CBO Warns of $11.5B Pell Grant Shortfall: What It Means for Colleges & Students

A $5.5 Billion Gap—Doubling by Next Year

On February 13, 2026, the Congressional Budget Office (CBO) issued a stark warning: The Pell Grant program, a cornerstone of college access for millions of low-income students, faces a $5.45 billion funding shortfall for the fiscal year ending September 2026. Even more alarming, that deficit is on track to double to $11.5 billion in FY2027—and could rack up more than $100 billion in cumulative deficits over the next decade unless Congress acts fast. This comes despite a recent $10.5 billion emergency boost meant to stabilize the program, underscoring the depth of the crisis looming for higher education.

How We Got Here

Pell Grants, which currently cover up to $7,395 per student (2025–26 level), are the federal government’s principal investment in college access for low- and moderate-income learners. Over 7.6 million students are set to receive them this year, an increase from 6.4 million just a few years ago¹². Several forces are driving this surge:

• FAFSA Simplification Act expansions have broadened eligibility, rapidly swelling the pool of recipients.
• Enrollment rebounds post-pandemic, with a 5.5% jump in freshmen and 4.5% gain overall for fall 2025, have increased demand.
• Workforce Pell expansion takes effect July 2026, extending grants to short-term, career-oriented programs with high expected uptake.
• Inflation continues pushing up actual costs, while appropriations have remained flat, creating structural mismatches.

In recent years, Congress has drawn down the Pell “reserve” created in surplus years rather than increasing annual funding, compounding the problem. The $10.5B injection via the 2025 One Big Beautiful Bill Act only postponed, not prevented, today’s reckoning.

What This Means for Students, Universities, and Grant Seekers

The implications are immediate and far-reaching:

For Students

• Reduced awards or eligibility: If Congress doesn’t allocate new funds this cycle, options may include cutting maximum grant amounts, capping the number of semesters, or reducing summer eligibility—as happened in past shortfalls.
• Uncertainty for low-income and workforce students: Community college students and those pursuing shorter, nontraditional programs—the very groups targeted by recent expansions—face heightened risk of exclusion if awards are rationed.
• Delayed or derailed college plans: Shortfalls can force students to borrow more heavily, cut course loads, or postpone degrees altogether.

For Colleges and Universities

• Budgetary disruptions: Schools relying on Pell disbursements may face budget gaps if anticipated federal support is reduced, leading to last-minute rebalancing or cuts to institutional aid.
• Enrollment risks: Lower Pell support reduces affordability, threatening enrollment targets, especially for public institutions, minority-serving, and community colleges.
• Programmatic uncertainty: New Workforce Pell funding for short-term credential programs—expected to open new markets—now arrives with a cloud of uncertainty.

For Policymakers and Grant Professionals

• Partisan standoffs likely: With Congress facing major fiscal constraints, the battle to address the FY26 shortfall (and beyond) will likely spark debate around eligibility, accountability, and possible cuts versus expanded appropriations.
• Scrutiny of new programs: Pilots or expansions—like Workforce Pell—will be watched for unanticipated demand and cost over-runs, potentially affecting future eligibility tiers or program design.

What Institutions and Individuals Should Do Now

1. Stay informed and engaged: Track Congressional appropriations hearings and advocacy efforts through trusted sources like APLU and the CBO.
2. Advocate: Communicate the local impact of Pell Grant shortfalls to elected representatives. Quantify how cuts could affect students in your state or district.
3. Scenario-plan for reduced funding: Financial aid offices should model award scenarios based on lower maximum grants or eligibility restrictions—and build communication plans for affected students.
4. Diversify financial aid: Explore alternative funding streams or emergency aid programs to blunt the impact on at-risk student populations.

What to Watch Next

Congress faces a mid-September 2026 deadline to finalize the FY27 appropriations bill and address a shortfall that will double if left unchecked. Watch for bipartisan negotiation markers—including possible trade-offs with tax credits, student loan policy, and accountability provisions. The outcome may set new precedents for how federal student aid is funded and who benefits most.

Granted AI tracks major federal funding developments to help researchers, institutions, and grant writers proactively strategize and adapt.