Federal Pell Grant Program of the Higher Education Act: Background, Recent Changes, and Current Legislative Issues

. Federal Pell Grant Program of the Higher Education Act: Background, Recent Changes, and Current Legislative Issues Shannon M. Mahan Specialist in Education Policy August 4, 2011 Congressional Research Service 7-5700 www.crs.gov R41437 CRS Report for Congress Prepared for Members and Committees of Congress c11173008 . Federal Pell Grant Program of the Higher Education Act Summary The Federal Pell Grant program, authorized by Title IV of the Higher Education Act of 1965, as amended (HEA; P.L. 89-329), is the single largest source of federal grant aid supporting postsecondary education students. The program is estimated to have provided over $36.5 billion to approximately 8.9 million undergraduate students in FY2010. For FY2011, the total maximum Pell Grant was funded at $5,550. The program is funded primarily through annual appropriations, although mandatory appropriations play a smaller, yet increasing, role in the program. Pell Grants are need-based aid that is intended to be the foundation for all federal student aid awarded to undergraduates. There is no absolute income threshold that determines who is eligible or ineligible for Pell Grants. Nevertheless, Pell Grant recipients are primarily low-income. In FY2009, an estimated 76% of all Pell Grant recipients had a total family income at or below $30,000. The Pell Grant program has garnered considerable attention over the past several years in Congress. Most recently, the Budget Control Act of 2011 (BCA; P.L. 112-25) provided a combined total of $17 billion in additional mandatory funds for the program in FY2012 and FY2013. In April 2011, the Department of Defense Full-Year Continuing Appropriations Act of 2011 (P.L. 112-10) provided $23 billion in discretionary appropriations for the program to effectively maintain a $5,550 total maximum award in the upcoming award year (AY) 2011-2012. In addition, P.L. 112-10 also amended the HEA by eliminating a provision that allowed for a student to receive two Pell Grant awards in the same award year. The estimated savings in mandatory spending related to the elimination of this provision were redirected for future general use in the program as specified annual mandatory appropriations beginning in FY2012 and continuing in all subsequent years. In March 2010, the SAFRA Act, passed as part of the Health Care and Education Reconciliation Act of 2010 (HCERA; P.L. 111-152), established indefinite mandatory appropriations beginning in FY2010 to provide for increases to the maximum award amount funded with annual discretionary appropriations. The program also received substantial discretionary and mandatory supplemental funding through the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5). The statutory authority for the Pell Grant program was most recently reauthorized by the Higher Education Opportunity Act of 2008 (HEOA; P.L. 110-315). The Pell Grant program recently experienced substantial increases in program costs—largely due to legislative changes that have led to increased benefits for more students, increases in the number of students enrolling in college and applying for Pell Grant aid, and a weakened economy. Consequently, these factors contributed to annual funding shortfalls in four of the last five years from FY2007 to FY2011. Many of the issues concerning the Pell Grant program that confront Congress include potential challenges associated with funding the program, both in the short term and the long term. Additional mandatory funding provided in the BCA may alleviate the need for additional substantial discretionary appropriations in FY2012 and FY2013, although additional funding may still be required in order to maintain the current eligibility parameters of the program in FY2012. As a long-term strategy, Congress could consider ways to change the distribution of overall benefits by targeting aid to the most needy students or by revising the program’s award rules and eligibility parameters. Congressional Research Service . Federal Pell Grant Program of the Higher Education Act Contents Introduction ................................................................................................................................1 How the Program Works .............................................................................................................2 Student Eligibility .................................................................................................................2 Underlying Concepts and Award Rules..................................................................................4 Underlying Concepts.......................................................................................................5 Primary Award Rule...................................................................................................... 13 Institutional Role....................................................................................................................... 16 Characteristics of Recipients ..................................................................................................... 17 Income...................................................................................................................................... 19 Participation Rate...................................................................................................................... 20 Enrollment Status...................................................................................................................... 22 Type and Control ...................................................................................................................... 22 Role of the Pell Grant................................................................................................................ 24 Purchasing Power ............................................................................................................... 25 Pell Grant Recipients and Other Federal Aid ....................................................................... 27 Program Funding ...................................................................................................................... 29 Role of Discretionary Funding ............................................................................................ 29 Increasing Role of Mandatory Funding................................................................................ 29 Summary of Recent Funding (FY2008-FY2021) ................................................................. 30 Discretionary Funding Shortfalls and Surpluses................................................................... 32 Measures to Address Funding Shortfalls.............................................................................. 34 Pre-2002 ....................................................................................................................... 35 Funding Shortfalls From FY2002 to FY2006 ................................................................ 36 Adoption of FY2006 CBO Scoring Rule ....................................................................... 36 Recent Funding Shortfalls and Surpluses (Post-Scoring Rule to FY2010) ...................... 37 Impact of The SAFRA Act on the FY2010 Funding Shortfall ........................................ 37 FY2011 Appropriations ................................................................................................. 38 Current Legislative Issues ......................................................................................................... 39 Program Cost Escalation ..................................................................................................... 39 Large Increase in the Discretionary Base Maximum Award ........................................... 40 Increase in FAFSA Applications and College Enrollments ............................................. 41 Recent Economic Conditions ........................................................................................ 41 Legislative Changes to the Federal Need Analysis Calculation and Award Rules............ 41 Budget Control Act of 2011 and FY2012 Appropriations..................................................... 42 FY2012 Budget Resolution ................................................................................................. 43 Beyond FY2012.................................................................................................................. 43 Figures Figure 1. Calculating the Pell Grant Maximum Award Increase Funded with Mandatory Appropriations in The SAFRA Act for AY2013-2014 (FY2013) ...............................................7 Congressional Research Service . Federal Pell Grant Program of the Higher Education Act Figure 2. Calculating the Pell Grant Maximum Award Increase Funded with Mandatory Appropriations in The SAFRA Act for AY2014-2015 (FY2014) Through AY20172018 (FY2017) ........................................................................................................................8 Figure 3. Pell Grant Recipients, AY1973-1974 to AY2011-2012 ................................................ 18 Figure 4. Percentage Change in Pell Grant Recipients, AY2001-2002 to AY2011-2012.............. 19 Figure 5. Percentage of Total Pell Grant Aid Received by Type of Institution, AY1984-1985 to AY2010-2011 .............................................................................................. 24 Figure 6. Percentage of Tuition, Fees, Room, and Board Covered by the Total Maximum Pell Grant, by Institution Type and Control: AY1973-1974 to AY2010-2011........................... 25 Tables Table 1. Total Maximum Pell Grant Amounts Under the SAFRA Act, FY2010 and Subsequent Years .................................................................................................9 Table 2. Pell Grant Award Amounts, AY1973-1974 and Subsequent Years ................................. 12 Table 3. Percentage of Eligible Pell Grant Students with a Zero EFC and Automatic Zero EFC by Dependency Status, AY2007-2008 to AY2010-2011 .................................................. 15 Table 4. Estimated Pell Grant Participation by Dependency and Total Family Income, AY2007-2008 ............................................................ 20 Table 5. Estimated Distribution of Undergraduates and Pell Grant Recipients by Enrollment Status, AY2007-2008 ........................................................................................... 22 Table 6. Estimated Distribution of Undergraduates and Pell Grant Recipients by Type and Control of Enrolling Institution, AY2007-2008 ....................................................................... 23 Table 7. Pell Grant Aid, FFEL and DL Federal Loans, and Total Aid as Average Percentages of Cost of Attendance for Undergraduate Students Who Received a Pell Grant, by Total Family Income............................................................................................... 28 Table 8. Pell Grant Appropriations, FY2008 to FY2021............................................................. 31 Table 9. Annual and Cumulative Discretionary Funding Shortfalls in the Pell Grant Program, FY1973-FY2011............................................................................... 33 Table 10. Pell Grant Program Costs, AY2007-2008 to AY2011-2012 ......................................... 39 Table A-1. Authorized Maximum Pell Grant Award Amounts (Pre-SAFRA Act), AY20092010 Through AY2014-2015 .................................................................................................. 44 Table A-2. Mandatory Add-On Amounts to the Base Maximum Award (Pre-SAFRA Act), AY2008-2009 to AY2012-2013 .............................................................................................. 44 Table A-3. Mandatory Appropriations for the Pell Grant Program (Pre-SAFRA Act), FY2008-FY2017.................................................................................................................... 45 Appendixes Appendix. Tables on Selected Pell Grant Information Prior to the Enactment of the SAFRA Act............................................................................................................................ 44 Congressional Research Service . Federal Pell Grant Program of the Higher Education Act Contacts Author Contact Information ...................................................................................................... 45 Congressional Research Service . Federal Pell Grant Program of the Higher Education Act Introduction The Federal Pell Grant program, authorized by Title IV of the Higher Education Act of 1965, as amended (HEA; P.L. 89-329), is the single largest source of federal grant aid supporting postsecondary education students. The program is estimated to have provided over $36.5 billion to approximately 8.9 million undergraduate students in fiscal year (FY) 2010.1 Pell Grants are need-based aid that is intended to be the foundation for all federal student aid awarded to undergraduates. The U.S. Department of Education (ED) data suggest that in FY2010, Pell Grants constituted approximately 25% of all federally supported student aid—including grants, loans, and work opportunities—that benefit postsecondary education students at all levels.2 The Pell Grant program has garnered considerable attention over the past several years in Congress. Most recently, the Budget Control Act of 2011 (BCA; P.L. 112-25) provided a combined total of $17 billion in additional mandatory funds for the program in FY2012 and FY2013. In April 2011, the Department of Defense Full-Year Continuing Appropriations Act of 2011 (hereafter referred to as the FY2011 Continuing Appropriations Act; P.L. 112-10) provided $23 billion in discretionary appropriations for the program in FY2011, while effectively maintaining a $5,550 total maximum award in the upcoming award year (AY) 2011-2012. The FY2011 Continuing Appropriations Act also amended the HEA by eliminating a provision that allowed for a student to receive two Pell Grant awards in the same award year. The estimated savings in mandatory spending related to the elimination of this provision were redirected for future general use in the program as specified annual mandatory appropriations beginning in FY2012 and continuing in all subsequent years. In March 2010, the SAFRA Act, passed as part of the Health Care and Education Reconciliation Act of 2010 (HCERA; P.L. 111-152), established indefinite mandatory appropriations for the Pell Grant program and changed the method by which future additional mandatory Pell Grant award amounts are determined. 3 Additionally, the SAFRA Act provided $13.5 billion in mandatory funds in FY2011 for use through the end of FY2012. Prior to the SAFRA Act, the program also received substantial discretionary and mandatory supplemental funding through the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5). The statutory authority for the Pell Grant program was most recently reauthorized by The Higher Education Opportunity Act of 2008 (HEOA; P.L. 110-315). This report reviews how the program works and provides an analysis of recent program funding, recipients (numbers and characteristics), and the role the program plays in the distribution of federal student aid. In addition, this report highlights some of the current legislative issues pertaining to the program. 1 U.S. Department of Education, unpublished data. Percentage calculated by CRS from data presented in U.S. Department of Education, Fiscal Year 2012 Budget Summary, p. 48. Total federal aid excludes $17.2 billion in consolidation loans under which borrowers consolidate prior loans and any federal tax benefits. 3 For more information on the SAFRA Act, see CRS Report R41127, The SAFRA Act: Education Programs in the FY2010 Budget Reconciliation , coordinated by Cassandria Dortch. 