Looming $2.7 billion Pell Grant shortfall poses a new threat for college aid​on February 8, 2025 at 3:00 pm

College advocates breathed a sigh of relief when the U.S. Department of Education said the Trump Administration’s “federal funding freeze” would not affect federal Pell Grants and student loans. 

Nearly 75% of all undergraduates receive some type of financial aid, according to the National Center for Education Statistics. About 40% of college students rely on Pell Grants, a type of federal aid available to low-income families who demonstrate financial need on the Free Application for Federal Student Aid application.

For these students and their families, this aid is crucial for college access.

However, there’s a problem brewing.

The Congressional Budget Office in January released new supplemental projections for the Pell Grant program, which now estimate a $2.7 billion funding shortfall for the 2025 fiscal year. 

“If program funding is not shored up, students could face eligibility or funding cuts for the first time in more than a decade,” said Michele Zampini, senior director of college affordabilityat The Institute for College Access & Success. “We are back in the danger zone.”

The new, simplified FAFSA, which first launched in 2023, was meant to improve access by expanding Pell Grant eligibility to provide more financial support to low- and middle-income families.

But overall, the number of Pell Grant recipients is down significantly.

In fact, the number of Pell Grant recipients peaked over a decade ago, when 9.4 million students were awarded grants in the 2011-12 academic year, and sank 32% to 6.4 million in 2023-24, according to the College Board, which tracks trends in college pricing and student aid.

Now data from the Department of Education shows that many more students are on track to receive Pell Grants this year: As of Dec. 31, more than 9.3 million 2024–25 FAFSA applicants were eligible for a Pell Grant. Among recent high school graduates attending college for the first time, the number of Pell recipients is up 3.3% compared to a year earlier, an increase of approximately 30,000 students.

Although there have been other times when the Pell Grant program operated with a deficit, this year’s shortfall “was perhaps made worse by the changes to Pell Grant eligibility that increased the number of students eligible for the Pell Grant starting in 2024-25,” said higher education expert Mark Kantrowitz.

Not only do more students now qualify for a Pell Grant because of changes to the financial aid application, but more students are also enrolling in college — a reversal from the significant decline in college-bound students after the pandemic.

Freshmen enrollment jumped 5.5% this fall compared with last year, with the sharpest gains among those from the lowest-income neighborhoods, according to a recent analysis by the National Student Clearinghouse Research Center. (Because of a “methodological error” in research group’s preliminary enrollment findings, the rebound in freshmen enrollment this year was particularly striking.)

“They really low-balled enrollment projections,” Zampini said.”Program costs are based on how many students are expected to enroll in a given year and how many of those students will be eligible for Pell funding.”

The Congressional Budget Office’s projected change from a surplus to a deficit is due in part to that shift in enrollment figures from a decrease to an increase, according to Kantrowitz. 

The Pell program functions like other entitlement programs, such as Social Security or Medicare, where every eligible student is entitled to receive a Pell award.

However, unlike those other programs, the Pell program does not rely solely on mandatory funding that is set in the federal budget. Rather, it is also dependent on some discretionary funding, which is appropriated by Congress.

In 2024, the discretionary portion of Pell Grant program was estimated to cost about $24.5 billion, funded with $22.5 billion of appropriations, $1.2 billion of mandatory dollars and less than $1 billion of reserves, according to the Committee for a Responsible Federal Budget.

More from Personal Finance:
Morehouse College president: Trump funding freeze is an ‘existential threat’
Student loan debt swelled under Biden, despite historic forgiveness
What shutting down the Education Dept, could mean for student loans

Because Congress appropriates discretionary funds for the program based on projections of how much it will cost in the upcoming year, “there is an inevitable annual mismatch between how much the program costs and how much funding is actually available,” Zampini said.

“It becomes a guessing game,” she added.

In previous years, Congress has provided supplemental funding to avoid a shortfall. But if Congress doesn’t fix this problem, “the U.S. Department of Education would be forced to respond by either cutting eligibility or the average grant,” Kantrowitz said.