Amid Federal Upheaval, a Pell Shortfall Looms

Amid all the chaos and upheaval for federal higher education policy, the Pell Grant program is running out of money.

In January, the Congressional Budget Office projected a $2.7 billion budget shortfall for the program next fiscal year, its first shortfall in over a decade. By fiscal year 2026–27, the CBO projects that the program will be short $10 billion unless Congress puts more money toward the grants.

The Pell Grant provides need-based federal financial aid for more than 30 percent of American college students. College access advocates have worried for years about the program’s financial health and warn that without a funding increase, low-income students will lose essential funding that already fails to keep up with rising tuition costs and inflation.

Because the Pell shortfall isn’t in the official spending baseline yet, it won’t need to be addressed by the March 14 deadline to pass a federal budget. But Rachel Fishman, director of the higher education program at the left-leaning think tank New America, said Congress will need to act sometime before Sept. 30, the start of fiscal year 2026.

She added that if Congress doesn’t make up for the funding gap, “the impact could be vast.”

“Pell funding doesn’t just increase enrollment and help students afford college, it also increases completion rates,” Fishman said. “As it stands, even without further cuts, there are major gaps in what students need from the program.”

The multibillion-dollar shortfall is a major shift from last June, when the CBO actually projected a budget surplus for Pell and said it didn’t expect a shortfall until 2029. But the deficit has been looming for years; a few months earlier, in March, the Biden administration predicted a $1.3 billion shortfall. Last summer’s turnaround was largely due to predictions that the bungled rollout of the Free Application for Federal Student Aid would lead to a major decline in enrollment.

In reality, enrollments increased by 5 percent. And because of changes in the FAFSA formula, the number of Pell recipients increased, too, by 12.6 percent, according to a report from the Urban Institute. These unexpected increases may have actually expedited the program’s budget crisis.

Last time Pell faced a shortfall, in 2012, it led to cuts that have hobbled the program’s impact ever since. Congress lowered the number of semesters a student is eligible for the grant from 18 to 12, a particularly rough outcome for community college students, adult learners and part-time stop-outs. They also changed Pell Grants from year-round payouts to strictly focus on the traditional academic year, cutting off aid for summer classes. Year-round Pell was restored in 2017, under the first Trump administration, after a significant push from lobbyists and advocates.

Mounting that kind of fight may prove a more difficult challenge now. This cycle, the federal government’s appetite for spending cuts seems larger than ever, especially in the Education Department.

While $3 billion is a small chunk of the total education budget, it would be a significant boost to the $34 billion currently in the budget proposal for next fiscal year. Michele Zampini, senior director of college affordability at the Institute for College Access and Success, said the newest Republican push for austerity in higher education funding bodes poorly for the chances of avoiding a Pell shortfall.

“Even in a less contentious environment where higher ed isn’t under attack, we still saw these kinds of program cuts,” she said. “So we are really trying to raise the alarm now.”

A Fickle Funding Process

The Pell program has a unique federal funding model that relies on two different streams of money: mandatory funding, enshrined in law and not subject to annual approvals by Congress, and discretionary funding, which changes each year during the appropriations process.

Fishman said that’s a primary source of the funding issues. Despite being treated in part as a protected entitlement program, the fact that a large portion of the Pell budget is subject to regular congressional approval subjects it to shifting political whims.

“It’s this constant cycle that puts the program at risk every year,” she said.

In recent years, preserving Pell funding has been a fairly bipartisan priority, even if proposals to expand it have not always been so. But with the new Republican trifecta in Washington in lockstep with the Trump administration, Fishman fears getting the funds will be a bigger challenge than ever before.

“The House is taking their marching orders from Trump now, and he’s made it clear he has no interest in preserving education, especially higher education,” she said.

Fishman said she’s concerned that the general environment around Trump’s education policies have overwhelmed the capacity of student advocacy groups and allies on Capitol Hill to defend the Pell program.

“Normally there’d be a lot of mobilization around a Pell shortfall, but it’s being crowded out now with everything else going on,” she said. “It could easily fall by the wayside if it is not championed by the people it matters to right now, reminding Republicans that this is bipartisan and important … Once these things are lost, it’s a really hard fight to bring them back.”

How Likely Are Pell Cuts?

Zampini has hope that bipartisan support for Pell is still strong enough to save the program from drastic cuts, especially since workforce development initiatives are dependent on Pell funding and many rural students in red states rely on it for college.

“We may not see an increase to the grant this year, and it may lose value and not be inflation adjusted. But at the very least, we are very hopeful that [lawmakers] will recognize the importance of at least keeping funding level,” she said. “Let’s hope that’s enough to win the day.”

Other experts say that in the current spending environment, it will be difficult to avoid some difficult concessions, potentially even worse than the cuts made in 2012.

Sandy Baum, a senior fellow at the Urban Institute, said Congress could make up for the shortfall by raising the threshold for a minimum grant, meaning students who currently qualify for a few hundred dollars a semester would no longer be Pell eligible.

“You could argue that that would be less of a serious problem than taking a lot of money away from people eligible for the maximum,” she said.

Baum worries about a scenario where Republicans not only make major cuts to the program but tie Pell eligibility to certain institutional characteristics. That could be graduation rates or gainful-employment metrics, which would cause issues for many colleges that serve primarily low-income populations that rely heavily on Pell Grants. They could also take away Pell eligibility from students who attend very wealthy colleges, with the assumption that those institutions could make up for it with their own endowments—something lawmakers tried in 2023.

“There are not very many colleges that could do that,” she said. “That could have a really serious impact on the ability of low-income students to go to these institutions.”

The “doomsday scenario,” Baum said, is that Pell Grants become overtly politicized, where the government bases colleges’ eligibility on things like adherence to new anti-DEI orders. On Feb. 14 the Education Department issued a letter threatening colleges with the loss of federal funding if they did not eliminate all race-conscious programs.

“They could decide you don’t get Pell if you go to a school they don’t like,” she said. “It’s extremely unlikely, but it no longer seems out of the question.”

Another possibility is that the Education Department and congressional Republicans don’t make up the shortfall for traditional Pell Grants but do provide funding for short-term Pell, which would expand eligibility to students enrolled in vocational training and credential programs that run between eight and 15 weeks. Linda McMahon, Trump’s nominee to be education secretary, has expressed support for short-term Pell in the past, though recent attempts to legislate the expansion have fallen short.

Fishman said putting money into short-term Pell while most grants for students attending four- and two-year institutions still fall far behind their financial need would be “totally reckless.” She worries that if Republicans attempt to save the Pell program from cuts or expand short-term Pell, they would do so by pulling funding from other areas of the higher education budget.

“You’d have to cut something, and there’s not a lot of things left at that point if you look around at the education portfolio,” she said. “It’s like a crazy Tetris game, trying to make it all work.”