2 Congressional Research Service 1 . Federal Pell Grant Program of the Higher Education Act How the Program Works This section of the report provides an overview of the structure of the Pell Grant program and the process through which grants are made to students. It describes student eligibility, underlying concepts associated with the program, 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 made available to ensure that all eligible students attending eligible institutions receive Pell Grants.4 To apply for a Pell Grant, students must complete the Free Application for Federal Student Aid (FAFSA), providing requested financial and other information, and submit it to a “central processor” under contract with ED.5 The central processor provides each applicant with a Student Aid Record (SAR) and provides each institution of higher education (IHE) 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 the student’s family toward postsecondary education expenses for the upcoming award year. (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 eligible Pell applicants are required to disburse Pell funds to students who successfully enroll in approved coursework. The size of the grant is based, principally, on the financial resources that students and their families are expected to contribute toward postsecondary education expenses, and the discretionary base maximum award amount6 that is set in the annual appropriations process and any additional increases to the discretionary base maximum award funded with mandatory appropriations7 specified for each year in the HEA. Student Eligibility To be eligible for a Pell Grant, a student must meet requirements that apply to federal student aid in general as well as requirements specific to the Pell Grant program. Among the requirements generally applicable to federal student aid, as of award year8 (AY) 20102011, are the following: 4 As noted below, if costs for the Pell Grant program exceed the prescribed appropriation level in any one year, additional funds can be allocated from the most recently enacted appropriation to pay for obligations incurred in previous award years. 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 There are several ways to complete and submit a FAFSA for consideration of federal student aid. For instance, students and families may use FAFSA on the Web, which is an interactive online process. Alternatively, they may obtain a paper FAFSA from their financial aid office or other locations and submit it to the address listed on the form. 6 The discretionary base maximum award amount is discussed below. 7 Annual increases to the discretionary base maximum award funded with mandatory appropriations are discussed below. 8 The Pell Grant award year begins July 1 of each year and ends on June 30 of the subsequent year. For example, AY2011-2012 begins on July 1, 2011, and ends June 30, 2012. Congressional Research Service 2 . Federal Pell Grant Program of the Higher Education Act • 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.9 Absent such diploma or its equivalent, students must demonstrate an ability to benefit from postsecondary education by passing an examination approved by ED. Students who successfully complete six credits or 225 clock hours of college work applicable to a certificate or degree offered by a postsecondary institution are also eligible. • 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 IHE. • Conviction for possession or sale of drugs while receiving federal student aid can disqualify students for federal student aid.10 • 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.11 • Males between 18 and 25 years of age must register with the selective service system in order to be eligible for federal student aid. • Students with an intellectual disability are eligible to receive certain types of federal student aid. 12 Specific eligibility requirements for the Pell Grant program include the following: • Full-time13 and part-time14 undergraduates15 are eligible to receive Pell Grants. 9 Students completing home schooling through the secondary level as recognized under state law are considered to be eligible and are allowed to self-certify on the FAFSA. 10 Periods of ineligibility for federal student aid funds are based on whether the conviction was for the sale or possession of drugs and whether the student had previous offenses. A conviction for the sale of drugs includes convictions for conspiring to sell drugs. 11 In general, students must be U.S. citizens or permanent U.S. residents. Individuals with several other entrance statuses can qualify for aid. Individuals in the United States on a temporary basis, such as those with a student visa or an exchange visitor visa, are not eligible for federal student aid. 12 A student with an intellectual disability, as defined in the HEA, must be enrolled or accepted for enrollment in a comprehensive transition and postsecondary program for students with intellectual disabilities and must maintain satisfactory academic progress as determined by the school for this program. Students with an intellectual disability are only allowed to receive federal funds from the Pell Grant Program, Supplemental Educational Opportunity Grant (SEOG), and Work Study program. 13 For the purposes of Pell Grant eligibility, students who are enrolled at least 12 credit hours in a standard semester are considered full-time. 14 Students enrolled on a less-than-half-time basis are eligible. 15 In general, a student must be enrolled in an undergraduate course of study to receive a Pell Grant. For Pell Grant eligibility purposes, a student who has received an associate degree, or any certificate or diploma below the baccalaureate level, and who enrolls in another undergraduate program continues to be considered an undergraduate student until the student completes the curriculum requirements for a first bachelor’s degree. Students enrolled on at least a half-time basis in a post-baccalaureate program required by a state for K-12 teacher certification or licensure are also eligible, as long as the program does not lead to a graduate degree and the enrolling institution does not offer a (continued...) Congressional Research Service 3 . Federal Pell Grant Program of the Higher Education Act • Effective for students who receive their first Pell Grant on or after July 1, 2008, cumulative Pell Grant eligibility is limited to 18 full-time semesters (or the equivalent). • Students who are incarcerated in a federal or state penal institution are ineligible for Pell Grants. • Students who are subject to an involuntary civil commitment following incarceration for a sexual offense (as determined under the FBI’s Uniform Crime Reporting Program) are ineligible for Pell Grants. • A student who qualifies for a Pell Grant is eligible to receive an automatic zero EFC if the student’s parent or guardian was a member of the U.S. Armed Forces and died as result of performing military service in Iraq or Afghanistan after September 11, 2001, provided that the student was under 24 years old or was enrolled at an IHE at the time of the parent or guardian’s death.16 • The program provides assistance only to financially needy students as determined under the program’s award rules (see below). Underlying Concepts and Award Rules An eligible student’s annual Pell Grant award is determined on the basis of a set of award rules. In general, these award rules are designed to ensure that the neediest students (as determined by the EFC) receive the highest Pell Grant awards in each award year. Conversely, students with the lowest need (relative to the eligibility parameters of the program) receive the smallest Pell Grant awards in a given award year. Students who demonstrate a need that falls between these two extremes are awarded Pell Grant aid on a sliding scale. Additionally, Pell Grant awards are prorated for students who attend on a less-than-full-time basis. 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 of a financial aid package to which other assistance is added. Over the last several years, some of the underlying concepts and award rules of the program have been revised or eliminated, leading to an inconsistency in their application across years. Some of these changes resulted from enacted legislation aimed at providing mandatory funding increases for the program under certain budget rules while at the same time targeting additional funds to the neediest students. Some of the underlying concepts associated with the Pell Grant program are discussed below and are key to understanding the application of the program’s primary award rule, which is also examined in more detail below. Where appropriate, these concepts are explained for two specific time periods: (1) the period of time following enactment of the College Cost Reduction and (...continued) baccalaureate degree in education. 16 For students who are not eligible for Pell Grants due to their EFC and who had a parent or guardian die as a result of military service in Iraq or Afghanistan after September 11, 2001, non-need-based grants called Iraq and Afghanistan Service Grants (IASG) are available. The amount of the IASG is the same as the Pell Grant the student would be eligible for if he had a zero EFC. IASG payments are adjusted like Pell Grants for students who are enrolled less than full time, but unlike Pell Grants, these non-need-based grants do not count as estimated financial assistance. Congressional Research Service 4 . Federal Pell Grant Program of the Higher Education Act Access Act of 2007 (CCRAA; P.L. 110-84) and before the enactment of the SAFRA Act in March 2010; and (2) the period of time subject to the provisions enacted in the SAFRA Act. Information related to the key concepts, award rules, or appropriation levels in effect prior to the enactment of the SAFRA Act that is not discussed in the body of this report is included in the Appendix. Underlying Concepts Authorized Maximum Award The authorized maximum award is the annual maximum Pell Grant specified for each award year in the HEA. The maximum award amount a student may receive, however, is effectively based on the total maximum award, which is the combination of the discretionary base maximum award amount established in the annual discretionary appropriations process and the annual increase to this amount funded with mandatory appropriations as specified in the HEA. The authorized maximum grant and total maximum grant have been equal in only three instances during the program’s history (AY1975-1976, AY1976-1977, and AY1979-1980). In all other years, the total maximum award has been less than the authorized maximum award. The authorized maximum Pell Grant award amounts specified in the HEA and established by the HEOA for AY2009-2010 through AY2014-2015 were eliminated under the SAFRA Act. The elimination of the authorized maximum award levels from the HEA will have no impact on the determination of maximum award levels in future years. The program remains authorized through FY2017 under section 401(a)(1) of the HEA. Discretionary Base Maximum Award The discretionary base maximum award is the amount specified in annual appropriations bills. The annual appropriations bills determine the amount of discretionary funding available for the program and specify the base maximum award level for the corresponding award year. Mandatory “Add-On” Award17 Prior to the SAFRA Act, the CCRAA established mandatory add-on amounts to the base maximum Pell Grant award amounts for AY2008-2009 to AY2012-2013. In order to receive the add-on award under the provisions enacted in the CCRAA, a student must receive the qualifying minimum award,18 which is defined as 5% of the discretionary base maximum award.19 17 Prior to the enactment of the SAFRA Act, the additional increase to the discretionary maximum grant in each year was commonly referred to as the “mandatory add-on” award since the increase specified in the HEA was added on to the discretionary base award for only those students who received a Pell Grant under the discretionary base award parameters. The SAFRA Act, as discussed below, changed the basis for awarding future Pell Grants; thus, the term “mandatory add-on” is used only when referencing increases to the discretionary base maximum award funded with mandatory appropriations prior to the SAFRA Act. 18 The qualifying minimum award is discussed below. 19 Congress created a more complicated system of awarding Pell Grants in the CCRAA with the purpose of targeting the add-on mandatory funds to the most needy students who would otherwise already qualify for a Pell Grant. By awarding the mandatory add-on amount only to students who qualify for the program based on a proportion of the discretionary base maximum amount instead of a proportion of the higher total maximum award amount, Congress (continued...) Congressional Research Service 5 . Federal Pell Grant Program of the Higher Education Act Increases to the Base Maximum Award Funded with Mandatory Appropriations The SAFRA Act eliminated the mandatory add-on amounts authorized by the CCRAA for AY2010-2011 through AY2012-2013 and replaced these amounts with specified annual increases to the discretionary base maximum award (funded with mandatory appropriations) through AY2012-2013 and statutorily defined formulas for determining the amounts for all future award years. Additionally, the SAFRA Act eliminated the requirement that a student receive the qualifying minimum award in order to receive the additional aid amount funded with mandatory appropriations. Beginning in AY2010-2011, students qualify for a Pell Grant based on a proportion of the total maximum Pell Grant award. For AY2010-2011 through AY2012-2013, increases to the discretionary base maximum award funded with mandatory appropriations will be $690 in each year. For AY2013-2014 only, the increase to the discretionary base maximum award funded with mandatory appropriations will be determined according to a formula that is dependent upon the amount of the discretionary base maximum award amount for AY2012-2013. If the AY2012-2013 discretionary base maximum award amount is less than or equal to $4,860, then the maximum grant increase funded with mandatory appropriations for AY2013-2014 will be determined by multiplying $5,550 by the rate of change in the Consumer Price Index for All Urban Consumers (CPI-U) over the period from December 2011 to December 2012, and then subtracting $4,860 from this amount. If in AY2012-2013 the discretionary base maximum award amount is greater than $4,860, then the maximum grant increase funded with mandatory appropriations for AY2013-2014 will be determined by adding $690 to the discretionary base maximum award in AY2012-2013 and multiplying this amount by the rate of change in the CPI-U over the period from December 2011 to December 2012, and then subtracting from this amount the discretionary base maximum award amount for AY2012-2013. Figure 1 provides a mathematical expression and example of how this formula would work in AY2013-2014. (...continued) restricted expansion of the program for students who have a slightly higher EFC and who would have otherwise qualified based on the higher total maximum amount. Congressional Research Service 6 . Federal Pell Grant Program of the Higher Education Act Figure 1. Calculating the Pell Grant Maximum Award Increase Funded with Mandatory Appropriations in The SAFRA Act for AY2013-2014 (FY2013) Expressed As: IF DBAY1213 ≤ $4,860, THEN: MIAY1314 = ($5,550 X (1 + CPI-UCY2012)) – $4,860 IF DBAY1213 > $4,860, THEN: MIAY1314 = ((DBAY1213 + $690) X (1 + CPI-UCY2012)) – DBAY1213 WHERE DBAY1213 = Discretionary base maximum award in AY2012-2013 (FY2012); MIAY1314 = Increase to discretionary base maximum award funded with mandatory appropriations for AY2013-2014 (FY2013), rounded to nearest $5 increment; and CPI-UCY2012 = Change (increase or decrease) in Consumer Price Index for All Urban Consumers (CPI-U) from December 2011 to December 2012. Example: For example, consider what the increase to the discretionary base maximum award funded with mandatory appropriations would be in AY2013-2014 if (1) the discretionary base maximum amount is $4,500 in AY2012-2013, and (2) the change in the CPI-U from calendar year December 2011 to December 2012 is measured at -2%. This would be determined as follows: MIAY1314 = $5,550 X (1 + -.02) – $4,860 MIAY1314 = ($5,550 X .98) – $4,860 MIAY1314 = $5,439 – $4,860 MI AY1314 = $579 MI AY1314 = Round $579 to nearest $5 increment MIAY1314 = $580 Source: CRS analysis of P.L. 111-152. For AY2014-2015 through AY2017-2018, increases to the discretionary base maximum award funded with mandatory appropriations in each year will be determined according to a formula