If a prospective student or their family members ask whether the gutting of the Department of Education will affect federal grant or loan programs, what can we say? When a prospective biology student asks whether the research lab she is excited to join will exist when federal research funding is at risk, how do you respond?
In considering the headlines of the past few months and in working with colleges and universities as they enroll new student cohorts and build pipelines of future prospective students, there is one feature of our new environment that is particularly unsettling. Higher education institutions know they must assess and respond, but—particularly when it comes to enrollment—it’s not exactly clear what they’re responding to.
Uncertainty in higher ed is nothing new. But, in this current moment, there are so few concrete things for institutions to identify, assess, and develop a response plan around. In summer 2020, institutions could build multiple contingency plans for different phases of campus reopening. In summer 2023, institutions could respond to the SCOTUS decision by adjusting their admission policies and simulating the impact of those policy changes. In spring 2024, institutions could change aid packaging timelines, adjust policies, and reassure students and families that they’d be considered for all federal, state, and institutional aid programs for which they were eligible.
In the current environment, predictions about policy change are an invitation to be surprised by how quickly things can change. But, if we follow the breadcrumbs from recent prior proposals impacting the federal aid programs, they point to one critical area of concern: the Pell Grant program.
Understanding Pell Grant Funding Challenges
The Pell Grant program faces dual challenges: uncertainty over its administration if the Department of Education undergoes significant restructuring, and a substantial multi-billion dollar budget shortfall. While the program’s widespread impact across diverse constituencies provides some protection against dramatic changes, the budget realities suggest modifications to eligibility criteria or grant amounts are increasingly likely.
Fifteen years ago, when the Pell Grant program last faced a significant budget shortfall, solutions included reducing semester eligibility (from 18 to 12) and temporarily eliminating year-round Pell grants (later restored in 2017). Today’s budget constraints are further complicated by Republican support for expanding Pell eligibility to short-term programs. This potential expansion would increase expenditure pressures and could necessitate additional reductions in eligibility or award amounts for students in traditional programs.
Institutional Impact and Risk Management
Potential reductions to amounts or eligibility for Pell Grants would have a direct impact on college access for many lower-income students, and would increase risk for many institutions not only based on potential enrollment loss, but also on expenditure commitments for last-dollar scholarship and grant programs that fill in remaining need with institutional gift aid based on combinations of Pell status, geography, and income.
These last-dollar programs at both public and private institutions proved particularly effective at driving enrollment in Fall 2024, with the expansion in the number of Pell-eligible students. However, maintaining those commitments could become considerably more expensive if Pell amounts are reduced or institutional costs increase (or both).
Financial Aid Strategy for 2025 and Beyond
As institutions actively recruit and enroll Fall ’25 students, they are simultaneously planning and optimizing financial aid programs for Fall ’26 enrollment (including commitments communicated to students and families as early as Summer 2025). During this planning process, colleges and universities should consider the expenditure risks associated with last-dollar programs if Pell Grant amounts are maintained or reduced. They should begin contingency planning for adjustments to these programs to mitigate budget risk. Or identify adjustments elsewhere in their budgets to maintain or expand these commitments.
This planning should encompass both incoming student cohorts and the often-overlooked impact on gift aid commitments for current and continuing student populations.
Moving Forward: Transparency in Uncertainty
Even where changes to program eligibility may be inevitable, higher education institutions can take two concrete steps in this uncertain policy environment. First, proactively modeling potential changes will help quantify impacts and inform strategic decisions. Second, preparing to communicate with clarity and transparency to students and families will help build and maintain trust during this period of transition.
By combining forward-looking financial modeling with transparent communication strategies, institutions can navigate this uncertain landscape while upholding their commitments to student access and success.
Looking for a partner to help you with your financial aid strategy? Our Financial Aid Optimization team delivers individualized strategies custom-built for your institution. Start a conversation to learn more.