums and Appropriated Maximums
Although the authorizing statute sets the authorized maximum Pell award for
each year, this authorized maximum is overridden by the appropriations process
which sets the appropriated maximum award. This latter amount is the one applied
in awarding funds. In only three years of the existence of the program has the
authorized maximum equaled the appropriated maximum. In all other years, the
appropriated maximum has been less than the authorized maximum.

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Table 3. History of Authorized Maximum Grants, Appropriated
Maximum Grants, and Average Awards, FY1973-FY2005
Authorized
Appropriated
Estimated
Fiscal year
maximum grant
maximum grant
average award
1973
$1,400
$452
$270
1974
$1,400
$1,050
$628
1975
$1,400
$1,400
$761
1976
$1,400
$1,400
$759
1977
$1,800
$1,400
$758
1978
$1,800
$1,600
$814
1979
$1,800
$1,800
$929
1980
$1,800
$1,750
$882
1981
$1,900
$1,670
$849
1982
$2,100
$1,800
$959
1983
$2,300
$1,800
$1,014
1984
$2,500
$1,900
$1,111
1985
$2,600
$2,100
$1,279
1986
$2,600
$2,100
$1,301
1987
$2,300
$2,100
$1,303
1988
$2,500
$2,200
$1,399
1989
$2,700
$2,300
$1,438
1990
$2,900
$2,300
$1,449
1991
$3,100
$2,400
$1,530
1992
$3,100
$2,400
$1,543
1993
$3,700
$2,300
$1,506
1994
$3,900
$2,300
$1,502
1995
$4,100
$2,340
$1,515
1996
$4,300
$2,470
$1,577
1997
$4,500
$2,700
$1,696
1998
$4,500
$3,000
$1,876
1999
$4,500
$3,125
$1,915
2000
$4,800
$3,300
$2,040
2001
$5,100
$3,750
$2,298
2002
$5,400
$4,000
$2,436
2003
$5,800
$4,050
$2,472
2004
none specified
$4,050
$2,444
2005
none specified
$4,050
$2,409
Sources: U.S. Department of Education, End of Year Report: 2002-2003 Title IV/Federal Pell Grant
Program
; U.S. Department of Education, Budget Service, budget tables for various years.
The appropriated maximum award is often used as a gauge of the program’s
support for needy students because this is the amount that the neediest students (those
with zero EFCs) are likely to receive. During the annual appropriations process,
there is frequently a debate about setting the maximum award. The figure below
depicts the change over time in the size of the authorized maximum grant (none
specified for FY2004 or FY2005), appropriated maximum grant, and the average
award. During the mid to late 1990s, the gap between the authorized and
appropriated maximums was largest. Not unexpectedly, the average annual award
generally tracks changes in the appropriated maximum.

CRS-10
Figure 1. Authorized Maximum Grants, Appropriated Maximum
Grants, and Average Awards, FY1973-FY2005
$7,000
$6,000
Authorized
Maximum
$5,000
Grant
Appropriated
$4,000
Maximum
Grant
$3,000
Est Average
Award
$2,000
$1,000
$0
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
Sources: U.S. Department of Education, End of Year Report: 2002-2003 Title IV/Federal Pell Grant
Program
; U.S. Department of Education, Budget Service, budget tables for various years.
Surpluses and Shortfalls
The annual appropriations legislation for ED provides funding for the Pell Grant
program and sets the maximum Pell Grant to be awarded (the appropriated maximum
grant). These appropriated funds are available for two fiscal years. In general that
means that an annual appropriation is typically available for obligation on October
1 of the fiscal year in which the appropriation is made and remains available for
obligation through September 30 of the following fiscal year. For example, the
FY2004 appropriation became available for obligation with enactment of the FY2004
appropriations legislation (January 23, 2004) and can be obligated through September
30, 2005. The Pell Grant award year runs from July 1 of one year to June 30 of the
following calendar year (e.g., 2004-2005 award year begins July 1, 2004, and ends
June 30, 2005). As a result, the period of availability of the appropriated funds
overlaps multiple award years.
The annual appropriation level and maximum grant are determined well in
advance of the award year they are intended to support. The annual appropriation is
determined on the basis of estimates of the program costs that are likely to be
incurred at the chosen maximum grant. To the extent those estimates of future
program costs are inaccurate, the annual appropriation may be too much or too little.
In the event of a surplus, the authorizing statute provides ED with a limited carryover
authority.
What has been of most concern to federal policymakers recently are the
measures that can be taken to address a funding shortfall. The HEA requires the
Secretary of Education, when he or she has determined that the appropriated funds

CRS-11
are insufficient to satisfy all Pell entitlements,16 to notify each House of Congress of
the shortfall, identifying how much more is needed to meet those entitlements.
Prior to the Higher Education Amendments of 1992 (P.L. 102-325), the
Secretary of Education had statutory authority under the HEA to reduce awards to
respond to a shortfall in appropriated funds.17 Reductions were made in awards in
eight years using this authority (the last in 1990-1991). After this HEA authority was
repealed, appropriations legislation for FY1994-FY2001 continued to provide the
Secretary with reduction authority, but that authority was not used.18 The FY2002
and subsequent appropriations legislation have not included such language.
The Secretary can respond to a shortfall in Pell Grant funding by “borrowing”
from the next year’s appropriation. As noted earlier, the Pell Grant appropriation is
available for obligation for two fiscal years. This permits ED to use funds from two
fiscal years’ appropriations to meet one award year’s costs.
FY2001-FY2005Shortfall Experience. The experience to date of the Pell
Grant program with the FY2001-FY2005 appropriations offers the most recent
examples of responses to a Pell Grant shortfall (Table 4). The most recent ED
estimate is that the FY2005 shortfall for the program is over $4 billion. How that
program shortfall was reached is delineated in the table and text below.
Appropriations legislation for FY2001 set the maximum Pell Grant at $3,750
and appropriated $8.756 billion. In January 2001, ED was estimating that FY2001
program costs at that maximum grant level would be $9.115 billion, and that the
difference between the appropriation and program costs would be made up by $359
million in surplus funds from the prior year.19 As Table 4 shows, ED now
(December 2004) estimates that FY2001 program costs were $9.998 billion. In
addition, only an estimated $328 million was available in surplus funds. This left an
estimated $914 million shortfall for FY2001 in the Pell Grant program; ED covered
16 The authorizing statute speaks of entitlements when it describes the award determined for
a student based on the published award schedule.
17 Some form of authority to reduce awards was provided to the Secretary between the
inception of the program in 1972 and the 1992 amendments. Immediately prior to its repeal
in 1992, this provision permitted reduction in awards only within certain limits. No award
could be reduced for students whose EFC was $200 or less (i.e., the awards for the neediest
students would be protected). A schedule of reductions for other awards had to use a “single
linear reduction formula” that applied uniformly increasing percentage reductions as initial
entitlements decreased. No award could be made to a student whose initial award was
reduced to less than $100 under the reduction formula.
18 The appropriations legislation required the Secretary to reduce awards using fixed or
variable percentages, or using a fixed dollar reduction, if, prior to issuing the payment
schedules, he or she determined that appropriated funds could not fully fund the
appropriated maximum grant. A schedule of reduced grants would then be published.
19 U.S. Department of Education, Budget table identified as Department of Education Fiscal
Year 2001 Congressional Action
, dated Jan. 23, 2001. This table states that this program
cost estimate was prepared Dec. 2000.