that is dependent upon (1) the previous year’s total maximum award, (2) the previous year’s discretionary base maximum award, and (3) the change in the CPI-U as measured from the most recently completed calendar year before the start of each award year. If in any year during this period the previous year’s discretionary base maximum award is less than or equal to $4,860, then the maximum grant increase to the discretionary base maximum Congressional Research Service 7 . Federal Pell Grant Program of the Higher Education Act award amount is determined by multiplying the previous year’s total maximum award amount by the rate of change in the CPI-U as measured from the most recently completed calendar year before the start of each applicable award year, and then subtracting $4,860 from this amount. If in any year during this period the previous year’s discretionary base maximum award exceeds $4,860, then the maximum grant increase to the discretionary base maximum award amount is determined by multiplying the previous year’s total maximum award amount by the rate of change in the CPI-U as measured from the most recently completed calendar year before the start of each applicable award year and then subtracting from this amount the previous year’s discretionary base maximum award amount. Figure 2 provides a mathematical expression and example of how this formula would work in AY2013-2014 through AY2017-2018. Figure 2. Calculating the Pell Grant Maximum Award Increase Funded with Mandatory Appropriations in The SAFRA Act for AY2014-2015 (FY2014) Through AY2017-2018 (FY2017) Expressed As: IF DBAY(n-1) ≤ $4,860, THEN: MIAY(n) = (TMPAY(n-1) X (1 + CPI-UCY(n-1) )) – $4,860 IF DBAY(n-1) > $4,860, THEN: MIAY(n) = (TMPAY(n-1) X (1 + CPI-UCY(n-1) )) – DBAY(n-1) WHERE DBAY(n-1) = Discretionary base maximum award for previous award year (n-1); MIAY(n) = Increase to discretionary base maximum award funded with mandatory appropriations for the current award year (n), rounded to the nearest $5 increment; TMPAY(n-1) = Total maximum Pell Grant award for previous award year (n-1); and CPI-UCY(n-1) = Change (increase or decrease) in CPI-U from most recently completed calendar year prior to start of current award year (n-1). Example: For example, consider what the increase to the discretionary base maximum award funded with mandatory appropriations would be in AY2016-2017 if (1) the discretionary base maximum amount is $4,900 in AY2015-2016; (2) the calculated increase to the base discretionary maximum award funded with mandatory appropriations is $850 in AY2015-2016; and (3) the change in the CPI-U from calendar year December 2014 to December 2015 is measured at 1%. This would be determined as follows: MIAY1617 = ($4,900 + $850 ) X (1 + .01) – $4,900 Congressional Research Service 8 . Federal Pell Grant Program of the Higher Education Act MI AY1617 = ($5,750 X 1.01) – $4,900 MI AY1617 = $5,807.5 – $4,900 MI AY1617 = $907.5 MIAY1617 = Round $907.5 to nearest $5 increment MIAY1617 = $910 Source: CRS analysis of P.L. 111-152. For AY2018-2019 and all subsequent award years, the additional mandatory Pell Grant award amount will be the same amount as determined for AY2017-2018 by the formula described above in Figure 2. Table 1 below illustrates how the total maximum Pell Grant amount will be determined in AY2010-2011 and beyond under the provisions in the SAFRA Act. Since the increases to the discretionary base maximum award funded with mandatory appropriations will be primarily determined beginning in AY2013-2014 by two factors that are not known at the present time—the annual discretionary base maximum award and the annual change in the CPI-U—future total maximum award levels are not listed below for AY2012-201320 and beyond. Table 1.Total Maximum Pell Grant Amounts Under the SAFRA Act, FY2010 and Subsequent Years 20 Increase to Discretionary Base Maximum Award Funded with Mandatory Appropriations Fiscal Year Award Year Discretionary Base Maximum Award 2010 2010-2011 $4,860a + $690 = $5,550 2011 2011-2012 $4,860b + $690 = $5,550 2012 2012-2013 TBD + $690 = TBD 2013 2013-2014 TBD + See formula in Figure 1 = TBD 2014 2014-2015 TBD + See formula in Figure 2 = TBD 2015 2015-2016 TBD + See formula in Figure 2 = TBD Total Maximum Award The discretionary base maximum award for AY2012-2013 has not been determined. Congressional Research Service 9 . Federal Pell Grant Program of the Higher Education Act Increase to Discretionary Base Maximum Award Funded with Mandatory Appropriations Fiscal Year Award Year Discretionary Base Maximum Award 2016 2016-2017 TBD + See formula in Figure 2 = TBD 2017 2017-2018 TBD + See formula in Figure 2 = TBD 2018 and subsequent years 2018-2019 and beyond + Same as the amount determined for AY20172018 under formula described in Figure 2 = TBD TBD Total Maximum Award Source: CRS analysis of P.L. 111-152. Note: TBD = To be determined. a. The discretionary base maximum award was specified as $4,860 in the Consolidated Appropriations Act of FY2010 (P.L. 111-117). b. The discretionary base maximum award was specified as $4,860 in the FY2011 Continuing Appropriations Act (P.L. 112-10). A significant reduction in the discretionary base maximum award in any award year may result in a significant reduction or elimination of future increases to the discretionary base maximum grant amount funded with mandatory appropriations as provided for in the SAFRA Act. The basis for this implication can be found in the formula prescribed in the SAFRA Act for determining future increases beginning in FY2014 and detailed in Figure 2 above. In short, the formula prescribed in the SAFRA Act assumes the total maximum award amount, when adjusted for inflation, will not decrease below the discretionary base maximum award amount of $4,860 in any year beginning in FY2014. Under a scenario in which the total maximum award amount falls below this amount in any award year, estimated increases beginning in FY2014 and future years could result in negative values under the formula, yielding significant reductions when compared to the current baseline that assumes a $4,860 discretionary base maximum award in each year. Qualifying Minimum Award The qualifying minimum Pell Grant award is the minimum amount of Pell aid on which qualification for the program is based. Prior to the enactment of the SAFRA Act, the qualifying minimum award amount was equal to 5% of the discretionary base maximum award. For example, in AY2009-2010, the qualifying minimum award is $243 (i.e., 5% of $4,860). The SAFRA Act revised the basis for determining the qualifying minimum award. Effective AY2010-2011 and for all future award years, the qualifying minimum award will equal 5% of the total maximum award. For example, in AY2011-2012 the qualifying minimum award is $277, or approximately 5% of $5,550. Congressional Research Service 10 . Federal Pell Grant Program of the Higher Education Act “Bump” Award The so-called bump award is an additional statutory increase to the qualifying minimum Pell Grant award, ensuring that students who are eligible for the qualifying minimum award receive a small increase in Pell aid. 21 Prior to the enactment of the SAFRA Act, the bump award was equal to 5% of the discretionary base maximum award. The SAFRA Act revised the basis for calculating the bump award. Effective AY2010-2011 and all future years, the bump award will be equal to 5% of the total maximum award. For example, in AY2011-2012 the bump award is $277, or approximately 5% of $5,550. Effective Minimum Award The effective minimum award is the minimum amount of Pell Grant aid available to a student in any given year as determined by law. The effective minimum award for AY2010-2011 and all subsequent years is the same for all eligible students, regardless of enrollment status. Prior to the enactment of the SAFRA Act, the effective minimum award varied by enrollment status and included the qualifying minimum award based on the discretionary base maximum award, the bump award, and a percentage of the mandatory add-on award.22 As discussed above, the SAFRA Act revised the annual increases to the discretionary base maximum award funded with mandatory appropriations, and consequently, the basis for calculating the qualifying minimum award. The effective minimum award for AY2010-2011 and all future years will be equal to 10% of the total maximum award amount. 23 The effective minimum award for AY2011-2012 is 10% of $5,550, or $555. 21 In effect, the increase to the qualifying minimum award serves to ensure that the program will not disburse grants in such small amounts that they would not be a meaningful contribution to supporting students’ educational pursuits. 22 By definition, the effective minimum award for the program would apply to students enrolled on a less-than-halftime basis. Prior to the SAFRA Act, the amount of the mandatory add-on award was determined in proportion to a student’s enrollment status, which would have affected the effective minimum award a student would receive. 23 On April 8, 2010, ED issued revised AY2010-11 Federal Pell Grant Payment and Disbursement Schedules to reflect the provisions included in the SAFRA Act. Congressional Research Service 11 . Federal Pell Grant Program of the Higher Education Act Table 2. Pell Grant Award Amounts, AY1973-1974 and Subsequent Years Discretionary Base Maximum Award ($) Mandatory AddOn or Increase to Discretionary Base Maximum Award Funded with Mandatory Appropriations ($) Award Year (AY) Authorized Maximum Award ($) 1973-1974 1,400 452 N/A 452 50 1974-1975 1,400 1,050 N/A 1,050 50 1975-1976 1,400 1,400 N/A 1,400 200 1976-1977 1,400 1,400 N/A 1,400 200 1977-1978 1,800 1,400 N/A 1,400 200 1978-1979 1,800 1,600 N/A 1,600 50 1979-1980 1,800 1,800 N/A 1,800 200 1980-1981 1,800 1,750 N/A 1,750 150 1981-1982 1,900 1,670 N/A 1,670 120 1982-1983 2,100 1,800 N/A 1,800 50 1983-1984 2,300 1,800 N/A 1,800 200 1984-1985 2,500 1,900 N/A 1,900 200 1985-1986 2,600 2,100 N/A 2,100 200 1986-1987 2,600 2,100 N/A 2,100 100 1987-1988 2,300 2,100 N/A 2,100 200 1988-1989 2,500 2,200 N/A 2,200 200 1989-1990 2,700 2,300 N/A 2,300 200 1990-1991 2,900 2,300 N/A 2,300 100 1991-1992 3,100 2,400 N/A 2,400 200 1992-1993 3,100 2,400 N/A 2,400 200 1993-1994 3,700 2,300 N/A 2,300 400 1994-1995 3,900 2,300 N/A 2,300 400 1995-1996 4,100 2,340 N/A 2,340 400 1996-1997 4,300 2,470 N/A 2,470 400 1997-1998 4,500 2,700 N/A 2,700 400 1998-1999 4,500 3,000 N/A 3,000 400 1999-2000 4,500 3,125 N/A 3,125 400 2000-2001 4,800 3,300 N/A 3,300 400 2001-2002 5,100 3,750 N/A 3,750 400 2002-2003 5,400 4,000 N/A 4,000 400 2003-2004 5,800 4,050 N/A 4,050 400 2004-2005 5,800a 4,050 N/A 4,050 400 Congressional Research Service Total Maximum Award ($) Effective Minimum Award ($) 12 . Federal Pell Grant Program of the Higher Education Act Award Year (AY) Authorized Maximum Award ($) Discretionary Base Maximum Award ($) Mandatory AddOn or Increase to Discretionary Base Maximum Award Funded with Mandatory Appropriations ($) 2005-2006 5,800 4,050 N/A 4,050 400 2006-2007 5,800 4,050 N/A 4,050 400 2007-2008 5,800 4,310 N/A 4,310 400 2008-2009 5,800 4,241 490 4,731 523b 2009-2010 6,000 4,860 490 5,350 609c 2010-2011 None Specified 4,860 690 5,550 555 2011-2012 None Specified 4,860 690 5,550 555 2012-2013 None Specified TBD 690 TBD TBD 2013-2014 None Specified TBD TBD TBD TBD 2014-2015 None Specified TBD TBD TBD TBD 2015-2016 None Specified TBD TBD TBD TBD 2016-2017 None Specified TBD TBD TBD TBD 2017-2018 None Specified TBD TBD TBD TBD 2018-2019 (and beyond) None Specified TBD Same amount as in AY2017-2018 TBD TBD Total Maximum Award ($) Effective Minimum Award ($) Sources: U.S. Department of Education, AY2009-10 Pell Grant End-of-Year Report and the HEA. Notes: TBD = To be determined; N/A = not applicable. a. Prior to the reauthorization of the HEA by the HEOA in 2008, Congress passed measures to extend the HEA allowing for the continuation of the Pell Grant program. The last authorized maximum award specified in law prior to the HEOA was $5,800 for AY2003-2004; therefore, the authorized maximum award is listed as $5,800 from AY2004-2005 through AY2008-2009 in this table. b. This amount is the minimum amount of aid awarded to a student attending on a less-than-half-time basis. c. Table 1in the AY2009-10 Pell Grant End-of-Year Report shows this amount as $976, which is the minimum award a student attending on a full-time basis would receive. The minimum amount of aid an eligible student could receive in AY2009-2010 was $609, or 10% of $4,860 plus 25% of $490. Primary Award Rule The primary Pell Grant award rule, as revised by the SAFRA Act, is that a student’s annual grant is the least of (1) the total maximum Pell Grant minus the student’s EFC, or (2) Cost of Attendance (COA) minus EFC, 24 and is ratably reduced for a student who enrolls on a less-thanfull-time basis. Most students are awarded Pell Grant aid based on the first condition of this rule (i.e., Pell Grant Award = Total Maximum Pell Grant – EFC), since the total maximum Pell Grant 24 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 the COA after taking the EFC into account. Congressional Research Service 13 . Federal Pell Grant Program of the Higher Education Act award available to a student in an award year is typically less than the attending institution’s COA. Prior to the enactment of the SAFRA Act, a student’s Pell Grant award was determined by taking the least of (1) the discretionary base maximum Pell Grant award minus the student’s EFC, or (2) COA minus EFC. Next, this award amount was ratably reduced if a student enrolled on a lessthan-full-time basis. Finally, the mandatory “add-on” award, as prescribed in the HEA and also ratably reduced for a student enrolled on a less-than-full-time basis, was added to the student’s award. Some of the concepts that are specifically related to the primary award rule are discussed in detail below. Expected Family Contribution (EFC) The EFC is the amount that, according to the federal need analysis methodology, can be expected to be contributed by a student and the student’s 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 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). 25 The EFC determination utilizes financial information submitted by the aid applicant on the FAFSA. Automatic Zero EFC Students who apply for federal student aid and meet certain qualifications automatically receive a zero EFC. 26 A student with a zero EFC would receive the total maximum Pell Grant award if enrolled full-time at an institution where the COA is equal to or exceeds the total maximum Pell Grant award. The percentage of eligible Pell Grant students who automatically qualify for a zero EFC increased markedly in AY2009-2010 due to the combination of changes in the qualification criteria for a zero EFC and weaker economic conditions.27 Table 3 shows the percentage of 25 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 of age by December 31 of the award year; is married; has dependents other than a spouse; is a veteran of the U.S. Armed Forces or currently serving on active duty in the military; is a graduate or professional student; is an orphan, in foster care, or a ward of the state (anytime since the age of 13); is an emancipated minor as determined by a court; is an unaccompanied youth in a homeless shelter; or is deemed independent by a financial aid officer for “other unusual circumstances.” 26 Dependent students and independent students with dependents other than a spouse can qualify for an automatic zero EFC. In general, these students must have received means-tested benefits from other federal programs or have been eligible to file or have filed certain federal income tax returns, or have been a dislocated worker. In addition, parents or students must have family income levels at or below certain income thresholds. For AY2010-2011, this income threshold is $30,000. In addition, children of deceased Iraq/Afghanistan service members also qualify for an automatic zero EFC. One of the benefits of qualifying for an automatic zero EFC is that it greatly reduces the response burden associated with completing financial aid forms. 