The Pell Grant faces $16bn shortfall, Perplexity pushes back on ads, and Scotland’s attainment gap is widening

27 February 2026Newsletter

Welcome to The Student Funnel, a monthly higher ed sector newsletter from Hybrid, a leader in student marketing and recruitment strategies. We highlight news, trends, and behaviours that impact the sector and share insights on how to better connect with your audiences.

Let’s start with a big story from the U.S: The Pell Grant is reportedly heading for a serious funding shortfall.

New projections released earlier this month from the Congressional Budget Office show the financial aid program could be $5.5bn short by the end of FY 2026 and $11.5bn short in 2027 if Congress doesn’t add more money. Over 10 years, the gap could reach $100bn+, even after last year’s one-off $10.5bn “fix.”

So, what’s driving it? In short, demand is up. Around 7.6 million students now receive Pell, compared with 6.4 million back in 2021. Expanded access to the Pell Grant program has been a big contributor to this, mainly through the FAFSA Simplification Act. A recent analysis found that 1.5 million additional students are now eligible to receive the maximum Pell Grant this academic year. From July, that number will only increase as students in short-term workforce training programs will be able to use the Pell Grant to pay for their classes as well.

But core funding hasn’t kept pace with this increasing demand and expanding accessibility.

If Congress doesn’t step in, options on the table include cutting the maximum award, tightening eligibility and reducing how many terms students can use the grant. To put into context the impact that the Pell Grant has on students, 32% of undergraduates at UC Berkeley 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. If the Pell Grant is squeezed, the affordability story gets harder, especially for low-income and first-gen students.

University marketers and admissions staff could see increased price sensitivity, more questions about ROI, and potentially greater demand for institutional aid, payment plans, and alternative pathways.

It’s still relatively early days in the world of AI advertising, but updates and developments are coming in thick and fast.

In her ads newsletter, Google’s Vidhya Srinivasan outlined new AI-powered formats coming to AI Mode in Search and Gemini. The big shifts include:

Ads inside AI answers – when someone gets an AI response (e.g. “best data science master’s in Europe”), Google will be able to show “Sponsored” product matches alongside that answer.
Direct Offers – promotions tailored to the AI reply (think: personalised deals or offers surfaced directly from the conversation).
Agentic commerce via UCP – Google’s new Unified Commerce Protocol (UCP) standard lets people browse and check out with retailers like Etsy and Wayfair without leaving AI Mode or Gemini.

For universities, this is a preview of where search is heading: students start in an AI answer, then see actions and offers within that flow, not on a classic results page. Over time, your course data, pricing, scholarships, and creative will need to work inside AI-led journeys, not just SERPs and landing pages.

While Google and OpenAI lean into AI ads, Perplexity is backing away from them, and isn’t shying away from explaining why.

Perplexity has decided to ditch ads, with executives warning that once users see commercial messages around answers, they’ll “start doubting everything.”

Anthropic (Claude) is even more explicit: they ran multiple ads during this year’s Super Bowl mocking AI ads in chatbots. The company even published a pledge never to put ads in Claude, arguing that monetisation via advertising inevitably incentivises engagement over genuine help.

Instead, both are leaning toward subscriptions and enterprise deals as their main revenue model.

So, it looks like the AI ads landscape is undoubtedly splitting into two models –

Ad-first assistants (Google, OpenAI), where paid visibility will become part of your media mix.
Trust-first, ad-free assistants (Perplexity, Anthropic) where your only route in is strong organic signals: clear information architecture, structured data, and content credible enough to be cited without a media buy.

In reality, marketers will likely need strategies for both worlds.

New data from Scotland has shown that the “attainment gap” (the difference in exam results between pupils from the most and least affluent areas) is now wider than before the pandemic, despite it being a core government priority since 2015 and £1.75bn of investment.

Here’s how the gap is widening at all three levels:

At National 4 (lower secondary qualifications), the gap has grown to 8%, its widest since 2011–12 (up from 6.7% pre-Covid).
At National 5 (main school-leaving exams at 15–16), the gap is 21.4%, higher than the 20.2% pre-pandemic.
At Higher (key university entry qualifications), the gap is 37.7%, up from 35.8% before Covid.

Progression tells a similar story. While 42.3% of school leavers now go to university, pupils from the most affluent areas are more than twice as likely to get there as those from the poorest backgrounds. That participation gap is at its highest since 2016 at 36%.

But there is some good news: 95.7% of leavers move into a “positive destination”, whether it be college, uni, work, training or volunteering.

For higher ed marketers and admissions teams, this signals:

A growing pool of talent from disadvantaged backgrounds who may arrive via non-traditional or fractured pathways.
The need to double down on widening participation, contextual admissions, college-to-uni routes and messaging that validates vocational and flexible journeys.

If your strategy assumes a straight line from school to campus, Scotland’s data is a clear indicator that access and equity work will need to be more targeted, more local, and more joined-up than ever.

Snapchat leans into paid social – Snap’s direct (non-ad) revenue has hit a $1bn annual run rate, driven mainly by over 25 million Snapchat+ subscribers and new paid tiers (Lens+, Platinum, paid Memories storage). This is a clear signal that users, especially younger ones, will pay for extra features, cleaner feeds and exclusive creator content.

Reddit continues its growth into a serious discovery and ad channel – Reddit now has 121.4 million daily users, Q4 revenue up 70% year-on-year, and a fast-evolving ads business powered by AI targeting. The platform has also shared what’s working creatively for brands in their recent guide: nostalgia-led storytelling, social proof from real users, niche community engagement and campaigns that unfold over time instead of one-off bursts. Because Reddit already ranks highly in Google and feeds many AI answers, it’s increasingly a place where prospective students go for unfiltered opinions. That makes Reddit a strategic channel for reputation, FAQs and programme discovery.

Social platforms face a reckoning over youth “addiction” – A landmark California trial is accusing Meta and YouTube of deliberately designing “addiction machines” that have harmed teens’ mental health. This comes as attorneys general are simultaneously pushing for major product changes: removing under-13 accounts, deleting kids’ data from algorithms, limiting teen screen time and disabling features like infinite scroll and autoplay. Even if not all of these land, the direction of travel is more regulation, more age-gating, and more pressure to prove platforms are safe for young people.

A new Universities Australia report shows that around a quarter of university revenue now comes from international students, who also contribute over $51billion AUD to the wider economy. On top of this, more than 40% of Australian universities have been in deficit for most of the past five years, and domestic funding per student has fallen in real terms.

At the same time, visa approval rates from key South Asian markets have dropped sharply. While there’s no official breakdown by refusal reason, agents on the ground report that a long-standing clause – rejecting applicants because “comparable courses exist in the home country” – is being cited more frequently for students from India, Nepal, Bangladesh and Sri Lanka, even when profiles look similar to those previously approved.

For recruitment teams, the takeaway is: Australia still depends on international students, but getting a visa is becoming harder and less predictable for some markets.

Insights