CRS-12
that shortfall by borrowing from the FY2002 appropriation which became available
for obligation during the 2001-2002 award year.
The initial FY2002 appropriation for the program was $10.314 billion, intended
to fund a $4,000 maximum grant. In its FY2003 budget request, ED estimated that
FY2002 program costs would be $10.730 billion,20 well in excess of the appropriated
level and more than ED had estimated during the FY2002 appropriations process.
Given that ED was using FY2002 appropriated funds to cover the FY2001 shortfall,
the Department requested an FY2002 supplemental appropriation of $1.276 billion.
The Congress responded by increasing the available FY2002 appropriation by $1
billion. The more recent estimates for FY2002 from ED shown in Table 4
demonstrate how volatile program cost estimates have been during this period.
Currently, ED estimates that FY2002 program costs were $11.664 billion. Coupled
with a $1 billion supplemental appropriation enacted into law, the total FY2002
appropriated funds were $11.314 billion. Of this amount, an estimated $914 million
was used to cover the FY2001 shortfall, leaving the available funding $1.264 billion
below what was needed to cover the FY2002 estimated program costs.
In March, 2003, the Department estimated program costs for FY2003
(maximum Pell Grant of $4,050) at $11.67 billion. This estimate assumed $292
million in savings from anticipated enactment of legislation authorizing the Internal
Revenue Service to match aid applicant data with federal income tax returns — in the
absence of this legislation (which, to date, has not been enacted), total estimated
program costs were pegged at $11.962 billion. The more recent ED estimates show
FY2003 program costs of $12.687 billion. As the FY2002 and FY2003 cost
estimates rose, the FY2003 year shortfall rose (in part, because the shortfall from
FY2002 grew). In March, 2003, the FY2003 shortfall was estimated to be $1.538
billion (or $1.83 billion with the addition of the $292 million assumed to be saved
by the IRS match). As shown in Table 4 below, the estimated current year shortfall
for FY2003 is now $2.586 billion.
For FY2004, ED initially estimated that program costs would be $11.410 billion
(assuming, among other things, a $4,000 maximum grant and implementation of the
Internal Revenue Service match), and that the shortfall would be $549 million. This
estimate was prepared prior to enactment of the FY2003 appropriations legislation,
which raised the maximum Pell Grant to $4,050. As a result, the data shown for
FY2004 in the table below differ significantly from these early estimates.
ED attributes the current shortfalls to significant growth in the maximum
appropriated Pell Grant in recent years and “unexpected growth” in the number of
Pell applicants and recipients. According to ED, between the 1995-1996 and 2000-
2001 award years, the number of valid applicants grew by no more than 2.6% from
one year to the next. The increase from 2000-2001 to 2001-2002 was an estimated
8.6% and from 2001-2002 to 2002-2003, an estimated 8.9%. Much of this increase
is attributed to growth in the number of independent students applying for and
20 U.S. Department of Education, FY2003 Education Budget Summary, Appendix 2, detailed
budget table, dated Feb. 4, 2002.

CRS-13
receiving Pell Grants. ED estimated that these high rates of annual increase would
subside, beginning in 2003-2004, but still remain above historical levels.21
Table 4. FY2001-FY2005 Pell Grant Shortfalls
(in millions of dollars, except for appropriated maximum grant)
Estimated
Estimated
Surplus
Estimated
Appropriated
current
annual
FY
Appropriation from prior prior year
maximum
year
program
year used
shortfall
grant
shortfall
costs
2001
$8,756
$328

-$914
$9,998
$3,750
2002
$11,314*

-$914
-$1,264
$11,664
$4,000
2003
$11,365

-$1,264
-$2,586
$12,687
$4,050
2004
$12,007

-$2,586
-$3,613
$13,033
$4,050
2005
$12,365

-$3,613
-$4,035
$12,787
$4,050
Source: U.S. Department of Education, unpublished data.
* Includes $1 billion in FY2002 supplemental funding.
Characteristics of Recipients
The Pell Grant program reaches a sizeable portion of undergraduates each year.
In FY1999 (award year 1999-2000), 22.6% of all undergraduates were estimated to
have received Pell Grants.22 According to ED estimates, the annual number of Pell
Grant recipients rose markedly from the program’s inception with FY1973 funding.
As shown in Table 5 and Figure 2, the number of recipients grew steadily until
1992. There was a drop in recipients over the following three-year period, followed
by fluctuation in the number of recipients until growth resumed in FY2000. Early
estimates for FY2005 suggest a slight decline from FY2004. Given the substantial
growth in recipients since FY1999, the percentage of all undergraduates receiving
Pell Grants today is probably higher than was reported for FY1999.
21 U.S. Department of Education, Fiscal Year 2005 Justifications of Appropriation Estimates
to the Congress
, vol. 2, pp. N-24, N-25.
22 Unless noted, the data in this section describing the characteristics of Pell Grant recipients
are CRS estimates from the 1999-2000 National Postsecondary Student Aid Study (NPSAS)
administered by the U.S. Department of Education. This is a survey of a statistically
representative sample of undergraduate, graduate, and first professional students. For this
analysis, just the undergraduate data were analyzed. Unless noted, any direct comparisons
in the text
based on NPSAS data have been found to be statistically significant at the 95%
confidence level at least. That is, there is only a 5% or less probability that these differences
are due to chance.

