Road Not Taken on Pell Grants

April 25, 2005

A few days before Christmas, the Bush administration announced changes in the formulas used to determine eligibility for Pell Grants -- changes that resulted in tends of thousands of people losing their eligibility for grants and many more seeing their grants reduced in size.

The administration has said ever since that the changes were needed for fairness -- to make sure that students with the greatest need receive the awards and to reflect changes in state tax policies. But a Government Accountability Office report released Friday portrays a very different picture: First, the report backs up the statements of higher education lobbying groups that the change in the formula will have a broad and negative impact on the availability of funds for students to pay for college. Second, the report suggests that the Bush administration could have dealt with the need to update the formula in other ways that would not have hurt nearly as many students or families.

The controversy concerns changes in the government's determination of family contributions toward higher education, which are determined by various measures of family wealth. The changes that resulted in so many students losing some or all of the Pell Grants dealt with calculations of payments of state taxes. State taxes may seem far removed from Pell Grants, but the path works like this: If the government acknowledges that you pay a lot in state taxes, it acknowledges that you have less to spend on college, and may provide more aid.

The formula change in this case ended up with the government saying that families had more money to spend on higher education, and as a result many lost eligibility for Pell Grants.

The GAO report said that the impact would be significant, and in so doing it largely backed up the statements made by college lobbying groups about the aid formula. For example, the GAO found that more than one-third of students receiving Pell Grants would see a reduction in the size of their awards, and that 81,000 would have their grants eliminated completely. The GAO also found that the impact on students and their families would extend beyond Pell Grants, since the formulas are used for many other programs too.

Examined across all aid program, the GAO found that family contributions to college costs will increase by about $3.2 billion -- all as a result of a change in the Pell program that will save the government about $250 million.

The part of the GAO report that may create the most heat for the Education Department compares different methodologies that the Bush administration could have used for updating the calculations on state taxes. (Even critics of the department acknowledge that the updates must be done, and that they may have negative effects on some students.)

The GAO compared the Education Department's method to five other methodologies that might have been used. All five resulted in smaller increases in family contributions. Compared to the aggregate increase in family contribution of $3.2 billion under the current system, the other methods would have resulted in increases of between $1 billion and $3 billion.

And four of the five alternate systems would have resulted in fewer students losing Pell Grants. Compared to the Education Department's system, which will cost 81,000 students their Pell Grants, the other approaches would have denied grants to either 4,000; 45,000; 46,000; 72,000; or 88,000 students.

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