27 For example, HERA expanded eligibility for the automatic zero EFC by changing the income basis for qualification from the Earned Income Credit (EIC) amount determined annually by the Internal Revenue Service (IRS) to $20,000 (continued...) Congressional Research Service 14 . Federal Pell Grant Program of the Higher Education Act eligible28 Pell Grant students by dependency status with a zero EFC (both calculated and automatic combined) and the percentage of eligible Pell Grant students with an automatic zero EFC in AY2007-2008 through AY2010-2011. The percentage of eligible dependent Pell Grant students with an automatic zero EFC increased from 39% in AY2008-2009 to 53% in AY20092010. Furthermore, the percentage of all eligible Pell students with a zero EFC, whether calculated or automatic, increased from 59% in AY2008-2009 to 69% in AY2009-2010. Preliminary data for AY2010-2011 show small decreases in the share of eligible students with a zero EFC when compared to AY2009-2010. Table 3. Percentage of Eligible Pell Grant Students with a Zero EFC and Automatic Zero EFC by Dependency Status, AY2007-2008 to AY2010-2011 Dependency Status Eligibleb Dependent Students Automatic Zero EFC Only All Zero EFC (calculated and automatic) Award Year (AY) Award Year (AY) AY AY AY AY AY 2007-08 2008-09 2009-10 2010-11a 2007-08 AY 2008-09 AY AY 2009-10 2010-11a 38% 39% 53% 47% 48% 50% 59% 54% Eligible Independent Studentsc 38% 39% 49% 45% 64% 64% 74% 74% All Eligible Pell Studentsc 38% 39% 50% 45% 58% 59% 69% 67% Source: CRS analysis of data provided by the U.S. Department of Education. a. The percentages for AY2010-2011 are based on partially completed data through 52 of 87 weeks of FAFSA processing and are subject to change. b. An eligible student is defined in this table as a student who is eligible to receive the qualifying minimum Pell Grant award (or a larger amount) in each award year. c. Totals used to calculate percentages for eligible independent students include independent students without dependents other than a spouse, who are not eligible to receive an automatic zero EFC. Maximum EFC for Pell Grant Eligibility The maximum EFC for Pell Grant eligibility is equivalent to 95% of the total maximum Pell Grant award specified in any award year beginning in AY2010-2011. Prior to the SAFRA Act, the maximum EFC for Pell Grant eligibility was equivalent to 95% of the discretionary base maximum award. To qualify for a $243 minimum award in AY2009-2010, a student must have an EFC of $4,617 or less. In AY2010-2011, the maximum EFC for Pell Grant eligibility is 95% of $5,550, or $5,273. A student with an EFC of $5,273 would receive the effective minimum award (...continued) beginning in AY2007-2008. The CCRAA further expanded eligibility by increasing the income basis to $30,000 beginning in AY2009-2010 and indexing the future amounts to the Consumer Price Index (CPI). Additionally, HERA, CCRAA, and the HEOA further expanded eligibility for the automatic zero EFC by allowing individuals who meet other criteria to receive an automatic zero EFC. 28 An eligible student is defined here as a student who is eligible to receive the qualifying minimum Pell Grant award (or larger award amount) in each award year, as determined by the student’s EFC. Congressional Research Service 15 . Federal Pell Grant Program of the Higher Education Act of $555. A student with an EFC of $5,274 or higher would not be eligible for a Pell Grant in AY2010-2011. In effect, the SAFRA Act expanded the qualification parameters for the program, ensuring that students with a higher EFC receive the qualifying minimum award. Cost of Attendance (COA) The cost of attendance (COA) is a measure of a student’s educational expenses for the period of enrollment. In general, it is the sum of (1) tuition and fees; (2) an allowance for books, supplies, transportation, and miscellaneous personal expenses; (3) an allowance for room and board;29 and (4) for a student with dependents, an allowance for costs expected to be incurred for dependent care. For determining a student’s Pell Grant award, the cost of attendance amount is based on the full-year costs for a full-year student and must be prorated for students who attend on a less-thanfull-time basis. Additionally, for the purpose of determining a student’s Pell Grant award, institutions may use average costs for students at their school, rather than calculating actual expenses for each student.30 Year-Round Pell Eligible students enrolled prior to July 1, 2011, may receive so-called “year-round” Pell Grants, or up to two scheduled31 awards in a single award year. For example, a second scheduled Pell Grant award may support a summer term in addition to the regular academic year. To qualify, students must be enrolled on at least a half-time basis in a program of study longer than one academic year in length and have received 100% of the first scheduled award during the academic year.32 This provision was eliminated in the FY2011 Continuing Appropriations Act, effective July 1, 2011. Institutional Role To be eligible for the HEA Title IV programs, including the Pell Grant program, an IHE must be a public or private nonprofit IHE, 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, 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 29 The cost of attendance includes an allowance to cover the basic expenses incurred for board only for students living in housing provided on a military base or for which a basic living allowance is provided. 30 Average COA amounts must be based on the same category of students. For example, institutions cannot combine COA amounts for separate enrollment statuses and award aid to a student on the basis of this average. 31 A scheduled award is defined as the maximum Pell aid a full-time student may receive for an award year based on the Pell Grant Payment and Disbursement Schedules issued by ED. 32 The rules and regulations pertaining to year-round Pell Grants are viewed by some as complex due to the treatment of enrollment and payment periods within different academic years. For more information on receiving two scheduled Pell Grant awards in a single award year, refer to http://ifap.ed.gov/fsahandbook/attachments/ 0910FSAHbkVol3Master.pdf, p. 3-44. Also, ED issued final regulations on year-round Pell Grants on October 29, 2009, that can be accessed online at http://edocket.access.gpo.gov/2009/pdf/E9-25373.pdf. Congressional Research Service 16 . Federal Pell Grant Program of the Higher Education Act must then enter into a program participation agreement with ED that 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 (FFEL) program33 or William D. Ford Direct Loan (DL) 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’s role in the Pell Grant program primarily involves determining student eligibility, disbursing awards, adjusting awards to ensure students do not receive more assistance than they are eligible for, record keeping, and reporting to ED.34 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 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 recipient. Characteristics of Recipients The Pell Grant program reaches a significant portion of undergraduates each year. In AY20072008, 27% of all undergraduates were estimated to have received Pell Grants.35 During the program’s first year in AY1973-1974, approximately 176,000 students received a Pell Grant award.36 Since then, the annual number of Pell Grant recipients has risen substantially. Based on data provided by ED, the number of Pell Grant recipients reached 8,873,000 in AY2010-2011 and is estimated to grow an additional 540,000 in AY2011-2012 to 9,413,000. Figure 3 illustrates the changes in the number of Pell Grant recipients from AY1973-1974 to AY2011-2012. It is 33 The SAFRA Act amended the HEA to terminate the authority for new loans to be made or insured under the FFEL program after June 30, 2010. Beginning with AY2010-2011, all new Subsidized and Unsubsidized Stafford Loans, PLUS Loans, and Consolidation Loans will be made under the William D. Ford Federal Direct Loan program. 34 Much of the information in this section is based on the U.S. Department of Education’s Federal Student Aid Handbook for 2009-2010, available at http://ifap.ed.gov/ifap/byAwardYear.jsp?type=fsahandbook&awardyear=20092010. Congressional Research Service 17 . Federal Pell Grant Program of the Higher Education Act important to note that myriad factors37 can affect the number of Pell Grant recipients in any given award year. Figure 3. Pell Grant Recipients, AY1973-1974 to AY2011-2012 10,000,000 9,000,000 Number of Recipients 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 2011-12 2009-10 2007-08 2005-06 2003-04 2001-02 1999-00 1997-98 1995-96 1993-94 1991-92 1989-90 1987-88 1985-86 1983-84 1981-82 1979-80 1977-78 1975-76 1973-74 Award Year Source: U.S. Department of Education, AY2009-10 Pell Grant End-of-Year Report (for AY1973-1974 through AY2009-2010). Notes: Data for AY2010-2011 and AY2011-2012 are estimates provided by the U.S. Department of Education and are subject to change. (...continued) 35 CRS analysis of AY2007-2008 NPSAS data. A CRS analysis of AY2003-2004 NPSAS data shows that the percentage of all undergraduates estimated to have received Pell Grants in AY2003-2004 was also 27%. 36 U.S. Department of Education, AY2009-10 Pell Grant End of Year Report, Table 1. 37 Such factors include, but are not limited to, (1) amendments to the HEA that affect the federal need analysis calculation and Pell Grant award rules; (2) changes in the maximum grant level specified in annual appropriations bills; (3) trends in enrollment at postsecondary institutions; and (4) macroeconomic and microeconomic variables. Congressional Research Service 18 . Federal Pell Grant Program of the Higher Education Act Figure 4 shows the annual percentage change in Pell Grant recipients over the past 10 years. From AY2001-2002 to AY2010-2011, the average annual percentage change in Pell Grant recipients was 8.91%. During AY2005-2006 and AY2006-2007, the number of Pell Grant recipients decreased by 2.65% and .06%, respectively. Pell Grant recipients increased by 32% in AY2009-2010 and are estimated to increase by 9.5% in AY2010-2011 and 6% in AY2011-2012.38 35.00% Previous Award Year 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% 2011-2012 2010-2011 2009-2010 2008-2009 Award Year 2007-2008 2006-2007 2005-2006 2004-2005 2003-2004 2002-2003 2001-2002 % Change in Pell Grant Recipients from Figure 4. Percentage Change in Pell Grant Recipients, AY2001-2002 to AY2011-2012 Source: U.S. Department of Education (ED), AY 2009-10 Pell Grant End-of-Year Report, Table 1, and unpublished data provided by ED. Notes: Data for AY2010-2011 and AY2011-2012 are estimates and subject to change. Income There is no absolute income threshold that determines who is eligible or ineligible for a Pell Grant award. Nevertheless, Pell Grant recipients are primarily low-income. In FY2009 (AY20092010), an estimated 63% of dependent Pell Grant recipients had a total family income39 at or below $30,000. Independent Pell Grant recipients’ income is generally lower than their dependent counterparts. In FY2009, an estimated 84% of independent Pell Grant recipients had a total income at or below $30,000.40 38 Recipient data for AY2010-2011 and AY2011-2012 are estimates and subject to change. Data provided by the U.S. Department of Education. 39 Total family income is defined here as the adjusted gross income (if a tax filer), any taxable income (if not a tax filer), and any non-taxable income. 40 Data in this paragraph taken from page P-26 of U.S. Department of Education, FY2012 Justifications of Appropriation Estimates to the Congress. Congressional Research Service 19 . Federal Pell Grant Program of the Higher Education Act It is important to note, however, that a small percentage of Pell Grant awards go to mid- and highincome families. For the most part, these awards are smaller than the average Pell Grant award for all students and are typically provided to dependent students from families who have multiple students enrolled in postsecondary education at the same time. 41 Participation Rate Although the primary purpose of the program is to aid needy undergraduate students, a significant amount of low-income undergraduate students who enroll in postsecondary education do not receive a Pell Grant, primarily because they did not apply for federal financial aid. 42 Table 4, which presents a CRS analysis of data from the National Postsecondary Student Aid Study (NPSAS), shows the percentage of dependent and independent undergraduates from different income levels who were Pell recipients in AY2007-2008. Two participation rates are provided for each income level and dependency status; 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 a Pell Grant. With regard to the lowest income categories, estimates presented in Table 4 suggest that approximately 63.2% of all dependent undergraduates from families with total family income of less than $10,000 were Pell recipients, and 81.5% of the aid applicants from that income category were Pell recipients. Approximately 53.3% of all independent undergraduates with total income of less than $5,000 were Pell recipients, and about 79.3% of the aid applicants in that category received a Pell Grant. Table 4 shows that, in general, as income rose, participation rates in the Pell program dropped for dependent and independent students. Table 4. Estimated Pell Grant Participation by Dependency and Total Family Income, AY2007-2008 Estimated Percentage Receiving Pell Grantsa Total Family Income All Students All Federal Aid Applicants Less than $10,000 63.2 81.5 $10,000-$19,999 72.7 87.4 $20,000-$29,999 64.9 80.6 $30,000-$39,999 53.5 70.8 $40,000-$49,999 32 49.5 $50,000-$59,999 15.4 25.3 $60,000 or more 2.3 4.2 Dependent Undergraduatesb 41 According to Table 2-A of the AY 2009-10 Pell Grant End-of-Year Report, approximately 153,089 Pell Grant recipients, or 1.9% of the total recipient population, had a family income above $60,000. 42 Furthermore, some students who apply and qualify for Pell Grant aid do not enroll in postsecondary institutions. Some have labeled this measure as a “show-up” rate. According to data provided in Table 1 of the AY 2009-10 Pell Grant End-of-Year Report, approximately 74% of Pell Grant applicants who applied and qualified for Pell Grant aid based on their EFC level in AY2009-2010 actually enrolled and received a Pell Grant. Congressional Research Service 20 . Federal Pell Grant Program of the Higher Education Act Estimated Percentage Receiving Pell Grantsa Total Family Income All Students All Federal Aid Applicants Less than $5,000 53.3 79.3 $5,000-$9,999 65.5 85.2 $10,000-$19,999 52.3 74.1 $20,000-$29,999 34.8 54.2 $30,000-$49,999 28.2 55.5 Independent Undergraduatesc $50,000 or more 0.23 0.85 Source: CRS estimates from 2007-2008 NPSAS. Note: How to read Table 4: The first row shows that 63.2% of all dependent undergraduate students with a total family income of less than $10,000 received a Pell Grant in AY2007-2008, whereas 81.5% of dependent undergraduate students with a total family income of less than $10,000 who applied for Federal Student Aid received a Pell Grant in AY2007-2008. a. Includes students enrolled at any intensity. b. Includes income of dependent student and parents. c. Includes income of independent student and spouse. It is noteworthy that a significant number of low-income undergraduate students did not receive a Pell Grant in AY2007-2008. Based on data presented in Table 4, it appears that a large portion of low-income undergraduate students did not apply for federal student aid.43 The percentage of dependent undergraduates from the lowest income category who received a Pell Grant is markedly higher when aid application is taken into account, 81.5% versus 63.2%. A similar increase in participation characterized the lowest-income independent undergraduates when aid application is considered—from 53.3% to 79.3%. 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 sufficient resources to meet their costs. At least some of those who believed they were ineligible for aid may have actually been eligible. Among other possible explanations are that very low-income students in particular find the federal financial aid application process too complex to pursue, or that such students may not be aware of the availability of federal student aid. Additionally, aid outreach efforts at low-cost institutions may be less vigorous. Furthermore, some students and family members do not wish to disclose information related to their financial resources, and thus, do not apply for aid. It is also important to note that current operational data for award years 2008-2009, 2009-2010, and 2010-2011 suggest increases in the number of students who applied for federal financial aid across all income categories. 