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Pondering Pell

September 6, 2013

WASHINGTON -- Proposals to do everything from slightly tweak to completely transform the Pell Grant Program have begun churning through the higher education policy world in this town, driven by the view (held by many, but not all) that the program's expanded costs warrant a reboot.

A new report from the nonpartisan Congressional Budget Office does not take sides in the potentially contentious debates either over whether Pell is now too big or ineffective, or whether or how it might be reworked. But it does provide some facts about why spending on the program has grown, as well as evidence about the potential effects of some of the current proposals to change the program and some alternative methods of helping low-income students afford college.

The report begins with an analysis of why the Pell program grew so much -- by 168 percent, the CBO found -- from 2006 to 2011, before dipping a bit in 2012. The number of grant recipients ballooned over that time, to 9.3 million in 2010-11 from 5.2 million in 2006-7, compared to an increase of just 400,000 in the previous four years.

The CBO cites two main reasons for the boom in Pell recipients: significant increases in the number of students enrolling in postsecondary education and in the proportion of those students eligible for Pell Grants. The reasons for the former, the agency said, were the poor economy, the increased availability of federal financial aid (both grant aid and loan funds), and the expansion of distance education (likely amplified by the 2005 federal policy change that allowed colleges eligible for federal aid to enroll more than half of their students in online programs).

The proportion of all postsecondary students who received Pell Grants grew to 36 percent in 2010-11 from 24 percent in 2006-7.

Of the roughly 4 million student increase in the number of Pell recipients, CBO estimates that about a quarter of them (900,000) became eligible because of more generous federal eligibility rules for the grants. About two-thirds of those, CBO estimates, became eligible because of the big increase (to $5,500 from $4,050) in the size of the maximum grant, while the rest qualified for Pell because of 2006 changes in the formula for determining the expected family contribution.

Another group of students qualified for Pell Grants because their own (or their families') financial situations worsened because of the recessionary economy.

Besides the increase in the number of students eligible for Pell Grants, the other big driver of Pell costs was the increase in grant amounts, also due mainly to legislative decisions, the budget office's report said. The roughly 30 percent increase in the size of the maximum grant increased the program's cost by about $11 billion, CBO estimated -- "accounting for about one-third of the cost of the Pell program in 2010-11," its report said.

Possible Changes

The CBO report lists a dozen possible changes that might be considered for the Pell program -- including some that would expand it as well as a majority that would constrict it in some way. ("Most of the options are not mutually exclusive; some combinations and variations are noted," the report states.)

In weighing the potential effects of some of the changes (which can be seen at the table at bottom), the CBO at least subtly takes sides in some of the more-contentious debates around federal aid policy.

For instance, the agency notes that the impact of various changes might depend on how colleges react to the new policies; if grant size increases, CBO states, "some institutions -- particularly those with high percentages of Pell grant recipients -- might raise tuition or shift more of their institutional resources to give aid to students who do not qualify for Pell grants."

It adds: "There is some evidence that larger grants can prompt public colleges to raise out-of-state tuition and nonprofit private colleges both to raise tuition and to shift institutional financial aid away from Pell grant recipients." College leaders and some economists generally dispute that assertion.

Cutting back the size of the maximum grant (say, to $4,860 in 2014-15) or ending the current policy that will increase the size of the maximum grant by the inflation rate each year through 2017-18 would save the government money outright but would exclude relatively few students, the CBO notes.

The agency also examines policies that would limit the number of grant recipients and estimates how many recipients they would exclude. Among them: tightening financial means testing (which would vary greatly depending on how it was imposed), imposing academic requirements for initial eligibility, for instance by requiring incoming students to meet the same high school criteria the National Collegiate Athletic Association requires athletes to meet to play as freshmen (7 percent of recipients), or requiring current recipients to meet academic standards to continue to receive their grants (4 percent of recipients).

The agency also examines a handful of policies that could expand Pell, such as increasing the size of the maximum grant to $6,400 (which it estimates would increase the cost of the program by $5.3 billion) or changing the expected family contribution formula to require less information, which it estimates could increase the number of Pell recipients by 2 percent.