CRS-14
Table 5. Estimated Annual Number of Pell Grant Recipients,
FY1973-FY2005
Fiscal year
Estimated number of Pell Grant recipients
1973
176,000
1974
567,000
1975
1,217,000
1976
1,944,000
1977
2,011,000
1978
1,893,000
1979
2,538,000
1980
2,708,000
1981
2,709,000
1982
2,523,000
1983
2,759,000
1984
2,747,000
1985
2,813,000
1986
2,660,000
1987
2,882,000
1988
3,198,000
1989
3,322,000
1990
3,405,000
1991
3,786,000
1992
4,002,000
1993
3,756,000
1994
3,675,000
1995
3,612,000
1996
3,666,000
1997
3,733,000
1998
3,855,000
1999
3,764,000
2000
3,899,000
2001
4,341,000
2002
4,779,000
2003
5,141,000
2004
5,333,000
2005
5,309,000
Sources: U.S. Department of Education, End of Year Report: 2002-2003 Title IV/Federal Pell Grant
Program
(for FY1973-FY2002); U.S. Department of Education, Budget Service, budget table entitled
Department of Education Fiscal Year 2005 President’s Budget, dated Feb. 2, 2004 (for FY2003);
U.S. Department of Education Budget Service, budget table entitled Department of Education Fiscal
Year 2005 Congressional Action
, dated Dec. 9, 2004 (for FY2004 and FY2005).

CRS-15
Figure 2. Estimated Annual Number of Pell Grant Recipients,
FY1973-FY2005
5,500,000
5,000,000
4,500,000
4,000,000
ts 3,500,000
ien
p
eci
3,000,000
f R
2,500,000
er o
b
m
u
N
2,000,000
1,500,000
1,000,000
500,000
0
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
Fiscal Year
Sources: U.S. Department of Education, End of Year Report: 2002-2003 Title IV/Federal Pell Grant
Program
(for FY1973-FY2002); U.S. Department of Education, Budget Service, budget table entitled
Department of Education Fiscal Year 2005 President’s Budget, dated Feb. 2, 2004 (for FY2003); U.S.
Department of Education Budget Service, budget table entitled Department of Education Fiscal Year
2005 Congressional Action
, dated Dec. 9, 2004 (for FY2004 and FY2005).
What are the characteristics of the students receiving Pell Grants? Three
characteristics are explored below — income, enrollment status, and type and control
of enrolling institution.
Income
There is no absolute income threshold that determines who is eligible or
who is ineligible for Pell Grants.23 Nevertheless, Pell Grant recipients are primarily
low-income. In FY1999 (award year 1999-2000), an estimated nearly 45% of
dependent Pell Grant recipients had total parental income below $20,000 and over
90% had total income of less than $40,000.24 Independent Pell Grant recipients’
income is generally lower than their dependent counterparts. Nearly half (47%) of
independent Pell Grant recipients had total income of less than $10,000; over 90%
23 As has been described, eligibility for a Pell Grant depends to a great extent on the EFC
calculated for a student and his or her family. The EFC can be affected by a host of factors
other than a family’s income. This includes, among other factors, family size, number in
college, the student’s dependency status, and assets.
24 Total income for dependent students is the total income of their parents. This includes
most taxable and untaxed income. For independent students, total income is the taxable and
untaxed income for the students and their spouses, if any.

CRS-16
had total income below $30,000.25 The distribution of Pell dollars follows the
distribution of recipients closely. That is, over 90% of Pell Grant aid to dependent
students is received by those with incomes of less than $40,000, and over 90% of Pell
dollars awarded to independent students goes to those with incomes of less than
$30,000.
Given the focus of the program on needy students, it is not surprising that much
higher percentages of low income undergraduates receive Pell Grants. This might be
considered a Pell participation rate. Table 6 shows the percentage of dependent and
independent undergraduates from different income levels who were Pell recipients
in FY1999. Two participation rates are provided for each income level; one
measuring the percentage of all undergraduate students (of the relevant dependency
status) who were Pell recipients and the other providing the percentage of
undergraduate aid applicants (of the relevant dependency status) who received Pells.
Focusing on the lowest income categories,26 it is estimated that approximately
68.9% of all dependent undergraduates from families with total income of less than
$10,000 were Pell recipients, and 87.0% of the aid applicants from that income
category were Pell recipients. About 60.6% of all independent undergraduates with
total income of less than $5,000 were Pell recipients, and about 81.8% of the aid
applicants in that category received Pells. Table 6 shows that, in general, as income
rose, participation rates in the Pell program dropped for dependent and independent
students.
25 Data from the federal Pell Grant program office for a more recent year (FY2001 — award
year 2001-2002) paint a similar picture of the distribution of recipients. See U.S.
Department of Education, End of Year Report: 2001-2002 Title IV/Federal Pell Grant
Program
. To be consistent and unless noted, NPSAS data are used in the body of the report
at this juncture to describe the income distribution because the subsequent analysis of the
characteristics of Pell recipients can only be based on the NPSAS data.
26 In the rest of this analysis, references to individuals from the lowest income categories are
to dependent students with total income of less than $10,000 (about 5% of dependent
undergraduates) and independent students with total income of less than $5,000 (about 10%
of independent undergraduates).