43 The ability to speak with confidence about the income levels of students who did not file a FAFSA is adversely affected by certain data quality issues. For non-aid filers, income information is derived from surveys of students and from imputation. Congressional Research Service 21 . Federal Pell Grant Program of the Higher Education Act Enrollment Status Pell recipients, regardless of dependency status, are more likely to be exclusively full-time students than are undergraduates as a whole and far less likely to be enrolled exclusively parttime. Table 5, based on a CRS analysis of NPSAS data, shows the distribution of dependent and independent undergraduates in general and Pell recipients in particular by enrollment status. Table 5. Estimated Distribution of Undergraduates and Pell Grant Recipients by Enrollment Status, AY2007-2008 Enrollment Status All Students Pell Recipients Exclusively full-time 62.1% 68.8% Exclusively part-time 18.7% 10.5% Mixed (status changed during enrollment period) 19.2% 20.7% 100% 100% Exclusively full-time 31.5% 49.9% Exclusively part-time 54.1% 28.4% Mixed (status changed during enrollment period) 14.4% 21.7% 100% 100% Dependent Undergraduates Total Independent Undergraduates Total Source: CRS estimates from 2007-2008 NPSAS. Notes: Due to rounding, sum of column entries may not equal column totals. How to read Table 5: The first row shows that 62.1% of dependent undergraduate students were enrolled exclusively full-time, whereas 68.8% of dependent undergraduate Pell Grant recipients were enrolled exclusively full-time. The first row under the sub-heading titled “Independent Undergraduates” shows that 31.5% of independent undergraduate students were enrolled exclusively full-time, whereas 49.9% of independent undergraduate Pell Grant recipients were enrolled exclusively full-time. Type and Control Compared to all undergraduates, Pell Grant recipients are less likely to be enrolled in public twoyear institutions and more likely to be enrolled in proprietary institutions. Table 6 shows the distribution of dependent and independent undergraduates and Pell Grant recipients by type and control of the institutions they attended. Congressional Research Service 22 . Federal Pell Grant Program of the Higher Education Act Table 6. Estimated Distribution of Undergraduates and Pell Grant Recipients by Type and Control of Enrolling Institution, AY2007-2008 % of Total Dependent Undergraduates Enrolled % of Dependent Pell Grant Recipients % of Total Independent Undergraduates Enrolled % of Independent Pell Grant Recipients Public Four-Year 38.1 37.8 19.2 19.3 Private Four-Year 16.3 15.3 9.3 9.9 Public Two-Year 32.3 27.8 48.6 32.9 4 9.6 14.6 28.7 More than one institution during enrollment period 9.2 9.5 8.3 9.2 Total 100 100 100 100 Type and Control of Institution Proprietary Source: CRS estimates from 2007-2008 NPSAS. Note: Due to rounding, sum of column entries may not equal column totals. Recently, there has been a renewed focus on the distribution of Pell Grant aid by type of institution. While proprietary institutions have consistently increased their share of Pell Grant aid since the beginning of the last decade, public institutions continue to be the largest beneficiary of Pell Grant aid. Figure 5 illustrates, however, that the total share of Pell Grant aid at public institutions declined from 68% in AY2002-2003 to 62% in AY2010-2011. Total Pell Grant aid during this same period increased by approximately $24.8 billion, from $11.7 billion to $36.5 billion. Congressional Research Service 23 . Federal Pell Grant Program of the Higher Education Act Figure 5. Percentage of Total Pell Grant Aid Received by Type of Institution, AY1984-1985 to AY2010-2011 Percentage of Total Pell Aid 80% 70% 60% 50% 40% 30% 20% 10% 0% 2010-11 2008-09 2006-07 2004-05 2002-03 2000-01 1998-99 1996-97 1994-95 1992-93 1990-91 1988-89 1986-87 1984-85 Award Year Public Institutions Private Institutions Proprietary Institutions Sources: Compiled by CRS from data published by The U.S. Department of Education (ED) in the End-of-Year Reports for the Title IV/Pell Grant Program for each applicable award year. AY2010-2011data were taken from the FY2012 Justifications of Appropriation Estimates to the Congress. Additionally, Figure 5 shows that proprietary institutions are expected to receive approximately 25% of the total Pell aid in AY2010-2011 compared to 15.4% in AY2002-2003. Despite this large increase, proprietary institutions received a larger share of Pell aid in the late 1980s, receiving nearly 27% of all Pell aid in AY1987-1988. It is important to note that requirements for institutions to participate in the Pell Grant program have varied over the time period highlighted in this figure. Changes to institutional eligibility requirements, either through legislation or regulatory guidance, may have increased or limited the number of participating institutions from year to year, or disproportionally affected certain types of institutions. Role of the Pell Grant The Pell Grant is intended to function as the foundation aid for needy undergraduates; all other need-based federal student aid is to build on the Pell Grant.44 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 44 Eligibility for the Pell Grant program and annual Pell Grant level maximum award levels is also used for determining eligibility or award levels in other federal programs. For example, a student must receive a Pell Grant in order to receive aid under the Academic Competitiveness Grant (ACG) Program. Also, individuals can receive a national service educational award under the Serve America Act that is equal to the annual Pell Grant maximum award. Congressional Research Service 24 . Federal Pell Grant Program of the Higher Education Act question by analyzing the purchasing power of the Pell Grant and the distribution of other federal aid to Pell recipients. Purchasing Power The total maximum Pell Grant, available to students with a zero EFC who enroll on a full-time basis, is often used as a gauge of the Pell Grant program’s level of support in each year. In AY2010-2011, the total maximum grant ($5,550) is expected to cover approximately 62% of the average tuition, fees, room, and board at public two-year institutions, 34% at public four-year institutions, and 14% at private four-year institutions.45 Figure 6 compares the total maximum grant to average undergraduate tuition, fees, room, and board charges at public two-year, public four-year, and private four-year institutions between AY1973-1974 and AY2010-2011. It is evident that the maximum was at its peak relative to these average charges during the 1970s. Figure 6. Percentage of Tuition, Fees, Room, and Board Covered by the Total Maximum Pell Grant, by Institution Type and Control: AY1973-1974 to AY2010-2011 120% 100% 80% 60% 40% 20% 0% 2009-10 2005-06 2001-02 1997-98 1993-94 1989-90 1985-86 1981-82 1977-78 1973-74 Award Year Two-Year Public Four-Year Public Four-Year Private Sources: CRS calculations using data from National Center for Education Statistics (NCES), 2009 Digest of Education Statistics, Table 334; and The College Board, Trends in College Prices, 2009. Notes: The purchasing power of the Pell Grant through AY1992-1993 was constrained by a statutory cap on the percentage of cost of attendance (COA) that a Pell Grant could cover. From AY1973-1974 to AY1984-1985, the cap was 50%; from AY1985-1986 to AY1992-1993, the cap was 60%. After that time there has been no absolute limit on the percentage of COA that can be covered. 45 Under section 472 of the HEA, other allowances for the cost of attendance for the purpose of awarding Pell Grant aid are provided, such as costs associated with transportation and dependent care expenses. These costs are not considered in this section of the report in order to maintain a comparable trend across institutional sectors. If these costs are included, the average amount of coverage by the Pell Grant maximum would be less for all types of institutions. Congressional Research Service 25 . Federal Pell Grant Program of the Higher Education Act From the mid-1980s through the early 1990s, the total 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 estimated percentages for AY2010-2011 remain below the AY1985-1986 percentages (54% for public four-year colleges and 23% for private four-year colleges). Another approach to measuring the purchasing power of the maximum Pell Grant is to compare its coverage of only the average tuition and fees published by IHEs.46 For example, in AY20092010, the maximum Pell Grant covered approximately 79% of the average published in-state tuition and fees at four-year public institutions. At two-year public institutions, where students often commute to classes, the maximum Pell Grant in AY2009-2010 exceeded the average published tuition and fees at these institutions ($5,550 compared to $2,544). At for-profit institutions, where tuition and fees are typically higher, the maximum Pell Grant covered only 39% of the average published tuition and fees in AY2009-2010. Finally, at four-year private (notfor-profit) institutions, the maximum Pell Grant covered only 21% of the average published tuition and fees in AY2009-2010. 47 It is also important to note that in all sectors of higher education, published tuition, fees, and room and board have consistently risen more rapidly than average prices in the economy for a number of years.48 An analysis of the purchasing power of the Pell Grant maximum award as a percentage of the COA or tuition and fees only, therefore, could also include an examination of why published prices at institutions of higher education have risen at such a rapid rate.49 Some economists and public policy analysts believe the Pell Grant program, while immensely popular and successful in providing access to postsecondary education for many low-income undergraduate students over the years, has not adequately served the goal of making college more affordable. Rather, some believe there is a connection between increased federal student aid in general and the rate of increase in tuition and fees at institutions of higher education.50 Others have concerns about the role of the Pell Grant in the process known as tuition discounting. For instance, do increases in the Pell Grant maximum award lead to reductions in tuition discounts offered by IHEs to lower-income Pell Grant recipients, ultimately resulting in a displacement of aid to middle- and high-income students? 46 Some analysts believe the purchasing power of the maximum Pell Grant could be measured by its coverage of tuition and fees only because some students can choose to live off campus and some living expenses, which are included as part of the student’s COA, will be incurred by the student whether or not the student chooses to attend a postsecondary institution. 47 The Pell Grant maximum award’s coverage of average published tuition and fees for different types of institutions in AY2009-2010 was calculated by CRS using 2009 College Board data available at http://www.collegeboard.com/press/ releases/208962.html. 48 Increases in published tuition and fees do not necessarily correspond to increases in the amounts students pay, which are dependent on myriad factors including tuition reductions/discounting and the amount of grant and scholarship aid they receive from all sources (College Board, Trends in College Pricing, 2009, http://www.trends-collegeboard.com/ college_pricing/1_4_over_time_constant_dollars.html). 49 The economics of tuition and fees in higher education is complex and beyond the scope of this report. 50 A frequently cited study of longitudinal data released in 2005 by economists at the University of Oregon suggested there is little evidence that increases in Pell Grants are positively linked to increases for in-state tuition at public universities. The study did conclude, however, that increases in Pell Grants appear to be matched nearly one for one by increases in list (and net) tuition at private universities and for out-of-state tuition charges at public universities. See http://www.uoregon.edu/~lsingell/Pell_Bennett.pdf. Overall, research on the correlation between the increase in federal student aid and the rate of increase in tuition and fees at institutions of higher education is generally viewed as inconclusive. Congressional Research Service 26 . Federal Pell Grant Program of the Higher Education Act 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 HEA51 were Pell recipients. AY2007-2008 NPSAS data suggest that Pell Grants alone may not have constituted the primary foundation for these students. In AY2007-2008, approximately 58% of undergraduate federal need-based aid recipients received Pell Grants, whereas a slightly higher portion (67%) of undergraduate need-based aid recipients borrowed Stafford Subsidized Loans. 52 Another approach to delineating the role of Pell Grants is to explore the extent to which Pell recipients, as a group, relied solely on the grant to meet college costs without having to secure other federal aid, particularly loans with their repayment obligation. In AY2007-2008, only 12.9% of Pell recipients relied on a Pell Grant as their only source of aid and many participated in other federal student aid programs, sometimes at a high rate. Among the other types of federal needbased student aid available to students, Pell recipients were most likely to also borrow Subsidized Stafford Loans (over 59.6% of Pell recipients received these loans—with an average amount of $3,366). Table 7 shows the average percentage of Pell Grant recipients’ cost of attendance covered by their Pell Grant award, their loans from the Federal Family Education Loan (FFEL) program and William D. Ford Federal Direct Loan (DL) program, and their total aid package in AY2007-2008, by total family income. This table allows one to examine the extent to which Pell Grants and other aid received helped Pell Grant recipients meet their cost of attendance. Table 7 shows, for example, that among all Pell Grant recipients, aid from FFEL and DL loans covered, on average, 25.2% of the cost of attendance for these recipients—which is higher than the average coverage by Pell Grant aid alone. 53 In addition, Table 7 illustrates that, in general, as family income for Pell Grant recipients increases, so does the percentage of COA covered by FFEL and DL loans. 51 Federal need-based student aid from the HEA is defined here as Pell Grants, Academic Competitiveness Grants (ACG), Science and Mathematics Access to Retain Talent (SMART) Grants, Federal Supplemental Educational Opportunity Grants (FSEOG), Federal Perkins Loans, Federal Work-Study earnings, and Stafford Subsidized Loans. 52 Further, approximately 47% of federal need-based aid recipients secured Stafford Unsubsidized Loans. For more information on Stafford Unsubsidized Loans, see CRS Report R40122, Federal Student Loans Made Under the Federal Family Education Loan Program and the William D. Ford Federal Direct Loan Program: Terms and Conditions for Borrowers, by David P. Smole. 