The report's last section also explores other ways -- as alternatives or supplements to Pell -- that the government could expand access to college for low-income Americans, such as by restructuring Pell Grants to be forgivable loans (to try to incentivize academic performance), making grant commitments to middle and high school students, or offering federal grants to supplement the grant programs that states offer, like the Leveraging Educational Assistance Program once did.

Impact of Options for Altering Pell Grant Program

Possible Change Arguments For Arguments Against
Reductions in Grant Recipients
All Reductions in Grant Recipients Would yield federal budgetary savings. Would reduce the resources available to some low-income students to pursue postsecondary education (although institutions could choose to mitigate some of the reductions by shifting some aid resources to students who lose eligibility for Pell grants).
Tighten Means-Testing Would achieve savings by excluding students who have the highest EFCs -- the least need -- among current recipients. Even the highest EFCs among current recipients are below the cost of attendance of most postsecondary institutions.
Tighten Academic Requirements for
Initial Eligibility, Effective 2018–2019
Would achieve savings by excluding students who
appear to be the least prepared for postsecondary study and the least likely to complete a program;
some students would increase their preparation
for postsecondary education.
Would affect some capable students; financial aid offices would have to gather data on course-taking and test scores; requirements might be
inappropriate for older students or for students who are entering some vocational programs.
Tighten Academic Requirements for
Continuing Eligibility
Would achieve savings by excluding students who
are the least successful in postsecondary study
and appear the least likely to succeed in future study; some students would study harder to avoid losing eligibility.
Would affect some students who have a temporary
setback.
Eliminate Grants to Students Enrolled in Classes for Fewer Than 6 Credit
Hours
Would achieve savings by excluding students who
take too few courses to make substantial progress
toward completing a program; students might take more courses to avoid losing eligibility.
Could affect students who might make steady progress toward completing a program while
taking fewer than six credit hours per term.
Reduce Grant Amounts
All policies to reduce grant amounts Would yield federal budgetary savings. Would reduce the resources available to some or all low-income students to pursue postsecondary education (although institutions could choose to mitigate some of the reductions by shifting some
of their aid resources to Pell grant recipients).
Reduce the Maximum Grant to
$4,860 in 2014–2015
Would achieve savings by uniformly reducing grant
amounts for all recipients.
Would make no distinctions on the basis of financial need, academic ability, or course load.
Eliminate Inflation Indexing of the
Maximum Grant
Would achieve savings by uniformly reducing grant
amounts for all recipients; the gradual reduction in
buying power of the maximum grant would give
recipients time to adjust.
Would make no distinctions on the basis of financial need, academic ability, or course load;
most of the savings would be delayed and thus more likely to be reversed by future policy
changes.
Increase Credit Hour Requirement
for Maximum Grant
Some students would increase course load to
avoid receiving a smaller grant.
Some students might take on course loads larger
than they can handle.
 
Increase Grant Amounts
All Options in This Category Would increase resources available to some low-income students to pursue postsecondary education (although institutions could choose to offset some of the increase by shifting their own aid resources away from Pell recipients). Would increase federal costs.
Would increase federal costs.
Raise the Maximum Grant to
$6,400 in 2014–2015
No significant arguments beyond the general one above. Some less-well-prepared students might be induced to enroll.
Increase and Extend the Inflation
Adjustment for the Maximum Grant
Would better maintain the buying power of grants
over time.
Some less-well-prepared students might be induced to enroll.
Provide Supplemental Grants to
Certain Students
Would direct more assistance to students who are best prepared for postsecondary study, to those most likely to complete their programs, or to those majoring in areas of perceived national need. Would require institutions to track students’ grades and majors more closely; aid would focus particularly on students who were more likely to
pursue postsecondary education without a supplemental grant.
Simplify Eligibility Criteria and the Grant Application
All Options in This Category Would make financial aid applications easier to
complete, and more eligible students would apply;
verifying applications would be simpler for the
Department of Education.
Simpler applications and eligibility would decrease
the directing of aid to lower-income students.
Change the EFC Formula to Require
Less Financial Information
No significant additional arguments beyond the
general one above.
No significant additional arguments beyond the
general one above.
Use Federal Poverty Guidelines to Determine Grant Eligibility and Amounts Eligibility would be clear enough to influence early
choices about college preparation.
No significant additional arguments beyond the
general one above.


 

 

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