The Federal Pell Grant Program — the flagship federal financial aid program that aids six to seven million students annually — is projected by the Congressional Budget Office to experience a $5.4 billion shortfall in fiscal year 2026, one that could grow by $11.5 billion in fiscal year 2027. This would be the program’s first shortfall in more than 10 years.

This shortfall will not affect the next academic year, as those Pell Grant levels have already been set, but will start during the 2027-28 academic year.

At UC Berkeley, 32% of undergraduates were Pell Grant recipients in the 2024-25 academic year, with an average award of $6,731. Across the UC system, 35.7% of students receive Pell Grants, with 41.3% of California resident students receiving the grants.

Advocacy groups have partially attributed the shortfall to expanded eligibility for receiving Pell Grants following the 2020 FAFSA Simplification Act, which made the process of applying for federal student aid simpler and more predictable while also expanding Pell Grant eligibility.

“(The FAFSA Simplification Act) was a bill signed under the first Trump administration … which I think speaks to strong bipartisan support both from Congress and from the president, and clear recognition of the importance of this program,” said Louisa Woodhouse, a senior associate for policy and advocacy at the National College Attainment Network.

The Federal Pell Grant Program has a unique funding structure compared to other federal programs, as the grants receive mandatory funding that is guaranteed annually as well as discretionary yearly funding, which Congress has to allocate in its annual budget negotiations. Any surplus funding from the prior year is rolled forward into Pell Grants for the next year, rather than returning to the treasury.

In recent years, the amount of discretionary funding allocated by Congress has remained stagnant at $22.475 billion, despite inflation and the expanded eligibility from the FAFSA Simplification Act. However, that allotment has been lower than the cost of the program, causing the program to eat into previous years’ surplus and create the upcoming shortfall.

“For several years, through the 2010s, the mandatory add-on was actually tied to inflation and went up every year. That part has now sunset,” said Carrie Warick-Smith, vice president of public policy for the Association of Community College Trustees, “That’s why a lot of Pell advocates are advocating for increasing the maximum (Pell award) every year to keep up with inflation because that’s no longer automatic.”

Another concern of advocacy groups is the decreasing purchasing power of Pell Grants. Their current maximum award is $7,395, which has remained consistent for three years. The National College Attainment Network found that the maximum award covers 30% of the cost of a four-year public institution, down from the 79% historic high in 1975.

In previous financial struggles for Pell Grants, Congress has reduced eligibility or increased restrictions on when Pell Grants can be used, but it has always fully funded Pell Grants for eligible students.

The Pell Grant program last experienced a shortfall for the 2011-12 academic year, during which the Year-Round Pell Grant — which allowed students to receive Pell Grants for the summer term — was removed. It was later reinstated in 2017. According to Warick-Smith, eligibility changes disproportionately affect non-traditional students, such as those attending community colleges.

“Just the fact that there’s news articles out there that Pell may not have enough money, that not all students will get Pell, is enough to scare off people from applying to college. There’s a cost for even being in this situation,” said Berkeley School of Education professor Jennifer Delaney.