53 When one controls for only Pell Grant recipients who benefited from a FFEL or DL loan, the average coverage increases to 40.4%. Congressional Research Service 27 . Federal Pell Grant Program of the Higher Education Act Table 7. Pell Grant Aid, FFEL and DL Federal Loans, and Total Aid as Average Percentages of Cost of Attendance for Undergraduate Students Who Received a Pell Grant, by Total Family Income (AY2007-2008) Pell Grant Aid as a Percentage of COA All Pell Grant Recipients FFEL and DL Loansa as a Percentage of COA Total Aidb as a Percentage of COA 19.0% 25.2% 60.2% Less than $20,000 26.8% 17.6% 63.9% $20,000 to $29,000 23.6% 21.0% 66.7% $30,000 to $49,000 15.3% 22.9% 63.0% 8.7% 27.1% 63.2% Less than $20,000 20.2% 28.8% 59.3% $20,000 to $29,000 20.7% 25.5% 55.0% $30,000 to $49,000 13.8% 28.7% 51.7% $50,000 or more N/A N/A N/A Total Family Income (Dependent)c $50,000 or more Total Family Income (Independent)d Source: CRS estimates from 2007-2008 NPSAS. Notes: N/A=Reporting standards not met in NPSAS for accurate analysis. a. This column also includes Pell Grant recipients who may not have benefited from any FFEL and DL program loans in the 2007-2008 academic year. FFEL or DL loans are defined as Stafford loans, PLUS loans, or both. b. Total aid includes all federal, state, institutional, and private financial aid received by the student in the form of grants, loans, work-study assistance, or other types of aid. c. Includes income of dependent student and parents. d. Includes income of independent student and spouse. The overall price of education has an impact on the extent to which Pell Grant recipients secure Stafford Loans. For Pell Grant recipients attending public two-year institutions, where the average cost of attendance is typically lower than at public four-year institutions, and particularly lower than at private four-year institutions, the propensity for borrowing was much less than for Pell Grant recipients as a whole. For AY2007-2008, 26% of Pell Grant recipients at public twoyear institutions borrowed Subsidized Stafford Loans, and 12% borrowed Unsubsidized Stafford Loans.54 For Pell Grant recipients attending for-profit institutions, which include less-than-twoyear, two-year, and four-year institutions, the propensity to borrow was much higher. For AY2007, 92% of Pell Grant recipients borrowed Stafford Subsidized Loans at for-profit institutions, and 83% borrowed Unsubsidized Stafford Loans. 54 To some extent, the lower rate of Stafford borrowing at public two-year institutions may be due to the requirement that students be enrolled at least half-time to borrow Stafford loans since a higher percentage of students enrolled in two-year IHEs are part-time students than students enrolled in public and private four-year IHEs. Congressional Research Service 28 . Federal Pell Grant Program of the Higher Education Act Program Funding This section reviews the latest program funding trends, explores the concept of discretionary funding shortfalls in the program, and provides a historic look at previous funding surpluses and shortfalls. Additionally, this section provides insight into how funding shortfalls in the program have been addressed in the past. Role of Discretionary Funding Annual discretionary appropriation bills provide the largest portion of funding for the Pell Grant program, and this funding typically remains available for use for two fiscal years. An annual appropriation is usually 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.55 Thus, while FY2011 funds are provided with the purpose of supporting awards made from July 1, 2011, to June 30, 2012, these funds are available for obligation from October 1, 2010, to September 30, 2012, and may support multiple award years. As mentioned earlier, annual discretionary appropriation bills also establish the base discretionary maximum grant for each applicable award year. Increasing Role of Mandatory Funding The CCRAA, the ARRA, the Technical Amendments to the HEA of 2009 (P.L. 111-39), the SAFRA Act, the FY2011 Continuing Appropriations Act, and most recently the Budget Control Act of FY2011 amended the HEA to provide mandatory funding for the Pell Grant program. These additional mandatory appropriations were provided to primarily fund annual increases to the discretionary base maximum award amounts or augment discretionary spending. Prior to the CCRAA, mandatory funding had been provided for the Pell Grant program in previous years, but usually for a specific purpose (e.g., to supplement discretionary funding to pay for accumulated funding shortfalls) other than increasing the maximum grant award amount.56 From a budgetary perspective, the recent increases in mandatory appropriations for the program have been offset largely by enacted provisions that have resulted in estimated savings from the federal loan programs, which are classified as mandatory programs. For example, the SAFRA Act amended the HEA to terminate the authority for new loans to be made or insured under the FFEL program after June 30, 2010. Part of the estimated savings from this change in the federal loan programs was used to provide $13.5 billion in mandatory appropriations for general use in the program from FY2011 through the end of FY2012. Under the Budget Control Act of FY2011, an estimated savings of $17 billion from the elimination of subsidized Stafford Loans for graduate students will be used to augment discretionary spending in the Pell Grant program in FY2012 and FY2013. The SAFRA Act also established indefinite mandatory appropriations for the program to provide for increases to the discretionary base maximum award amount in FY2010 and beyond. Under 55 The annual appropriation for the Pell Grant program is available immediately upon enactment at any point on or after October 1. In the event the annual appropriation is not enacted at the beginning of the fiscal year, a continuing resolution typically provides prorated funding for the program until an appropriation measure is enacted. 56 For example, mandatory funding in the amount of $4.3 billion was provided in P.L. 109-149 to pay exclusively for the accumulated funding shortfall through AY2005-2006. Congressional Research Service 29 . Federal Pell Grant Program of the Higher Education Act this category of funding, the amount of mandatory appropriations provided for the program for each year is not specified and will equal the amount necessary to fully fund the increase in each year. Prior to the SAFRA Act, mandatory appropriation amounts were specified from FY2008 to FY2017 under the CCRAA to fund mandatory add-on amounts in each year. In addition, a requirement for the Secretary of Education to reduce or increase the add-on amounts for any year the appropriated amount was insufficient or exceeded the expected cost of the add-on amount was also included in the CCRAA. This requirement was included to ensure that the costs associated with the mandatory add-on would align with the appropriated amounts in the HEA. 57 The SAFRA Act eliminated the specific mandatory appropriation amounts for FY2010 and all subsequent years, but the requirement for the Secretary to adjust the increases funded with mandatory appropriations each year remains in the HEA. 58 The FY2011 Continuing Appropriations Act also provided specified annual mandatory appropriations for the program for general use beginning in FY2012 through FY2021.59 These appropriations are paid for with estimated mandatory savings from the elimination of a provision that allowed for two Pell Grants in one award year. The availability of these mandatory appropriations is akin to the $13.5 billion in mandatory appropriations provided in the SAFRA Act and can be used to pay for future discretionary costs associated with the program. Summary of Recent Funding (FY2008-FY2021) As the federal government’s single largest source of grant aid for postsecondary education, the Pell Grant program has garnered considerable attention over the past several years in Congress, resulting in significant increases in both discretionary and mandatory funding. An appropriate timeline for summarizing recent funding increases could commence with FY2008, since it marks the first year in which significant mandatory funding was provided for the program under the CCRAA.60 Table 8 provides a history of discretionary and mandatory appropriations for the Pell Grant program from FY2008 to FY2021. It is important to note that some of the advance mandatory appropriations provided in previous measures were subsequently rescinded in the SAFRA Act.61 The data in Table 8 are divided into two categories: (1) discretionary appropriations; and (2) mandatory appropriations effective upon the enactment of the Budget Control Act of FY2011. 57 Several issues surfaced regarding this requirement, including the ability and timing of ED to accurately measure such insufficiency or surplus of funds given the operational and administrative requirements under other provisions in the HEA. 58 Although the SAFRA Act did not eliminate this requirement, it remains effective only for AY2008-2009 and AY2009-2010 because specific appropriation amounts remain in the HEA for FY2008 and FY2009 to fund the add-on awards associated with these years. Beginning with FY2010, “such sums as necessary” to fund the increases to the discretionary base award are provided and the requirement would not apply. It is possible that beginning in FY2010, ED could use the mandatory funds provided as “such sums” to fund add-on awards from prior years. 59 Additional annual mandatory appropriations in the amount of $1,145,000,000 are also provided for each succeeding year beyond FY2021. 60 Table 9 in this report provides a more comprehensive history of the discretionary funding levels in the program since FY1973. 61 See Table A-3 for a history of mandatory appropriations before the enactment of the SAFRA Act. Congressional Research Service 30 . Federal Pell Grant Program of the Higher Education Act Table 8. Pell Grant Appropriations, FY2008 to FY2021 (dollars in millions) Discretionary Appropriations Fiscal Year Award Year Annual Appropriations ($M) ARRA Funding ($M) Total Discretionary Funding ($M) 2008 AY20082009 $14,215 __ $14,215 2009 AY20092010 $17,288 $15,640 $32,928 2010 AY20102011 $17,495 __ $17,495 2011 AY20112012 $22,956 CCRAA Funding ($M) $22,956 Mandatory Appropriations (Post-SAFRA Act) ARRA FY2011 Continuing Budget SAFRA Appropriations Act Control Act Total Mandatory Funding ($M) Act ($M) ($M) of 2011 ($M) Appropriations ($M) Fiscal Year Award Year 2008 AY20082009 $2,041a __ __ __ __ $2,041 2009 AY20092010 $2,090 $643 __ __ __ $2,733 2010 AY20102011 __ __ $4,964b __ __ $4,964 2011 AY20112012 __ __ $18,815c __ __ $18,815 2012 AY20122013 __ __ Such Sumsd $3,183 $10,000 $13,183 and Such Sums 2013 AY20132014 __ __ Such Sums __ $7,000 $7,000 and Such Sums 2014 AY20142015 __ __ Such Sums __ Such Sums 2015 AY20152016 __ __ Such Sums __ Such Sums 2016 AY20162017 __ __ Such Sums __ Such Sums 2017 AY20172018 __ __ Such Sums $1,060 $1,060 and Such Sums 2018 AY20182019 __ __ Such Sums $1,125 $1,125 and Such Sums 2019 AY20192020 __ __ Such Sums $1,125 $1,125 and Such Sums 2020 AY20202021 __ __ Such Sums $1,140 $1,140 and Such Sums 2021 AY20212022 __ __ Such Sums $1,145e $1,145 and Such Sums Congressional Research Service 31 . Federal Pell Grant Program of the Higher Education Act Sources: CRS analysis of the HEA, the SAFRA Act, respective annual appropriations measures, the Budget Control Act of FY2011, and unpublished information from the U.S. Department of Education. a. Includes $11 million for the elimination of the tuition sensitivity rule in AY2007-2008. b. This amount is an estimate as of March 2011 and represents the total appropriations required to increase the discretionary maximum award of $4,860 by $690 to $5,550 in AY2010-2011. This amount also includes $472 million required to fund the mandatory add-on of $490 in AY2009-2010. Estimate is subject to change. c. Includes $13.5 billion in mandatory appropriations for general use in the program for FY2011 through the end of FY2012, as provided in the SAFRA Act. The remaining $5.3 billion is an estimate of the amount of appropriations required to increase the discretionary base maximum grant by $690 in AY2011-2012 and is subject to change. d. “Such Sums” means the amount of mandatory appropriations that may be necessary to fully fund the increase to the discretionary base maximum award at levels specified in the HEA for a given year. e. Additional annual mandatory appropriations in the amount of $1,145,000,000 are also provided for each succeeding year beyond FY2021. Discretionary Funding Shortfalls and Surpluses The annual discretionary appropriation level and base maximum Pell Grant level are determined well in advance of the award year they are intended to support and are based on estimates of program costs at that time. The annual appropriation is determined on the basis of estimates of the program costs that are likely to be incurred at the chosen discretionary base maximum grant. To the extent those estimates of future program costs are inaccurate, the annual appropriation may be too much or too little. The HEA requires the Secretary of Education, when he has determined that the appropriated funds are insufficient to satisfy all Pell entitlements,62 to notify each chamber of Congress of the funding shortfall, identifying how much more funding is needed to meet those entitlements. Table 9 provides a history of annual discretionary appropriations, estimated expenditures, and estimated annual shortfall or surplus levels from FY1973 to FY2011. Beginning with FY1990, the estimated cumulative funding shortfall or surplus is also provided. The annual funding shortfall or surplus differs from the cumulative shortfall or surplus, which may accumulate over multiple award years.63 It is also important to note that Congress may have provided a reduced appropriation level in a given year when a funding surplus was available for use from the previous year. Conversely, Congress may have provided additional appropriations in a given year to pay for an estimated funding shortfall from the previous year. 62 The authorizing statue speaks of entitlements when it describes the award determined for a student based on the published award schedule. 63 In general, the annual surplus or shortfall is a measure of the difference between one year’s appropriation, which is typically provided for a particular award year, and the estimated expenditures for that particular award year. The cumulative surplus is a measure that, in addition to including the annual surplus or shortfall, takes into account the prior year’s surplus or shortfall amount. Congressional Research Service 32 . Federal Pell Grant Program of the Higher Education Act Table 9. Annual and Cumulative Discretionary Funding Shortfalls in the Pell Grant Program, FY1973-FY2011 (dollars in millions) Discretionary Estimated Appropriation Total Annual Surplus Level Expendituresa or (Shortfall)b Cumulative Surplus or (Shortfall) Fiscal Year Award Year 1973 1973-1974 $122 $48 $74 N/A 1974 1974-1975 $475 $358 $117 N/A 1975 1975-1976 $840 $926 ($86) N/A 1976 1976-1977 $1,326 $1,475 ($149) N/A 1977 1977-1978 $1,904 $1,524 $380 N/A 1978 1978-1979 $2,160 $1,541 $619 N/A 1979 1979-1980 $2,431 $2,357 $74 N/A 1980 1980-1981 $2,157 $2,387 ($230) N/A 1981 1981-1982 $2,604 $2,300 $304 N/A 1982 1982-1983 $2,419 $2,421 ($2) N/A 1983 1983-1984 $2,419 $2,797 ($378) N/A 1984 1984-1985 $2,800 $3,053 ($253) N/A 1985 1985-1986 $3,862 $3,597 $265 N/A 1986 1986-1987 $3,580 $3,460 $120 N/A 1987 1987-1988 $4,187 $3,754 $433 N/A 1988 1988-1989 $4,260 $4,476 ($216) N/A 1989 1989-1990 $4,484 $4,770 ($75) — 1990 1990-1991 $4,804 $4,904 ($231) ($306) 1991 1991-1992 $5,376 $5,772 ($396) ($702) 1992 1992-1993 $5,503 $6,156 $18 ($684) 1993 1993-1994 $6,462 $5,621 $460 ($224) 1994 1994-1995 $6,637 $5,504 $808 $584 1995 1995-1996 $6,147 $5,466 $716 $1,300 1996 1996-1997 $4,914 $5,784 ($870) $429 1997 1997-1998 $5,919 $6,315 ($396) $33 1998 1998-1999 $7,345 $7,236 $109 $142 1999 1999-2000 $7,704 $7,233 $471 $613 2000 2000-2001 $7,640 $7,996 ($356) $256 2001 2001-2002 $8,756 $9,985 ($1,229) ($908) 2002 2002-2003 $11,314c $11,653 ($339) ($1,247) 2003 2003-2004 $11,365 $12,713 ($1,348) ($2,595) 2004 2004-2005 $12,007 $13,152 ($1,145) ($3,740) Congressional Research Service 33 . Federal Pell Grant Program of the Higher Education Act Discretionary Estimated Appropriation Total Annual Surplus Level Expendituresa or (Shortfall)b Cumulative Surplus or (Shortfall) Fiscal Year Award Year 2005 2005-2006 $12,365 $12,695 ($330) ($4,070)d 2006 2006-2007 $17,345e $12,826 $219 $219 2007 2007-2008 $13,661 $14,697 ($1,036) ($817) 2008 2008-2009 $14,215 $16,069 ($1,854) ($2,671) 2009 2009-2010 $32,928f $26,883 $6,045 $3,374 2010 2010-2011 $17,495 $31,595 ($14,100) ($10,726) 2011 2011-2012 $36,456g $31,479 $4,977 ($5,749) 2012 2012-2013 $13,183h TBD TBD $7,434 Sources: (1) U.S. Department of Education (ED), AY2009-10 Federal Pell Grant Program End-of-Year Report; (2) unpublished data provided by ED; and (3) unpublished data provided by CBO in August 2011. Notes: N/A= Not available. Data on the cumulative shortfall or surplus prior to AY1989-1990 could not be verified and therefore are not provided. Prior to 1980, the program was called the Basic Educational