CONGRESS OF THE UNITED STATES CONGRESSIONAL BUDGET OFFICE CBO The Federal Pell Grant Program: Recent Growth and Policy Options Percent 160 140 Spending 2012-2013 Electronic Student Aid Report (SAR) 120 The SAR summarizes the information you submitted on your 2012-2013 Free Application for Federal Student Aid (FAFSA). Application Receipt Date: 02/11/2012 XXX-XX- XXXX Processed Date: 07/31/2012 EFC: 04929 * 100 DRN: xxxx Comments About Your Information Recipients 80 Learn about federal tax benets for education , including the American Opportunity Tax Credit (AOTC). Based on the information we have on record for you, your EFC is 04929. You may be eligible to receive a Federal Pell Grant and other federal student aid. Your 60 school will use your EFC to determine your nancial aid eligibility for federal grants, loans, and work-study, and possible funding from your state and school. Your FAFSA has been selected for a review process called verication. Your school has the authority to request copies of certain nancial documents from you and your parent(s). 40 Average WHAT YOU MUST DO NOW (Use the checklist below to make sure that all of your issues are resolved.) Grant 20 Amount Be sure to review the items marked with a 'h' and make any corrections if necessary by clicking 'Make FAFSA Corrections' on the 'My FAFSA' page. If you need to make corrections to your information, click 'Make FAFSA Corrections' on the 'My FAFSA' page. You must use your Federal Student Aid PIN to 0 access your record online. If you need additional help with your SAR, contact your school's nancial aid oce or click the 'Help' icon on the FAFSA home page. If 2006–2007 2007–2008 2008–2009 2009–2010 2010–2011 2011–2012 Growth in the Pell Grant Program Between Award Years 2006–2007 and 2011–2012 SEPTEMBER 2013 Notes This report presents spending on the Federal Pell Grant Program by the program’s award years, which run from July 1 to June 30. Unless otherwise indicated, figures for government spending that are expressed as constant 2012 dollars were converted from nominal amounts using the price index for personal consumption expenditures, which is calculated by the Bureau of Economic Analysis. Numbers in the text and tables may not add up to totals because of rounding. CBO Pub. No. 4451 Contents Summary 1 Why Did the Program’s Costs Increase So Much? 1 How Would Various Policy Changes Affect the Program? 2 How Else Might the Federal Government Provide Aid to Low-Income Students? 4 The Federal Pell Grant Program 4 Eligibility 4 Grant Amounts 5 Where Pell Grant Recipients Use Their Awards 5 BOX: FUNDING FOR THE PELL GRANT PROGRAM 6 Effects of the Pell Grant Program 8 Recent Growth in Spending 8 Increase in Recipients 9 BOX: DOES THE PELL GRANT PROGRAM ENCOURAGE LOW-INCOME STUDENTS TO PURSUE POSTSECONDARY EDUCATION?10 Increase in Grant Amounts 15 Options for Changing the Program 16 Reduce the Number of Grant Recipients 17 Reduce Grant Amounts 22 Implement a Combination of Options to Reduce the Number of Recipients and Grant Amounts 23 Increase Grant Amounts 23 Simplify Eligibility Criteria and the Grant Application 24 Alternatives to the Program 26 Forgivable Loans 26 Grant Commitments to Middle and High School Students 27 Supplements to States’ Grant Programs 28 Occupational Training Grants 28 List of Tables and Figures 30 About This Document 31 CBO The Federal Pell Grant Program: Recent Growth and Policy Options Summary The recession of 2007–2009 and the subsequent slow The Federal Pell Grant Program was created to improve recovery drew more students into the recipient pool. the access of low-income students to postsecondary edu- Eligibility increased as adult students and the families cation. Grant recipients enroll at a variety of educational of dependent students experienced losses in income and institutions, including four-year colleges and universities, assets; enrollment of eligible students also rose as people for-profit schools, two-year community colleges, and who had lost jobs sought to acquire new skills and institutions that specialize in occupational training. people who would have entered the workforce enrolled in Grants are awarded on the basis of financial need and aca- school because they could not find employment. The demic course load, and the maximum grant a student can expansion of online education, particularly at for-profit receive for the 2013–2014 award year is $5,645. During institutions, attracted still more students, many of whom the most recent award year for which data are available were eligible for Pell grants. Rising tuition has put more (July 1, 2011, to June 30, 2012), the program provided pressure on family finances and made applying for the $33.6 billion in grants to some 9.4 million students at program more