CRS-17
Table 6. Estimated Pell Grant Participation by Income,
1999-2000
Dependent undergraduates
Estimated percentage receiving Pell grants
Total income
All students
Federal aid applicants
Less than $10,000
68.9%
87.0%
$10,000-$19,999
63.0%
81.5%
$20,000-$29,999
54.2%
75.6%
$30,000-$39,999
31.4%
50.7%
$40,000-$49,999
12.4%
22.5%
$50,000-$59,999
3.2%
5.8%
$60,000-$69,999
1.4%
2.6%
$70,000 or more
0%
0%
Independent undergraduates
Estimated percentage receiving Pell grants
Total income
All students
Federal aid applicants
Less than $5,000
60.6%
81.8%
$5,000-$9,999
61.6%
83.1%
$10,000-$19,999
38.2%
61.1%
$20,000-$29,999
24.6%
55.2%
$30,000-$49,999
11.4%
43.4%
$50,000 or more
0%
0%
Source: CRS estimates from 1999-2000 NPSAS.
Given the intended purpose of the Pell Grant program to provide low-income
students with the foundation of their aid, it is noteworthy that a substantial portion
of very low income undergraduates did not receive a Pell Grant. Apparently, a large
percentage of these very low income students did not apply for federal financial aid.27
The percentage of dependent undergraduates from the lowest income category who
received a Pell Grant increased markedly if aid application is taken into account,
rising from 68.9% to 87.0%. A similar increase in participation characterized the
lowest income independent undergraduates when aid application is considered —
from 60.6% to 81.8%. Nevertheless, even among aid application filers, a relatively
significant portion of the lowest income students did not receive Pell Grants.
It is possible that many of these lowest income students who did not apply for
aid may have believed they were not financially eligible for aid, or they may have had
27 It should be noted that the ability to speak with confidence about the income levels of
students who did not file the FAFSA is adversely affected by certain data quality issues. For
non-aid filers, income information comes from surveys of students and from imputation.
According to the NPSAS code book in the Data Analysis System, these income data are
“much less reliable” than those from aid filers.

CRS-18
sufficient resources to meet their costs.28 At least some of those who believed they
were ineligible for aid may have actually been eligible.29 Among other possible
explanations is that very low-income students in particular find the federal financial
aid application process too complex to pursue or that such students are more likely
not to know that aid is available.
For those lowest income students who took the step of applying for aid but did
not receive a Pell, a variety of factors may be at work. In particular, a sizeable
percentage of the non-Pell receivers among the lowest income students had EFCs that
disqualified them for Pell Grants.30 This was true for 23.5% of the dependent lowest
income aid filers without a Pell and 12.9% of the independent lowest income aid
filers who were non-Pell recipients.31
Enrollment Status
Pell recipients, regardless of dependency status, are more likely to be full-time
students than are undergraduates as a whole and less likely to be enrolled on less-
than-half-time basis. Table 7 shows the distribution of dependent and independent
undergraduates in general and Pell recipients in particular by enrollment status.
28 An analysis of 1995-1996 NPSAS data found these to be the two primary reasons offered
by low-income students who did not file for federal financial aid. (U.S. Department of
Education, Low-Income Students: Who They Are and How They Pay for Their Education,
NCES 2000-169, Mar. 2000.)
29 Ibid., p. 22. It is stated, “In some cases, the belief that their family income was too high
for them to qualify for aid may simply have been erroneous.”
30 For the 1999-2000 award year, the maximum Pell Grant was $3,125. Under the applicable
award rules, students with EFCs greater than $2,925 were ineligible for a Pell Grant.
31 The earlier description of the eligibility requirements for Pell Grants identified numerous
other factors that might account for some of these students failing to receive Pell Grants.
Among those that preclude eligibility are being enrolled in a program not leading to a
degree or certificate, failing to meet satisfactory progress while enrolled in postsecondary
education, and being in default on a federal student loan.

CRS-19
Table 7. Estimated Distribution of Undergraduates and
Pell Grant Recipients by Enrollment Status, 1999-2000
Dependent undergraduates
Enrollment status
All students
Pell recipients
Full-time
66.9%
78.0%
Half-time
10.1%
6.5%
Less-than-half-time
6.3%
1.7%
Mixed (status changed
16.7%
13.9%
during enrollment period)
Total
100.0%
100.0%
Independent undergraduates
Enrollment status
All students
Pell recipients
Full-time
32.2%
59.8%
Half-time
22.4%
17.6%
Less-than-half-time
29.6%
4.3%
Mixed (status changed
15.8%
18.4%
during enrollment period)
Total
100.0%
100.0%
Source: CRS estimates from 1999-2000 NPSAS. Due to rounding, sum of column entries may not
equal column totals.
Type and Control
Compared to all undergraduates, Pell Grant recipients are less likely to be
enrolled in public two-year institutions and more likely to be enrolled in proprietary
institutions. Table 8 below shows the distribution of dependent and independent
undergraduates and Pell Grant recipients by the type and control of the institutions
they attended.

CRS-20
Table 8. Estimated Distribution of Undergraduates and Pell
Grant Recipients by Type and Control of Enrolling Institution,
1999-2000
Dependent
Dependent Pell
Type and control
undergraduates
recipients
Public 4-year
39.8%
39.9%
Private 4-year
18.1%
19.9%
Public 2-year
31.1%
24.7%
Proprietary
2.7%
5.9%
More than one institution
8.3%
9.6%
during enrollment period
Total
100.0%
100.0%
Independent
Independent Pell
Type and control
undergraduates
recipients
Public 4-year
23.1%
28.0%
Private 4-year
10.1%
11.0%
Public 2-year
52.8%
36.5%
Proprietary
7.0%
15.1%
More than one institution
7.0%
9.4%
during enrollment period
Total
100.0%
100.0%
Source: CRS estimates from 1999-2000 NPSAS. Due to rounding, sum of column entries may not
equal column totals.
Role of the Pell Grant
The Pell Grant is intended to function as the foundation aid for needy
undergraduates; all other federal need-based aid is to build on the Pell Grant. As
described earlier, other financial aid received by a student is not taken into account
in determining a student’s Pell Grant. How well does the Pell Grant currently
function as the foundation aid? This section explores this question by analyzing the
purchasing power of the Pell Grant and the distribution of other federal aid to Pell
recipients.
Purchasing Power
The appropriated maximum Pell Grant, available to students with zero EFCs,
is often used as a gauge of the Pell Grant program’s level of support in each year. In
FY2001, the appropriated maximum grant ($3,750) covered 73% of the average
tuition, fees, room, and board at public two-year institutions, 41% at public four-year
institutions, and 16% at private four-year institutions. Figure 3 below compares the
appropriated maximum grant to average undergraduate tuition, fees, room, and board
charges at public two-year, public four-year, and private four-year institutions

