This report describes the Department of Education's process for estimating costs of the Pell grant program, which provides grants to financially needy students pursuing a postsecondary education. The Department uses a three-step process to develop its Pell grant budget estimate: a computer cost model incorporating over 30 economic indicators, a series of adjustments to reflect program changes that the model does not include, and budgetary adjustments. Historically, the Department's cost model estimate has been a reasonably accurate predictor of program costs. Factors which contributed to the Department's revision of the fiscal year 1990 budget request are determined, and are attributed to: savings expected to accrue from legislative changes, increased cost model estimates based on revised economic indicators, increase in number of grant recipients, and lower estimated costs for financial aid administrators' discretion. Tables compare Pell grant cost model estimates, actual program costs, and final budget requests. (JDD)