College advocates were relieved when the U.S. Department of Education confirmed that the Trump Administration’s “federal funding freeze” would not impact Pell Grants or student loans. Pell Grants, which help low-income students, are essential for many families, with 40% of college students depending on them. However, a new report from the Congressional Budget Office warns of a $2.7 billion shortfall for Pell Grants in the 2025 fiscal year. Without additional funding, students could face cuts to eligibility or funding, which hasn’t happened in over a decade, putting college access at risk.
“Increase in Students Eligible for Pell Grants”
The simplified FAFSA introduced in 2023 aimed to expand Pell Grant eligibility and make college more accessible for low- and middle-income families. Although the number of Pell Grant recipients had declined in recent years, recent data shows a positive shift. As of December 2024, over 9.3 million FAFSA applicants were eligible for a Pell Grant, and the number of first-time college students receiving the grant increased by 3.3%, or around 30,000 students. This suggests that more students are now qualifying for financial aid, providing hope for greater access to higher education.
“Why Pell Grants Are Facing Issues This Year”
This year’s Pell Grant funding shortfall is partly due to changes in eligibility that allowed more students to qualify, as well as a surge in college enrollment. More students are now eligible for Pell Grants because of changes to the financial aid application, and college enrollment has rebounded, especially among low-income students, after the pandemic. Freshman enrollment rose by 5.5% this fall, leading to higher-than-expected costs for the program. Experts say the enrollment projections were too low, which contributed to the shift from a surplus to a deficit in the Pell Grant program’s funding.
“How the Pell Grant Program is Supported Financially”
The Pell Grant program works similarly to other entitlement programs like Social Security and Medicare, ensuring that every eligible student receives a Pell award. However, unlike these programs, the Pell Grant does not rely entirely on mandatory funding set by the federal budget. It also depends on discretionary funding, which Congress allocates each year.
In 2024, the discretionary funding for Pell Grants was estimated to cost $24.5 billion. This included $22.5 billion from appropriations, $1.2 billion from mandatory funding, and under $1 billion from reserves. Since Congress sets the funding based on projections, there is often a mismatch between the actual cost and the available funds, creating uncertainty each year.
In the past, Congress has provided additional funding to avoid shortfalls, but if this issue isn’t addressed, the Department of Education might have to reduce either student eligibility or the average grant amount. Currently, the maximum Pell Grant is $7,395, which increased by $500 in the 2023–24 year. However, tuition and fees continue to rise, with costs averaging $58,600 at private colleges and $24,920 at in-state public colleges in 2024-25.
If Pell Grants continue to be adjusted for inflation, the program could face a significant shortfall in the future, potentially reaching $38 billion over the next decade. To make matters more complicated, the Trump administration has discussed the possibility of reducing or eliminating the Department of Education, which is responsible for managing Pell Grants. While this raises concerns, experts believe another government agency would likely take over the task of distributing the funds. Despite the challenges, the Pell Grant program has traditionally enjoyed bipartisan support due to its effectiveness in supporting students.