Opportunity Grant (BEOG) Program. a. The estimated total expenditure totals for AY1973-1974 through AY1988-1989 are taken from the U.S. Department of Education, AY2009-10 Federal Pell Grant Program End-of-Year Report and do not include administrative cost allowance payments to institutions. The expenditure totals for AY1989-1990 to AY2005-2006 are taken from unpublished data provided by ED and reflect administrative cost allowance payments to institutions. Estimates of all data after AY2005-2006 are provided by CBO and also include administrative cost allowance payments to institutions. All estimates of expenditures are subject to change. b. The annual shortfall or surplus amount reflects account transfers and other adjustments and may not equal the difference between the annual appropriation and estimated total expenditures in each year. c. Includes $1 billion in supplemental discretionary funding to pay for the FY2001cumulative shortfall. d. In FY2006, the cumulative shortfall was estimated at $4.3 billion, but the actual shortfall as of this report totals approximately $4.1 billion. Any excess funds were returned to U.S. Department of Treasury. e. Includes $4.3 billion in mandatory funding provided in FY2006 to exclusively supplement the discretionary funding necessary to retire the cumulative funding shortfall through AY2005-2006. The discretionary appropriation for FY2006 was $13,045 million. f. Includes approximately $15.7 billion in supplemental discretionary appropriations provided in the ARRA. g. Includes $13.5 billion in mandatory appropriations that were provided in the SAFRA Act for general use in the program through FY2012 and $22,956 million in discretionary appropriations provided in the FY2011 Continuing Appropriations Act. h. The FY2011 Continuing Appropriations Act included $3,183 million in mandatory appropriations for general use in the program for FY2012. The Budget Control Act of 2011(P.L. 112-25) also provided an additional $10 billion in mandatory appropriations for general use in the program for FY2012. In effect, these funds could be used to augment discretionary appropriations in FY2012, and therefore the cumulative funding shortfall through FY2011 would be eliminated, resulting in a temporary funding surplus pending final FY2012 appropriations action. Measures to Address Funding Shortfalls Over the years, federal policymakers and Congress have taken a variety of measures to address the vexing issues associated with funding shortfalls in the Pell Grant program. Funding shortfalls in the Pell Grant program have, on infrequent occasions in the past, led to reductions in students’ Congressional Research Service 34 . Federal Pell Grant Program of the Higher Education Act awards, recipient caps, or the need for supplemental appropriations, or to stagnating award levels from award year to award year. For the most part, funding shortfalls in the program have been accepted as common occurrences, but the measures employed to deal with them have varied. The relative size of the estimated funding shortfall in any given year is of particular interest to Congress, officials at ED, and student aid advocacy groups. It is important to note again that the Pell Grant program is often referred to as a “quasientitlement” and has been operated as an appropriated entitlement given the infrequency of reductions in students’ awards or imposed recipient caps since the 1990s. Most recent funding shortfalls in the Pell Grant program have not directly impacted eligible students’ awards. This section provides a brief chronological history of the measures adopted to address funding shortfalls in the program. Pre-2002 From the inception of the program in 1972 until the enactment of 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.64 Reductions were made in awards in eight years using this authority (the last in AY1990-1991). 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.65 FY2002 and subsequent appropriations legislation have not included such language. The Secretary can respond to a shortfall in Pell Grant funding by allocating funds from the most recently enacted appropriation to pay for obligations incurred in previous award years.66 This permits ED to use funds from multiple fiscal years’ appropriations to meet one award year’s cost. 64 Some form of authority to reduce awards was available to the Secretary between the inception of the program in 1972 and the 1992 amendments. Immediately prior to its repeal in 1992, the HEA provision permitted reduction in awards only within certain limits. No award could be reduced for students whose expected family contribution (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. No award could be made to a student whose initial award was reduced to less than $100 under the reduction formula. The original language creating the Basic Educational Opportunity Grants (BEOG), the predecessor to Pell Grants, in the Education Amendments of 1972 allowed for payments on a pro rata reduced basis and specified a minimum grant of $50 whenever the program was less than fully funded. 65 The appropriations legislation during this time period 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. 66 This response to the shortfall is only feasible if ED determines enough funds are available from the most recently enacted appropriation to meet obligations from multiple award years. A series of legal opinions at ED and other agencies in the 1990s provides the basis for the authority to use funds in an annual appropriation for multiple award years. In general, absent specific language in an annual appropriations measure limiting funds to a specific award year or purpose, the Secretary may use such funds for any award year during the period of availability specified in an appropriations measure. Congressional Research Service 35 . Federal Pell Grant Program of the Higher Education Act Funding Shortfalls From FY2002 to FY2006 During the period between FY2002 and FY2006, a very large funding shortfall accumulated, culminating at $4.1 billion in AY2005-2006. In short, the funding shortfall was a result of unexpected and significant growth in the number of Pell Grant applicants, driven primarily by a weakened economy, and a sustained misalignment between program cost estimates and annual appropriations. The accumulated shortfalls during this time period, however, did not result in a reduction of awards for any eligible student. The maximum grant level, on the other hand, remained stagnant at $4,050 from AY2003-2004 through AY2006-2007. Congress responded to the accumulated shortfall in FY2006 by providing $4.3 billion in mandatory appropriations to eliminate the shortfall that had accumulated through AY2005-2006. These mandatory funds were appropriated in the FY2006 appropriations legislation for Labor, Health and Human Services, and Education (P.L. 109-149). Refer to Table 9 for more information on the annual funding and expenditure levels that led to the $4.1 billion shortfall at the end of AY2005-2006. Adoption of FY2006 CBO Scoring Rule In addition to eliminating the AY2005-2006 funding shortfall, Congress took steps in FY2006 to limit the possibility of large accumulated funding shortfalls in the future. H.Con.Res. 95 established a permanent rule that applies to the scoring67 of the Pell Grant program by CBO. The rule provides that if the appropriations of new discretionary budget authority68 enacted for the program are insufficient to cover the full costs in the upcoming year—including any funding surplus or shortfall from prior years—the budget authority counted against the bill for the program will be equal to the adjusted full cost (i.e., total need). The rule also states that the budget authority for the program will be based on the maximum appropriated award amount and any changes to the eligibility criteria. Prior to the implementation of the FY2006 scoring rule, CBO accounted for budget authority in the Pell Grant program according to the level provided in each appropriation bill. While this approach is typical for most discretionary programs, the Pell Grant program is unique since it operates like an entitlement program and annual appropriations can be used to fund multiple award years. Prior to the adoption of the scoring rule, Congress could choose to fund new programs or increase the funding of existing programs subject to discretionary appropriations while providing less funding than required for the Pell Grant program. While the scoring rule cannot fully account for the challenges of estimating the cost of the program, it does constrain the accumulation of the funding shortfall by requiring Congress to annually reconcile previous years’ appropriation levels with updated estimates of previous years’ program obligations. 67 CBO “keeps score” for Congress by monitoring the results of congressional action on individual authorization, appropriation, and revenue bills against budget authority and outlay targets that are specified in the concurrent resolutions. 68 Budget authority is defined as the broad responsibility conferred by Congress that empowers government agencies to spend federal funds. Congressional Research Service 36 . Federal Pell Grant Program of the Higher Education Act Recent Funding Shortfalls and Surpluses (Post-Scoring Rule to FY2010) During the period from FY2006 to FY2010, the program experienced a mix of accumulated funding shortfalls and surpluses. From FY2006 to FY2008, CBO estimates that the program’s cumulative funding shortfall culminated at $2.7 billion.69 In FY2009, ARRA and the FY2009 Omnibus Appropriations Act (P.L. 111-8) provided a combined discretionary funding level of $32.9 billion. These funds were used to • retire the accumulated $2.6 billion funding shortfall in FY2008; 70 • increase the discretionary base maximum award by $619 to $4,860 in AY20092010; and • provide for a surplus of funds totaling $3.4 billion71 available for use through FY2011.72 In December 2009, the Consolidated Appropriations Act of FY2010 (P.L. 111-117) provided $17.5 billion in discretionary funds based on estimates of program costs for AY2010-2011 and the funding surplus in FY2009 as of March 2009. Between March 2009 and March 2010, however, the number of students applying for a Pell Grant in AY2009-2010 increased beyond historic trends as overall economic conditions continued to weaken and college enrollments increased. In March 2010, CBO published revised estimates of the program costs for AY2009-2010 and AY2010-2011, which incorporated the new economic trends and application growth not captured in the previous year’s estimates. Revised estimates released by CBO in March 2011 showed a cumulative funding shortfall of $10.7 billion through the end of FY2010. Impact of The SAFRA Act on the FY2010 Funding Shortfall As discussed earlier, the SAFRA Act provided $13.5 billion in mandatory appropriations for general use in the Pell Grant program. These mandatory appropriations are available for use from October 1, 2010, to September 30, 2012 and will be used to eliminate the estimated $10.7 billion discretionary shortfall in FY2010. Any remaining funds will be used to pay discretionary costs in AY2011-2012. 69 This estimate is current as of April 2011 and includes an annual funding surplus in FY2006 of $219 million. This estimate would have been lower at the time ARRA was enacted in January 2009. 71 The estimated surplus resulting from ARRA and the FY2009 Omnibus Appropriations Act was estimated by CBO to be substantially higher at the time of enactment of these bills in January 2009 and March 2009, respectively. Since students did not begin applying for a Pell Grant in AY2009-2010 until early January 2009, the substantial growth in the number of applicants was not captured until after these spending measures were enacted. 72 ARRA provided $15.6 billion in discretionary appropriations for use through the end of FY2011. House Conf. Report 111-004, which accompanied ARRA, states that $15.6 billion was provided for a $500 increase in the discretionary base maximum award for two years, but does not indicate the assumed base levels to which the $500 increase would be added. In effect, by extending the period of availability of funds to the end of FY2011, ARRA created a surplus of funds that would offset the costs of maintaining a $4,860 discretionary base award in AY20102011. The Explanatory Statement in the Congressional Record of February 23, 2009, which was issued in lieu of a conference report for the FY2009 Omnibus Appropriations Act, states that, combined with the funds provided in ARRA, the funds provided in the FY2009 Omnibus Appropriations Act will increase the discretionary maximum grant by $619 in AY2009-2010. 70 Congressional Research Service 37 . Federal Pell Grant Program of the Higher Education Act FY2011 Appropriations Discretionary The FY2011 Continuing Appropriations Act provided approximately $23 billion in discretionary appropriations for FY2011, or an increase of $5.5 billion over the FY2010 level of $17.5 billion. The discretionary base maximum award for AY2011-2012,73 as specified in the law, remains at $4,860, or the same level as AY2010-2011. When combined with the additional increase to the discretionary base maximum grant amount funded with mandatory appropriations provided in the SAFRA Act, the total maximum grant amount a student would be eligible for in AY2011-2012 is $5,550, or the same level as AY2010-2011. Effective July 1, 2011,74 the FY2011 Continuing Appropriations Act would also amend the HEA by eliminating a provision that allows for a student to receive up to two Pell Grants during a single award year.75 The President’s FY2012 Budget Request, released in February 2011, also proposed the elimination of this provision due to its unexpected high costs and the lack of early evidence to support accelerated completion times by students benefiting from the additional aid. The elimination of this provision generates savings on both the discretionary and mandatory side of the Pell Grant funding ledger, although savings from the mandatory portion are re-directed for future use in the program as specified annual mandatory appropriations. According to ED, approximately 9% of all Pell Grant recipients benefited from this provision in AY2009-2010. The FY2011 Continuing Appropriations Act also includes a provision that would prohibit the application of federal regulations in Title 34 Code of Federal Regulations (CFR) § 690.64(b) that pertain to the treatment of cross-over payment periods when determining a student’s award amount in 2011. A cross-over payment period is any period that includes both June 30 and July 1. For the purposes of awarding Pell Grant aid, this period must be assigned to a specific award year. Federal regulations issued in October 2009 require institutions to assign the payment period to the award year in which a student receives the greater payment. Absent this provision, a student who may have a higher calculated Pell Grant in AY2011-2012 (as compared to AY2010-2011) due to a change in his or her EFC or other eligibility criteria, would be paid from AY2011-2012 funds, potentially limiting the amount of Pell Grant aid available in future enrollment periods. The regulatory override would prevent the scenario of a student who is newly limited to only one Pell Grant award in an award year being enrolled for a 2011 summer term cross-over period and having the Pell Grant award for the summer term crossover period applied toward the student’s single AY2011-2012 Pell Grant award amount. In effect, this provision would allow an eligible student who is enrolled for a summer term during the cross-over period from June 30, 2011, to July 1, 2011, to receive Pell Grant aid for the cross-over period from AY2010-2011 funds. 73 AY2011-2012 will begin on July 1, 2011, and end June 30, 2012. The language in P.L. 112-10 specifically states that this provision shall be effective with respect to the 2011-2012 award year and succeeding award years. 