CRS-21
between FY1973 and FY2001.32 It is evident that the maximum was at its peak
relative to these average charges during the 1970s.
Figure 3. Percentage of Tuition, Fees, Room, and Board Covered by
the Appropriated Maximum Pell Grant, FY1973-FY2001
110.0%
100.0%
90.0%
80.0%
Public 2-Year
70.0%
60.0%
Public 4-year
50.0%
40.0%
Private 4-year
30.0%
Cost of
20.0%
Attendance %
Cap
10.0%
0.0%
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
Source: U.S. Department of Education, Digest of Education Statistics 2002, Table 312; The College
Board, Trends in Student Aid 2003, Table 7.
Importantly, the purchasing power of the Pell Grant through FY1992 (1992-
1993 award year) was constrained by a statutory cap on the percentage of COA that
a Pell Grant could cover, depicted as black dots in Figure 3. From FY1973 to
FY1984, the cap was 50%; from FY1985 to FY1992, the cap was 60%. After that
time there has been no absolute limit on the percentage of COA that can be covered.33
32 The data used for Figure 3 are average undergraduate tuition and fees paid by full-time
equivalent students. The room and board amounts are full-time charges. The average full
cost of attendance for federal need analysis purposes would be higher than these so-called
fixed charges, including additional expenses for such things as books and transportation.
The inclusion of full-time room and board in Figure 3 may be somewhat problematic
particularly at the community-college level because these charges are not adjusted for part-
time enrollment and may not reflect the actual costs faced by students living off campus.
But, as noted later in this section, the overall conclusions regarding Pell Grant purchasing
power apply regardless of the charges used. The source of these data is the U.S. Department
of Education’s Digest of Education Statistics 2002, Table 312. Prices for public and private
four-year institutions for academic years 1973-1974, 1974-1975, and 1975-1976 are not
available from ED. For this figure, they were estimated based on the annual rates of change
in prices for “other” public or private 4-year institutions (these institutions do not include
public or private universities) for which ED did have data. Private two-year institutions are
not considered because they account for very few students.
33 In place of the absolute cap on the percentage of COA that the Pell Grant could cover, the
(continued...)

CRS-22
Still, it must be stressed that it is not clear what impact the COA cap would have had
on the coverage data presented in this figure. First, the expenses covered in the
figure are averages, meaning that students actually faced charges that ranged above
and below the levels shown. Second, charges for tuition, fees, room, and board do
not constitute the full costs that make up COA. As a result, annual percentages of
average COA covered by the appropriated maximum Pell Grant would have been
lower than the percentages delineated in this figure.34
Nevertheless, even if one assumes that the percentage of coverage by the
maximum Pell Grant of tuition, fees, room, and board would have been limited to the
50% or 60% caps, these caps would have had no impact on the coverage of average
public and private four-year expenses shown here from FY1985 onward. As a result,
it is evident that from the mid 1980s through the early 1990s, the appropriated
maximum Pell Grant lost ground relative to average tuition, fees, room, and board
at public and private four-year institutions. Despite recent increases in coverage, the
FY2001 percentages remain below the FY1985 percentages (54% for public four-
year colleges and 23% for private four-year colleges). Indeed, for private four-year
institutions, the peak purchasing power which occurred in the mid to late 1970s
(when the percentage of these average costs covered at those institutions was well in
excess of 30%) would not have been affected by the COA caps since average charges
in that sector were always below the caps.
The erosion depicted in Figure 3 is found when other comparisons are made.
For example, the trend lines are very similar if the annual average Pell Grant is
compared to average tuition, fees, room, and board, or if either the appropriated
maximum or average grant is compared to just tuition and fees.35
Pell Grant Recipients and Other Federal Aid
One measure of the role that the Pell Grant plays as the foundation award is the
extent to which undergraduates who received federal need-based student aid from the
HEA36 were Pell recipients. Data from FY1999 suggest that Pell Grants alone may
not have constituted the primary foundation for these students. In FY1999, although
nearly two-thirds of federal need-based aid recipients received Pell Grants, a
comparable portion of need-based aid recipients borrowed Stafford Subsidized
Loans.37
33 (...continued)
HEA now provides the tuition sensitivity amount. This was described earlier and is
considered in greater detail in the concluding section of reauthorization issues.
34 Data for the average COA from a consistent source over this time period are not available.
35 The percentage of costs covered varies significantly depending upon which Pell measure
is used (the appropriated maximum or average) or which set of prices is used (tuition, fees,
room, and board, or just tuition and fees).
36 Pell Grants, Federal Supplemental Educational Opportunity Grants, Federal Perkins
Loans, Federal Work-Study earnings, and Stafford Subsidized Loans.
37 Further, about one-third of federal need-based aid recipients secured Stafford
(continued...)

