Don’t Double Pell Grants. Disconnect Them from Tuition.
This blog is drawn from an opinion piece by Art Hauptman & Jim Blew which appeared in Real Clear Education on August 04, 2023
In recent years progressives have been pushing for doubling Pell grants to make college more affordable and to close chronic equity gaps. But there’s a better way to achieve these objectives at much lower federal cost: Pell grants should be decoupled from tuition and refocused on covering the living costs of low-income college students.
Pell grants have been the foundation of federal student aid since they were established as Basic Grants in 1972. Over the past half century, they have helped tens of millions of students go to college. But, over time, the value of Pell grants has dropped as college tuition and fees have grown more than twice as fast as inflation. This has led to the simple-minded suggestion that the maximum Pell award should be doubled to catch up with the growth in college tuition.
The reality, however, is that “doubling Pell” will not “fix Pell.” It will not close the chronic equity gaps between the participation and completion rates of low-income and affluent students (the original purpose of Pell grants). Nor will it solve the underlying problems of exploding college costs and student debt. Instead, it could make matters worse.
Increasing the maximum award would likely lead to further tuition increases. Colleges and universities have every incentive to soak up increases in Pell awards by raising their tuition, and this is exactly what they have done. Meanwhile, low-income students continue to struggle to cover their living expenses, one of the key reasons that they quit college before completion.
A basic problem with the current system is that federal and state policies often encourage public and private colleges to charge and spend more and more, while forcing millions of students to borrow more and more.
A key reform, proposed in a recent paper by the Defense of Freedom Institute (DFI), would make the system more effective by redesigning Pell grants so that they cover basic living expenses for low-income students, discontinuing their use as the first-dollar tuition payment. Room and board should be fully covered for Pell recipients living on campus, while those who live at home or off campus should receive monthly stipends for each month they are enrolled (just like veterans’ benefits).
It won’t be a stretch for states and higher-education institutions to step in and cover the tuition and fees of low-income students. Many states are already committed to doing so. The DFI paper further describes how states and institutions could rearrange their tuition and aid policies to ensure that college is affordable for students from a broad range of incomes.
Private institutions also must reform their tuition and aid policies. For four decades, private colleges have hiked tuition much faster than inflation and then provided more aid to a growing share of students. The private college discount rate — all the grant aid and discounts private institutions give to reduce the sticker price for students — now exceeds 50 percent, and institutional aid is now three times larger than federal funding for Pell grants. A more sustainable policy would require private colleges to reduce their tuition over time, which will ultimately lessen the need to provide discounts. One way to facilitate this is to require all institutions to pay out 5 percent of their endowments each year to maintain their charitable status, just as private foundations have had to do since 1969.
The highest priority should be to make Pell grants more effective and put downward pressure on higher education costs. With the federal debt exceeding 100% of annual GDP, policymakers should also want to constrain federal spending. It’s important for them to remember that doubling maximum Pell awards (from about $7,000 currently) would more than double the total annual cost of the program. Because the higher maximum award would expand the pool of eligible students to include more middle-income students, the annual cost would explode from about $30 billion to at least $75 billion.
An honest scoring of current proposals would be even costlier because they usually extend the years of Pell eligibility from six years today to nine years. So total maximum awards for individual recipients would go from about $42,000 (six years times $7,000) to about $117,000 (nine years times $13,000).
Congress should also take steps to rationalize and expand tuition tax credits to provide help to taxpaying middle-income students and lifetime learners. This would not only be a good way to replace the Pell grants that middle-income students currently receive but would also serve to make college students and their families more sensitive to growing tuition costs.
Congress does not need to spend more on higher education to get better results. Instead, let’s get smarter about how we spend the funds already available at the federal, state, and institutional levels. By redesigning Pell instead of doubling it, we can fix the rising cost of college, expand access to more students, and start enjoying the benefits of higher college-completion rates.
