Where Pell Falls Short

April 28, 2008

In the last year, Republicans and Democrats embraced budget plans to provide more funds for Pell Grants, and elite colleges captured considerable attention with a flurry of plans to expand aid to students. But a report being released today has a sober message: For the students at the bottom of the income ladder, all of these well meaning changes have failed to make a dent in underlying problems.

The report, "Window of Opportunity: Targeting Federal Grant Aid to Students With the Lowest Incomes," argues not surprisingly for increased support for Pell Grants. But the report also argues that the way grants are awarded needs to change in ways that would favor the students from the poorest families. Currently, formulas for determining aid eligibility are based in part on an appropriate family contribution, with the lowest income students ending up with zero as the expected contribution.

While praising the concept of the Pell Grant and its history, the report says that "the ability of the Pell Grant to serve as the true foundation of financial aid for low-income students has steadily declined." The report, written by Courtney McSwain, was issued by the Institute for Higher Education Policy on behalf of the American Association of State Colleges and Universities, with backing from the Lumina Foundation for Education.

The report builds the case for changes in Pell by noting that the program -- the largest federal effort to help low-income students afford a higher education -- has not kept up with college costs, and that many students have need that significantly outpaces what Pell can finance.

For instance, in 2005-6 (when both tuition and the Pell Grant maximum had yet to reach the current levels, $4,731 for the latter), the average Pell Grant recipient had more than $4,500 in need remaining to attend college after the Pell Grant, all aid from all available sources, and the expected family contribution. While loans were probably used to make up the difference, the student population being served is so poor that loans may not be seen as an option by some -- and the report notes that these data are from students who enrolled, not those who were eligible and did not.

Further, in an era when some top colleges have defined family incomes of up to $180,000 as signifying financial need, the report tries to remind the public that the Pell Grant population (more than 7 million students) is extremely poor. The majority of Pell Grant recipients in 2005-6 had family incomes of $40,000 or less, and 40 percent of recipients who were dependent, traditionally aged students came from families with income of $20,000 or less.

And while Pell Grants are awarded based on economic status, not race or ethnicity, the report shows that the program serves a disproportionate number of minority and disadvantaged students. Black students who are financially dependent on their families, for example, make up about 10 percent of the undergraduate population, but 22 percent of Pell Grant recipients. For Latino students, the figures are 12 and 20 percent. And while only 25 percent of undergraduates have parents whose highest degree is a high school diploma or less, the figure is 41 percent for Pell recipients.

A key question for those wanting to boost the Pell program is whether to focus on the maximum or minimum grant. Eligibility for Pell is phased, so not everyone who is eligible for assistance receives the full grant, and an emphasis on increasing the maximum broadens the pool of those who benefit and increases support across the board. An increase in the minimum would most likely reduce the total number of recipients. The report suggests increases in both, tied to a change in determining family expected contribution, as a "narrowly targeted way to deliver significant aid to the poorest students."

Currently, the maximum Pell Grant is actually whatever maximum is in place as determined by the budget process minus the expected family contribution. Because federal law bars negative expected family contributions, the maximum is just the maximum, since nothing is being subtracted for the lowest income families. But if the law were revised to allow negative expected family contributions of up to $750, for example, the report says, the maximum would go up by that amount for the lowest income students.

Such a shift, the report argues, would result in Pell Grants that are $750 larger for the population of students from families with incomes of $20,000 and below. While a $750 increase for all students receiving Pell Grants might be desirable, it is likely to be seen as too expensive, and the report argues that this policy shift would bring the available aid to those most deserving.

A subtext to the report is to counter the push by the Bush administration to use the Pell program as a jumping off point for aid that isn't based on economic need alone. For example, Pell eligibility is the basis -- but not the sole criterion -- for the new Academic Competitiveness Grant and National Science and Mathematics Access to Retain Talent (SMART) Grant Programs, which have been viewed skeptically by many aid experts. The report accepts the idea that some future additions to Pell may not be large enough to meet every need, but argues that ideas that focus on the "core purpose" of Pell must take precedence.

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