CRS-23
These data certainly raise questions about the foundation role intended for the
Pell Grant program. The extent to which need-based aid recipients borrowed
Stafford Loans, whether subsidized or unsubsidized, is troubling to policymakers and
analysts who believe that borrowing imposes a burden on low-income families that
may adversely affect students’ enrollment patterns.38
Does the experience of the lowest income federal need-based aid recipients
differ from the pattern for the total cohort of need-based aid recipients? To some
degree, it does. For dependent undergraduates who received federal need-based aid
and who had total income of less than $10,000, the Pell Grant was clearly their
foundation. Over 95.8% of them received Pell Grants. Stafford Subsidized Loans
played a somewhat less prominent role for this subgroup of need-based aid
recipients; 44.3% of them borrowed from this program. The pattern was similar for
the independent need-based aid recipients from the lowest income level (less than
$5,000 in total income) — 94.6% received Pell Grants, 56.2% borrowed Stafford
Subsidized Loans. Still, the extent to which even these very low income
undergraduates borrowed may offer little reassurance to those already concerned
about reliance on borrowing.
Another approach to delineating the role of Pell Grants is to explore the extent
to which Pell recipients, as a group, relied solely in FY1999 on the grant to meet
college charges without having to secure other federal aid, particularly loans with
their repayment obligation. In FY1999, for just 15.8% of Pell recipients was that
grant their only source of aid. As shown in Table 9, Pell Grant recipients
participated in other federal student aid programs, sometimes at a high rate. Among
the federal need-based student aid, Pell recipients were most likely to also be
borrowing Stafford Subsidized Loans (over 52% of Pell recipients received these
loans — average amount of $3,260).
37 (...continued)
Unsubsidized Loans.
38 See, for example, Advisory Committee on Student Financial Assistance, Empty Promises:
The Myth of College Access in America
, June 2002, pp. 11-13.

CRS-24
Table 9. Pell Grant Recipients’ Participation Rates and
Average Awards in Other Aid Programs, FY1999
Percentage of Pell
Average amount of aid
recipients who also
awarded under this
received aid under this
program to participating
Program
program
Pell recipient
Federal Supplemental
Educational Opportunity
24.8%
$670
Grants
Federal Work-Study
10.3%
$1,550
Stafford Subsidized Loans
52.1%
$3,260
Stafford Unsubsidized
23.2%
$2,970
Loans
Federal Perkins Loans
8.7%
$1,720
All Non-Federal Grants
54.6%
$2,810
All Non-Federal Loans
4.9%
$3,990
Source: CRS estimates from 1999-2000 NPSAS.
The overall price of education has an impact on the extent to which Pell
recipients secure Stafford Loans. For Pell recipients attending public two-year
institutions, where the average cost of attendance is lower than at public four-year
institutions and, particularly, at private four-year institutions, the propensity for
borrowing was much less than for Pell recipients as a whole. For FY1999, 21.2% of
Pell recipients at public two-year institutions borrowed Stafford Subsidized Loans,
and 8.0% borrowed Stafford Unsubsidized Loans.
Possible Reauthorization Issues
This section provides brief overviews of several issues that may be considered
by the Congress as it deliberates on the Pell Grant program. There is an overarching
question which, to some extent, links the first three specific issues described below.
As was delineated earlier, there may be some question about whether the Pell Grant
is playing the foundation role intended for it, particularly for the neediest students.
Steps to increase the targeting of Pell Grant assistance to such students may be
debated by the Congress during this reauthorization process and are part of the initial
issues discussed below.
At various points in the analysis below, FY2003 cost estimates of changes to the
program are presented and compared to an estimate of the FY2003 cost under current
law at a $4,050 maximum appropriated grant. These estimates were made using the
Pell Grant estimation model of the U.S. Department of Education’s Budget Service.39
39 The ED Budget Service model’s version U2004 was utilized for the present analysis,
using the Office of Management and Budget’s Mid-Session Review economic assumptions
(continued...)

CRS-25
Entitlement
The Pell Grant program is subject to annual appropriations. As delineated
earlier, the authorized maximum award has usually been higher than the maximum
set in the appropriations process; the last time they both were the same was for
FY1979. Further, given the difficulty in estimating program costs, the annual
appropriation has in several years been significantly less than what was needed to
meet those costs, causing shortfalls and leading to reductions in grants, borrowing
from subsequent years’ appropriations, or supplemental appropriations. As a result,
in many years, there may be uncertainty among students, their families, and higher
education institutions about the level of support the program will provide. One
response to these circumstances has been the proposal that the Pell Grant program
be made into an entitlement. As a consequence, its funding would be mandatory.
This would preclude shortfalls, support a maximum Pell Grant at the level set in the
authorizing legislation, and reduce annual uncertainty about the program. Advocates
of this step may also stress that funding higher maximum Pell Grants would direct
greater funding to the neediest students.
Congress has wrestled with this issue in the past. Indeed, during legislative
action on the Higher Education Amendments of 1992, the House and Senate
education committees approved versions of a reauthorized HEA that would have
made the program an entitlement. These provisions were not enacted.
Concerns about the consequences of making the Pell Grant an entitlement have
centered on several issues. Questions are raised about the cost of doing so. For
example, if the authorized maximum Pell Grant for FY2003 of $5,800 were to be
funded, total program costs are likely to be about $19.7 billion, over a 55% increase
in the estimated cost of the program.
Front Loading
Increasing the amount of Pell Grant assistance targeted to students in their initial
year or years of enrollment is known as “front loading.” This strategy has been
proposed for many reasons, including the following: to increase the purchasing
power of the Pell Grant for low-income students; to increase low-income access to
postsecondary education and, potentially, to increase their persistence; and to reduce
borrowing by low-income students in their initial years and, thereby, possibly limit
loan defaults by such students if they leave postsecondary education without
completing their programs of study.
39 (...continued)
(2003). CRS does not make official congressional cost estimates of federal programs or
legislative proposals; that is the responsibility of the Congressional Budget Office.
Estimates of costs and the number and characteristics of recipients included in this report
are intended to suggest the relative magnitude and nature of the impact of changes in the
Pell Grant program.