attractive. Legislated policy changes, U.S. educational institutions. including larger grants, simpler applications, expanded eligibility, and the increased availability of federal aid The cost of the program has risen dramatically in for online study, provided more grants to students recent years. From 2006–2007 to 2010–2011, real who would have enrolled even without the changes (inflation-adjusted) spending on Pell grants increased and encouraged others to enroll and submit grant by 158 percent. That change resulted from an 80 percent applications. rise in the number of recipients and a 43 percent real increase in the amount of the average grant during those Growth in the amount of the average Pell grant also con- four years (see Figure 1). Spending for the program tributed to rising program costs; that average rose by declined in 2011–2012 because of a reduction in the more than 50 percent (in nominal terms) between the amount of the average grant. 2006–2007 and 2010–2011 award years (and then declined in 2011–2012). Legislated changes to the pro- Why Did the Program’s Costs Increase So Much? gram played a significant role in those developments. The large increase in the number of grant recipients was First, lawmakers raised the maximum grant each year the most significant contributor to the program’s rising from 2006–2007 to 2010–2011, thereby increasing the costs. The expansion had its roots in several factors: size of almost all grants. The maximum grant rose from $4,050 to $5,550 over that period (and then remained Changes in the economy, unchanged for 2011–2012). The higher maximum boosted grants for recipients who would have been eligi- Changes in the way postsecondary education is ble under the 2006–2007 maximum by an average of provided, and $1,200 compared with what they would have received if the maximum grant had not increased. Second, law- Choices made by policymakers to expand the makers established a supplemental grant for year-round program. students in 2009–2010 and 2010–2011, which was then CBO 2 THE FEDERAL PELL GRANT PROGRAM: RECENT GROWTH AND POLICY OPTIONS SEPTEMBER 2013 Figure 1. Growth in the Pell Grant Program Between Award Years 2006–2007 and 2011–2012 (Percent) 160 140 Spendinga 120 100 80 Recipients 60 40 Average Grant Amounta 20 0 2006–2007 2007–2008 2008–2009 2009–2010 2010–2011 2011–2012 Source: Congressional Budget Office based on data from the Department of Education. a. Adjusted for inflation to 2012 dollars using the personal consumption expenditures price index. repealed for the 2011–2012 award year. That change first The amounts of the grants could be cut by reducing the increased and then decreased the average grant amount size of all of the grants, either immediately or gradually, for all recipients by more than $200. or by shrinking the amounts available for particular groups of students. To maximize savings, options that How Would Various Policy Changes tighten eligibility could be combined with those that Affect the Program? reduce the size of grants. Analysts and policymakers have expressed concerns about the cost of Pell grants, the grants’ adequacy to help pay Alternatively, if policymakers believed that the current for education, and the complexity of the rules for eligibil- grant amounts are too small, they could increase the size ity and the application process. The Congressional of grants for all low-income students, immediately or Budget Office (CBO) has examined options that have gradually, or offer greater amounts to students who make been proposed to address those concerns, in several particular educational choices. categories: Another set of options could reduce the program’s com- Reduce the number of grant recipients, plexity by simplifying the criteria for eligibility and the grant application. One approach would reduce the Reduce the amounts of the grants, amount of financial information applicants must provide on the Free Application for Federal Student Aid Increase the grant amounts, and (FAFSA); another would tie eligibility to federal poverty guidelines. Simplify eligibility criteria and the grant application. The effects of the options would depend on how they Options for reducing the number of students receiving were specified and implemented. CBO analyzed illustra- grants include tightening one or more of the major tive versions of each to estimate effects on recipients and criteria for eligibility, which pertain to financial need, program costs (see Table 1). For example, reducing the academic readiness for enrollment, academic progress maximum grant to $4,860 in 2014–2015 would save an once enrolled, and enrollment in a minimum number of average of about $7 billion annually over 10 years, credit hours. whereas increasing that maximum amount to