74 75 This provision was recently enacted in the Higher Education Opportunity Act (HEOA; P.L. 110-315) and became effective July 1, 2009. The U.S. Department of Education issued final regulations on this provision on October 29, 2009 that can be accessed online at http://edocket.access.gpo.gov/2009/pdf/E9-25373.pdf. Congressional Research Service 38 . Federal Pell Grant Program of the Higher Education Act Mandatory Under the FY2011 Continuing Appropriations Act, a total of $8.8 billion in specified annual mandatory appropriations are provided for the Pell Grant program for general use beginning in FY2012 through FY2021.76 These appropriations are paid for with estimated mandatory savings from the elimination of the aforementioned provision that allows for two Pell Grants in one award year.77 The availability of these mandatory appropriations is akin to the $13.5 billion in mandatory appropriations provided in the SAFRA Act and could be used to pay for future discretionary costs. Current Legislative Issues This section provides brief overviews of issues that may be considered by Congress as it deliberates on the Pell Grant program. Most of these issues focus on the potential challenges in funding the program, both in the short-term and in the long-term. This section also presents some of the possible causes behind the recent increases in program costs. Program Cost Escalation The program has experienced significant increases in program costs over the past several years. Table 10 provides a summary of Pell Grant program costs, including costs funded with both mandatory and discretionary funds, from FY2007 (AY2007-2008)78 through FY2011 (AY20112012). Table 10 shows that the increase in the federal government’s obligations for the Pell Grant program doubled from AY2007-2008 to AY2009-2010 and increased an additional 23% in AY2010-2011. Moreover, the total obligations during this same time period totaled $136.4 billion. Table 10. Pell Grant Program Costs, AY2007-2008 to AY2011-2012 (dollars in billions) Award Year (AY) Cost Associated with Discretionary Award Levels Cost Associated with Mandatory Award Levels Total Program Cost AY2007-2008 14.7 N/A 14.7 AY2008-2009 16.1 2.3 18.4 AY2009-2010 26.9 3.0 29.9 76 Additional annual mandatory appropriations in the amount of $1,145,000,000 would also be provided in each succeeding year beyond FY2021 under the FY2011 Appropriations Act. 77 Provisions included in appropriations acts that affect mandatory spending programs are commonly called “changes in mandatory program spending,” or CHIMPS. CHIMPS may reduce or increase mandatory outlays in the current fiscal year or future fiscal years. CHIMPS are used more frequently in other federal programs, such as certain agricultural programs. For more information, see CRS Report R41245, Reductions in Mandatory Agriculture Program Spending, by Jim Monke and Megan Stubbs. 78 AY2007-2008 is used as the base year in this section since it was the last year the program was funded exclusively with discretionary appropriations. Congressional Research Service 39 . Federal Pell Grant Program of the Higher Education Act Award Year (AY) Cost Associated with Discretionary Award Levels Cost Associated with Mandatory Award Levels Total Program Cost AY2010-2011 31.6 5.0 36.6 AY2011-2012 31.5 5.3 36.8 Total 120.8 15.6 136.4 Source: Congressional Budget Office (CBO), Federal Pell Grant Program, Discretionary Baseline, Cumulative Surplus/Shortfall, and Funding Gap, April 2011. Notes: N/A= not applicable. Estimates of program costs are as of April 2011 and are subject to change. Most of the factors contributing to the escalation in program costs can be attributed to a combination of (1) legislative changes that have led to increased benefits for more students; (2) increases in the number of students enrolling in postsecondary education and applying for Pell Grant aid; and (3) a weakened economy. The following section examines possible reasons for increased program costs over the past several years. Large Increase in the Discretionary Base Maximum Award As discussed earlier, ARRA and the FY2009 Omnibus Appropriations Act established a $619 increase ($4,241 to $4,860) in the discretionary base maximum Pell Grant award from AY20082009 to AY2009-2010, which represented the largest one-year increase in the base maximum award in the history of the program. Prior to the enactment of the ARRA, the largest one-year increase to the base maximum Pell Grant award was $598, from $452 to $1,050 between AY1973-1974 and AY1974-1975.79 Funding provided by ARRA was treated as a temporary supplement to existing appropriations in many federal programs. In the Pell Grant program, ARRA provided temporary supplemental funding to increase the discretionary base maximum award, but also established a de facto floor of $4,860 for the discretionary base maximum award in future years. The Consolidated Appropriations Act of FY2010 and the FY2011 Continuing Appropriations Act also specified a discretionary base maximum award of $4,860 for AY2010-2011 and AY2011-2012, respectively. An increase to the discretionary base maximum award in AY2011-2012 is estimated to cost, in general,80 between $500 million and $700 million per $100 increase. Moreover, an increase to the discretionary base maximum award in any year may result in additional residual baseline costs that must be absorbed in future years, absent a reduction to the discretionary maximum grant or other changes to program eligibility. 79 In inflation-adjusted dollars, the $598 increase between AY1973-1974 and AY1974-1975 would have represented a substantially larger increase than the $619 increase between AY2008-2009 and AY2009-2010. 80 Estimates for the costs associated with a $100 increase to the discretionary base maximum award vary from award year to award year because of different eligibility parameters and other technical assumptions. The range listed here is current for AY2011-2012 as of March 2010 and was provided by CBO. Congressional Research Service 40 . Federal Pell Grant Program of the Higher Education Act Increase in FAFSA Applications and College Enrollments According to data provided by ED, the number of students who submitted a valid application for a Pell Grant in AY2008-2009 increased by 13% compared to AY2007-2008.81 Moreover, in AY2009-2010 the number of valid applicants increased 18.8% compared to AY2008-2009. Preliminary data suggest the number of students who have submitted a valid application for a Pell Grant in AY2010-2011 has increased by 8.5% over the same time period last year for AY20092010. Recent efforts by ED and Congress to simplify the web-based version of the Free Application for Federal Student Aid (FAFSA) may be a factor contributing to increased FAFSA applications.82 Additionally, the coordination between ED and the U.S. Department of Labor to notify Unemployment Insurance (UI) beneficiaries of their potential eligibility to receive a Pell Grant may also be a contributing factor to increased enrollments and FAFSA applications. 83 In general, students may be more aware of federal financial aid as a result of efforts to promote its availability and the overall benefits of higher education. All of these factors, when considered collectively, can have a measurable impact on the costs of the program. Recent Economic Conditions Recent economic trends may also be a contributing factor to increased Pell Grant costs. For example, students may choose to enroll in college and attend at a higher intensity since the opportunity costs of forgoing employment in a weak job market are much less. More importantly, displaced workers may find it necessary to return to college to gain new technical and vocational skills to compete in the changing job market. The financial resources of some families may also be substantially less in the current economic conditions, given higher unemployment figures, stagnant wages, and a period of weakened investment markets. Furthermore, guidance issued by ED in April and May 2009 encourages financial aid administrators to use their professional judgment authority, pursuant to section 479A of the HEA, to make adjustments, on the basis of adequate documentation and on a case-by-case basis, to address circumstances not reflected in the FAFSA of a recently unemployed individual. 84 Legislative Changes to the Federal Need Analysis Calculation and Award Rules Recent legislative changes to the federal need analysis calculation and Pell Grant award rules have, for the most part, benefited students and expanded eligibility for the Pell Grant program. Typically, when changes to the federal need analysis calculation and program award rules are enacted under authorizing legislation, the additional discretionary costs in the program are paid 81 In recent years, CBO and ED assumed applicant growth in the program would not exceed 10% to 15% over the previous year when projecting estimated demand in the program. In most years, however, the overall Pell Grant applicant growth rate is projected at 3% to 8% based on historical averages. 82 For example, see http://www.ifap.ed.gov/eannouncements/attachments/ 111909FAFSAWebPrePresentation1011.ppsx. 83 See Training and Employment Guidance Letter No. 21-08, issued by the U.S. Department of Labor on May 8, 2009, http://wdr.doleta.gov/directives/attach/TEGL/TEGL21-08acc.pdf. 84 See Dear Colleague Letters GEN-09-04 and GEN-09-05 at http://ifap.ed.gov/dpcletters/attachments/GEN0904.pdf and http://ifap.ed.gov/dpcletters/attachments/GEN0905.pdf, respectively. Congressional Research Service 41 . Federal Pell Grant Program of the Higher Education Act for in subsequent annual appropriations. Recent legislative changes to the need analysis calculation that have resulted in higher discretionary costs include, but are not limited to, (1) expansion of the automatic zero EFC qualification in both the HERA and CCRAA; (2) the increase in the income protection allowance levels for all students in the HERA and the CCRAA; (3) the elimination of certain untaxed income and benefits in the CCRAA; and (4) a variety of exclusions and benefits regarding the treatment of veterans education benefits, and military benefits and allowances enacted under the HEOA. A provision that allowed a student to receive up to two Pell Grants in a single award year beginning in AY2009-2010 also had a significant impact on program costs, in part due to the regulatory interpretation of the provision, as well as unanticipated participation. The FY2011 Continuing Appropriations Act eliminated this provision effective July 1, 2011, resulting in significant savings for the program. Budget Control Act of 2011 and FY2012 Appropriations The Budget Control Act of 2011 (BCA; P.L. 112-25) was recently enacted in August 2011 to address issues related to the budgetary deficit and debt of the United States government. The BCA also provided mandatory funding for the Pell Grant program for FY2012 and FY2013. An additional $10 billion in mandatory funding was provided for general use in FY2012 and an additional $7 billion in mandatory funding for general use in FY2013, for a total of an additional $17 billion. Other than providing additional mandatory funding, the BCA does not make any other changes to the Pell Grant program. The BCA does not specify the discretionary base maximum award level for AY2012-2013 or AY2013-2014. The availability of these additional mandatory appropriations is akin to (1) the additional mandatory appropriations provided in the FY2011 Continuing Appropriations Act as a result of the elimination of the year-round Pell provision, and (2) the $13.5 billion in mandatory appropriations provided in the SAFRA Act. That is, these mandatory funds may be used to pay for future obligations associated with provisions that primarily affect discretionary spending in the program. The total discretionary funding required in FY2012 to maintain the program’s current eligibility parameters, including a maximum award of $4,860 in AY2012-2013, is estimated at $31.7 billion. The $10 billion mandatory funding provided in the BCA for FY2012 would first be used to pay for an estimated $2.6 billion discretionary funding shortfall from the previous year, AY20112012, leaving approximately $7.4 billion for use in AY2012-2013, effectively lowering the amount of discretionary appropriations required in FY2012 from $31.7 billion to $24.3 billion. Compared to the previous year’s funding level of approximately $23 billion, Congress would need to provide an additional $1.3 billion to maintain the current award and eligibility parameters in AY2012-2013. To fill this gap in the upcoming FY2012 appropriations process, Congress may choose to (1) reduce costs in the program by changing the current eligibility parameters, (2) seek offsets in other mandatory programs or savings from mandatory spending in the Pell Grant program, (3) provide additional funding over the FY2011 level, or (4) a combination of the above. Moreover, given the restrictive discretionary budgetary caps resulting from the BCA and competing priorities in the Labor, Health and Human Services (HHS), and Education appropriations, Congress may choose to provide an amount below the FY2011 level. Congressional Research Service 42 . Federal Pell Grant Program of the Higher Education Act The additional mandatory funding provided for the Pell Grant program in the BCA is offset with estimated mandatory savings from the elimination of provisions in the William D. Ford Direct Loan (DL) program. These changes to the DL program would be effective beginning with award year 2012-2013, which starts July 1, 2012.85 FY2012 Budget Resolution On April 20, 2011, the House passed House Concurrent Resolution (HCR) 34, also known as the FY2012 House Budget Resolution. H.Rept. 112-58 provides some details on HCR 34, including proposals to reform the Pell Grant program in a number of ways. A few selected proposals (as depicted in H.Rept. 112-58) include • adopting a sustainable maximum award level, • rolling back some of the need analysis changes enacted in previous legislation, and • setting stricter lifetime time limits on eligibility for Pell Grant aid. Beyond FY2012 The Pell Grant program, which represents a significant public investment in higher education, may continue to present funding challenges and difficult policy choices for Congress in future years based on current eligibility parameters and projected demand. Congress may choose to further evaluate, particularly within a fiscal environment that currently projects increased deficits, the effectiveness of and relative need for varied public investments in light of many competing priorities. 85 For a description of the DL program and changes proposed in the House and Senate versions of the Budget Control Act of 2011, see CRS Report R40122, Federal Student Loans Made Under the Federal Family Education Loan Program and the William D. Ford Federal Direct Loan Program: Terms and Conditions for Borrowers, by David P. Smole. Congressional Research Service 43 . Federal Pell Grant Program of the Higher Education Act Appendix. Tables on Selected Pell Grant Information Prior to the Enactment of the SAFRA Act Table A-1. Authorized Maximum Pell Grant Award Amounts (Pre-SAFRA Act), AY2009-2010 Through AY2014-2015 Fiscal Year Award Year Authorized Maximum Award FY2009 AY2009-2010 $6,000 FY2010 AY2010-2011 $6,400 FY2011 AY2011-2012 $6,800 FY2012 AY2012-2013 $7,200 FY2013 AY2013-2014 $7,600 FY2014 AY2014-2015 $8,000 Source: HEA. Table A-2. Mandatory Add-On Amounts to the Base Maximum Award (Pre-SAFRA Act), AY2008-2009 to AY2012-2013 Award Year Mandatory Add-On Amount AY2008-2009 $490 AY2009-2010 $490 AY2010-2011 $690 AY2011-2012 $690 AY2012-2013 $1,090 Source: HEA. Congressional Research Service 44 . Federal Pell Grant Program of the Higher Education Act Table A-3. Mandatory Appropriations for the Pell Grant Program (Pre-SAFRA Act), FY2008-FY2017 (dollars in millions) ARRA Funding FY2009 Technical Amendments to the HEA $2,041 __ __ $2,041 AY2009-2010 $2,090 $643 __ $2,733 FY2010 AY2010-2011 $3,030 $831 __ $3,861 FY2011 AY2011-2012 $3,090 __ __ $3,090 FY2012 AY2012-2013 $5,050 __ __ $5,050 FY2013 AY2013-2014 $105 __ $153 $258 FY2014 AY2014-2015 $4,305 __ __ $4,305 FY2015 AY2015-2016 $4,400 __ $52 $4,452 FY2016 AY2016-2017 $4,600 __ __ $4,600 FY2017 AY2017-2018 $4,900 __ __ $4,900 $33,611 $1,474 $205 $35,290 Award Year CCRAA Funding FY2008 AY2008-2009 FY2009 Fiscal Year Total Mandatory Appropriations (FY2008 to FY2017) Total Mandatory Appropriations Source: CRS analysis of the HEA prior to the enactment of the SAFRA Act. Author Contact Information Shannon M. Mahan Specialist in Education Policy smahan@crs.loc.gov, 7-7759 Congressional Research Service 45