CRS-26
Various front loading variations are possible. Among those that have been
proposed are limiting Pell Grants to students in their first two years;40 or directing
new Pell Grant funding to the initial year of enrollment, thereby boosting the size of
the grant in that year while maintaining somewhat smaller grants for later years.41
If, for example, only first and second year students were permitted to receive
Pell Grants, the estimated program costs for FY2003 (award year 2003-2004) with
all other provisions unchanged (e.g., $4,050 maximum grant) would be $8.9 billion,
some $3.7 billion less than the current estimates for FY2003 costs under current law.
If that $3.7 billion were applied to raising the maximum grant for students in their
first two years of undergraduate education, the maximum Pell Grant could be raised
to an estimated level of somewhat more than $5,350, an increase of $1,300 over the
current maximum.
Proposals to front load Pell Grants generate significant controversy. Depending
upon the variant proposed, among the issues raised are whether the program would
function as a form of “bait and switch” with students enrolling with grant assistance
but being required to shift to significant borrowing in later years and, perhaps,
dropping out at that stage; whether front loading would unduly influence students to
enroll in community colleges where significant portions of expenses would be
covered with grants; and whether front loading would be administratively difficult,
involving such questions as determining precisely which students should be
considered to be first-year or second-year students.
Minimum Grant
There has been long standing interest in ensuring that the Pell Grant program
serves needy students and in maximizing the grant that can be awarded to those
students. This interest is often heightened by efforts to expand eligibility for the
program because as additional, presumably higher income, students are drawn into
the program, raising the appropriated maximum grant (which would focus greater
amounts of funding on the neediest students) becomes more costly (a higher
maximum generally means somewhat more aid for all students eligible for
assistance). Further, with the recent growth in federal support for middle-income
40 See, for example, Thomas J. Kane, “Reforming Public Subsidies for Higher Education,”
Financing College Tuition: Government Policies & Educational Priorities, 1999.
41 Reportedly, this variation of front loading was being considered by the Bush
Administration in 2001. See Stephen Burd, “Bush’s Plan for Pell Grants Divides 2-Year and
4-Year Colleges,” Chronicle of Higher Education, Feb. 16, 2001.

CRS-27
students through the federal income tax system,42 concern has been raised about the
continued federal commitment to aid for low-income students.43
Among the changes to the Pell Grant program that might be considered in any
effort to target the grants more fully on low-income students and, if possible, increase
the size of their grants,44 is raising the minimum grant.
As has been described, under current law, the minimum Pell Grant annual award
for any recipient is $400. Any applicant eligible for a Pell Grant of at least $200 but
less than $400 is awarded the $400 minimum (this retention of grantees eligible for
between $200 and $399 and the boost in their grants to $400 is identified in this
discussion as the minimum grant “bump”).
Overall, any increase in the minimum Pell Grant will reduce the number of
recipients and program costs. The impact may actually be more significant with
regard to recipients than to program costs. Based on the estimated consequences for
program costs and recipients shown in Table 10, it appears that, without a very large
increase in the minimum Pell Grant, what is gained financially by a greater targeting
on low-income Pell recipients may not be enough to support a substantial increase
in the appropriated maximum Pell Grant for remaining eligible students.
Table 10 shows estimates for the impact of three different increases in the minimum
Pell Grant for award year 2003-2004 — $400 (a “true” $400 minimum without the $200
bump), $600, and $800. For all of these estimates, the maximum appropriated Pell Grant
was fixed at $4,050, the level that applies to award year 2003-2004.
Table 10. Estimated Impact of Increasing the
Minimum Pell Grant for Award Year 2003-2004
Estimated decrease in
Estimated decrease in program
Minimum
recipients from current law
costs from current law
$400
77,000 (1.5% decrease)
$26.2 million (0.2% decrease)
(no bump)
$600
155,000 (3.0% decrease)
$59.3 million (0.5% decrease)
$800
245,000 (4.8% decrease)
$111.6 million (0.9% decrease)
Source: Cost estimates based on ED’s Budget Service Pell Grant model.
42 CRS Report RL31484, Higher Education Tax Credits: Targeting, Value, and Interaction
with Other Federal Student Aid
, by Adam Stoll and James B. Stedman; and CRS Report
RL31129, Higher Education Tax Credits and Deduction: An Overview of the Benefits and
Their Relationship to Traditional Student Aid
, by Adam Stoll, James B. Stedman, and Linda
Levine.
43 See, for example, Thomas R. Wolanin, Rhetoric and Reality: Effects and Consequences
of the HOPE Scholarship
, The Institute for Higher Education Policy, Apr. 2001.
44 Various options for achieving such changes were proposed prior to the last reauthorization
of the HEA. See, for example “Rethinking the Allocation of Pell Grants,” by David W.
Breneman and Fred J. Galloway, in Financing Postsecondary Education: The Federal Role,
Oct. 1995. Available on the web at [http://www.ed.gov/offices/OPE/PPI/FinPostSecEd/
breneman.html].

CRS-28
These selected increases in the minimum annual Pell Grant have a greater
impact in percentage terms on the number of recipients than on the total costs of the
program. This general pattern is not surprising. An increase in the Pell Grant
minimum affects those recipients with the smallest grants — only those recipients
whose current Pell Grant falls below the new minimum lose eligibility, while those
with larger grants are unaffected. Thus, for example, establishing a true $400
minimum (no bump) decreases program costs by at most $400 per recipient losing
eligibility.45 Raising the minimum grant by more substantial amounts will lead to
proportionately greater reductions in program costs, although more recipients will be
affected and will lose larger grants.
Tuition Sensitivity
From its inception, the Pell Grant program has included provisions that could,
under some circumstances, affect the size of a student’s Pell Grant because of the
tuition charges or COA at his or her institution. In practice, these provisions have
worked to reduce the Pell Grant for students attending lower priced institutions.
From 1972 until enactment of the Higher Education Amendments of 1992, the
program capped the Pell Grant by providing that it could not exceed a specified
percentage of a student’s COA. Such provisions were initially adopted because the
Members of Congress instrumental in designing the program had agreed that there
should not be a “free ride” for students, and that the program should not favor lower
priced public institutions over higher priced private ones as an uncapped grant was
believed to do.46 The program’s current tuition sensitivity rule (described earlier)
was adopted by the Higher Education Amendments of 1992, replacing a cap of 60%
of COA.
The decision in 1992 to eliminate the cap and institute the tuition sensitivity
provision appears to have been prompted by testimony that the cap served to reduce
grants to students attending low-priced institutions, particularly community colleges,
and resulted in the “neediest” students having to borrow to meet expenses at even the
lowest priced institutions.47 The tuition sensitivity rule was intended to protect a base
amount of the Pell Grant maximum award and make a portion of increases above that
base sensitive to tuition.
45 Under a no-bump $400 minimum, the actual decrease from current law may be less than
$400 for some current recipients losing eligibility. This may arise, in part, because Pell
Grants must be paid out to recipients in installments over the academic year. As a
consequence, a change in enrollment status may lead to receipt of total Pell Grant funding
of less than $400. For example, a student enrolled full-time for the fall semester and eligible
for the minimum award of $400, could receive an initial payment of $200 for the first
semester. If he or she did not enroll for the second semester, the second payment is not
made and the total Pell aid received would be $200.
46 Lawrence E. Gladieux, and Thomas R. Wolanin, Congress and the Colleges: The
National Politics of Higher Education
, 1976, p. 102.
47 U.S. Senate Committee on Labor and Human Resources, Reauthorizing the Higher
Education Act of 1965
, Committee Report 102-204 to accompany S. 1150, Nov. 12, 1991.
p. 23.

