A Simulation of Pell Grant Awards and Costs Using Prior-Prior Year Financial Data

We examine the likely implications of switching from a prior year (PY) financial aid system, the current practice in which students file the Free Application for Federal Student Aid (FAFSA) using income data from the previous tax year, to prior-prior year (PPY), in which data from two years before enrollment is used. While PPY allows students to gain information about the cost of college earlier, financial aid awards could be less targeted if annual household income fluctuates dramatically. We study this question using data from more than 70,000 students at nine institutions over a five-year period spanning the Great Recession. We find that 60%–70% of students do not see any changes to their Pell awards under PPY in this case study, and the neediest students rarely see large changes. About 7%–15% of students see large declines in their Pell awards under PPY, and the effects vary by institutional and student characteristics. Our simulation of the potential costs of switching to PPY results in an estimated increase in Pell program costs of four percentage points.