CRS-29
During the process of reauthorizing the HEA, the Congress may well debate the
fate of the tuition sensitivity rule. At issue would be the impact of the current rule,
and the consequences of eliminating it or modifying it. Ultimately, the overarching
issue is whether and how the size of the Pell Grant should be linked to the charges
faced by students.
As implemented by ED, tuition sensitivity reduces the Pell Grant received by
a small number of the poorest students attending institutions with very low tuition
charges. For FY2003 and FY2004, the only students whose Pell Grant may possibly
be reduced under tuition sensitivity are those students whose tuition charges (and any
allowances for dependent care or disability related expenses) are less than $675;
whose EFCs are 700 or less; and whose total COA is $3,400 or higher.48
The impact of the tuition sensitivity rule in FY2003 may be felt by an estimated
97,600 students whose Pell Grants are estimated to be reduced by an aggregate
amount of slightly more than $19.9 million. The estimated average loss in Pell
assistance for affected students may be about $204.
Clearly, there are myriad possible permutations on tuition sensitivity that the
Congress may consider, not just whether to continue or eliminate the current rule.
For example, the impact of the current rule could be lessened or eliminated by raising
the award level which may trigger the rule (currently $2,700) to be closer to present
maximum award levels or in excess of those levels. The portion of the maximum
award above the trigger level that is compared to tuition might be adjusted by tying
a larger portion to tuition (making the grant more tuition sensitive) or a smaller
portion to tuition (making the grant less tuition sensitive). Concern about the
provision affecting the lowest income Pell recipients could be allayed by protecting
certain students from the impact of the provision, such as those with a zero EFC.
Elimination of tuition sensitivity has been advocated by those who argue that
the affected students are those most likely to be adversely influenced by any
reduction of their federal grant aid; that, as the appropriated maximum award level
increases, the provision’s reach will go well beyond California community colleges
where it is believed the impact is only being felt currently; that COA is so large at
even institutions with the lowest tuition charges that elimination of the rule will not
favor one sector over another; and that the savings being generated by its application
are minimal. Some also might contend that significantly strengthening the linkage
to tuition could increase the incentive for schools with low tuition to raise those
tuition levels.
Efforts are also likely to be made to retain or modify the current rule.
Arguments favoring retaining some degree of sensitivity in the size of the Pell Grant
48 This last condition reflects that, under the three-pronged test for determining the Pell
Grant (a student’s Pell is the least of appropriated maximum Pell minus EFC, COA minus
EFC, or tuition sensitivity), the grant may be determined by COA minus EFC. These
conditions are delineated in the 2003-2004 Pell Grant payment and disbursement tables,
which are available on the web at [http://www.ifap.ed.gov/dpcletters/attachments/
P0301A.pdf].

CRS-30
to students’ charges generally focus on the prospect that such provisions can help to
support choice by low-income students among higher- and lower-priced institutions.
Further, price sensitivity in the grant may keep the grant from steering the lowest
income students to the lowest priced institutions. Finally, advocates may posit that
under some forms of tuition sensitivity financial resources will be freed up to enable
increases in the appropriated maximum award without increases in the appropriation.
Academic Merit
The Pell Grant program does not currently have any eligibility requirement
based on academic merit. In a period of increasing federal interest in improving
student outcomes at all levels of education and holding recipients of federal funds
accountable for academic improvement, the Congress may consider merit-based
proposals for the Pell Grant program during the HEA reauthorization.
At present, students have to maintain satisfactory progress in order to continue
to receive a Pell Grant. Satisfactory progress is defined by participating institutions
and is often viewed as a minimal academic standard. Proposals to strengthen the
academic standards supported by the program or introduce academic merit to the
program may take the form of raising the academic performance requirements that
students must meet in order to receive a Pell Grant after the initial year of eligibility;
providing additional Pell Grant assistance to students who demonstrate high levels
of academic performance; precluding the use of Pell Grant funding to support any
form of remedial education;49 or limiting the number of years in which Pell Grant
assistance can be received to accelerate program completion.
Issues raised by such proposals include concern about their disproportionate
impact on needy students who must rely on the Pell Grant to meet college costs. As
a consequence, attention may be directed to the relationship between Pell-linked
academic accountability, if any, and other accountability provisions that the Congress
might consider for the HEA and the higher education community in general. Further,
if the current program is retained but new funding is directed to needy students
meeting academic merit requirements, concerns may be raised about the impact on
funding for the basic Pell Grant.50

49 Currently, a student may receive federal financial assistance for up to a year’s worth of
remedial education. A student cannot receive aid if he or she is enrolled in a program
composed solely of remedial work, or if the remedial course work is required for admission
to an eligible program.
50 The Congress has chosen not to fund the Academic Achievement Incentive Scholarships,
authorized by the Higher Education Amendments of 1998, which would have doubled the
amount of Pell assistance provided to eligible incoming higher education students who
graduated in the top 10% of their high school class.