Is Pell Too Big?

As deficit crunch threatens to squeeze bedrock student aid program, even some supporters say time has come to examine its efficiency.
March 15, 2011

WASHINGTON -- House Republicans and the Obama administration agree about relatively few matters these days, and it would be a profound exaggeration to say they see eye to eye on Pell Grants. The GOP-led House last month approved a 2011 budget that would cut the size of the maximum grant for low-income students by $845, to $4,705, one of many reasons why President Obama has threatened to veto the measure.

But after two years in which he and Democratic Congressional leaders expanded Pell Grant funding at every turn, the president himself, in the 2012 budget plan he released in February, proposed slashing $8 billion a year from the program by ending a two-year-old practice that allowed students who enroll year-round to get two grants in a single year.

For a Democratic president, especially one who has elevated expanding college access to the top of his agenda, cutting the Pell Grant is practically a sacrilegious act. But the administration's concession signals a potential turning point in the outlook for the program that for nearly 40 years has served as the bedrock of the federal financial aid system.

Pell historically has been impossible to criticize, or even scrutinize. Republicans could not question the program without facing accusations of being anti-student; Democrats and college officials would not, for fear that showing any sign of weakness, or concession of imperfection, would open the door to attack or budget reduction.

But spending on Pell Grants has more than doubled in the last three years, turning the program, with its $36.6 billion price tag in 2011, into one of the federal government's most expensive -- larger than eight cabinet agencies -- and making it an almost inevitable target at a time of growing concern about runaway federal budget deficits.

Although the program has significant bipartisan backing, Pell's rapid expansion has even some (but not all) of the program's strongest supporters acknowledging that the time has come for a clearer assessment of the program's strengths and weaknesses. They are unwilling to concede that the program is "too big" just because many more needy students are going to college. But depending on what closer examination reveals about the reasons behind the boom, they say, it may be time to consider changes in how -- and to whom -- the funds are awarded.

That's especially true because some of them fear that if they don't help refine the program wisely, members of Congress may act either to slash Pell or to alter it in ways they believe would undermine the program's underlying mission of college access.

"These aren't modest fluctuations, but we have to be sure of the cause of the fluctuations," says Sarah Flanagan, vice president for government relations and policy at the National Association of Independent Colleges and Universities and, in a past professional life, a senior aide to the man for whom the program was named, the late Senator Claiborne Pell of Rhode Island. "If it's because the economic downturn has created more low-income students who still are going to college, the program may be very expensive, but for a good reason. If the fluctuations are because people are gaming the system, or higher-income people are getting money to the detriment of low-income students, we need to know that. We need to sit down really objectively, bipartisanly, and look at the data and try to analyze it."

Doubling Down

Pell (or actually its predecessor, the Basic Educational Opportunity Grant) was created in 1972, as part of the federal government's effort to make a higher education accessible to students from low-income backgrounds.

Although Pell, like many federal programs, has faced occasional droughts or dips in its funding, it saw steady increases throughout the 1980s and 1990s before largely stagnating (at a maximum grant of $4,050) in the early part of the last decade. In 2006-7, the government spent $13.6 billion on Pell, less than it had in 2002-3. The program began growing again after the Democratic takeover of Congress in 2006, with the maximum grant rising to $4,310 in 2008 and to $4,731 in fiscal 2009, with help from a budget reconciliation measure that Democratic leaders pushed through.

Then President Obama went to work. Putting college access and completion at or near the top of his agenda for the country, his administration -- through the economic stimulus legislation and a dramatic proposal to revamp the federal student loan programs -- directed tens of billions of dollars to meet (and arguably drive) rising demand for the grants. In 2009-10, spending on Pell rose to $28.2 billion, and in the current 2010-11 fiscal year, with a maximum grant of $5,550, the program's annual cost is expected to soar to $36 billion.

In policy discussions about the program around Washington, Pell's skyrocketing price tag is typically attributed to two factors. The first is the economy, in two separate ways: more people going (or returning) to college because of a poor job market, and more of those students qualifying for federal financial aid, because their personal economic situations have worsened in the downturn.

"It's the economy, stupid," says Thomas Mortenson, senior scholar at the Pell Institute for the Study of Opportunity in Higher Education and editor of Postsecondary Education Opportunity, a newsletter about financial aid. "The hard and fast fact that people keep dodging is that the low-income population in the country is growing, and the kind of work they have done in the past without higher education is disappearing."

The economic downturn, Mortenson and others argue, has merely accelerated a trend that the federal government and colleges (both by expanding grant funds and with policies aimed at simplifying the application process) have encouraged and that many advocates for low-income students applaud: growth in the number of students from disadvantaged backgrounds who see college as a viable option, academically and financially. In other words, the massive increase in Pell suggests, in one way, that the policies of expanding access have had their intended effect.

The second factor to which the explosion of Pell is often attributed -- raised frequently in the context of increased scrutiny of for-profit colleges by the Education Department and Senate Democrats -- is the rapid rise in the proportion of Pell Grant money flowing to commercial providers of higher education.

To explain his call for tougher scrutiny of for-profit colleges, Senator Tom Harkin of Iowa, among others, has frequently cited the fact that the institutions now receive about a quarter of all Pell Grant funds (and student loan dollars) even though they enroll about half that proportion of all students (12 percent). In 1999-2000, for-profit institutions received 13.1 percent of Pell funds, according to materials released by the senator, while making up about 4.3 percent of all college students. Harkin has at times gone much further, arguing that they have attracted many of those students -- and the federal aid that accompanies them -- using unscrupulous enrollment practices that warrant a crackdown.

The Other Answer

Often omitted from the discussion of explanations for the massive growth in the Pell Grant Program, however, are a series of quite purposeful changes federal policy makers have made in recent years that have significantly increased eligibility for the grants. The College Cost Reduction and Access Act, the 2007 law that provided one big boost for Pell funding, made a series of changes in the federal government's formula for assessing the financial need of students and their families, in ways that both expanded the number of students eligible for the grants, and qualified many current recipients for larger awards. (This argument was made powerfully last week by Jason Delisle of the New America Foundation.)

For example, the law raised to $30,000 from $20,000 the income level at which a student automatically qualifies for a "zero" expected family contribution, and eliminated a provision in the Higher Education Act that lowered Pell Grant amounts for students who attend low-cost institutions.

The acceleration in the size of the maximum Pell Grant, from $4,350 in 2008 to $4,731 in 2009 to $5,350 in 2010 and $5,550 in 2011, has also been a major driver of the program's explosion, of course. President Obama and advocates for students have trumpeted the increases, which have certainly fueled growth in the number of Americans enrolling in college.

The way the Pell Grant Program is structured, based primarily on family income and expected family contribution to pay for college, raising the maximum grant is the only way to boost the amount of money flowing to the neediest students. But it also has the effect of increasing the number of people who qualify for at least some Pell Grant funds. The number of Pell recipients grew from 5.5 million in 2007-8 to 6.1 million in 2008-9 and 7.7 million in 2009-10, Education Department data show.

Some of those people probably became eligible for Pell Grants because their incomes fell into Pell-eligible territory due to the recession. But while the new recipients are hardly wealthy, more of them do tend to be from higher up the income ladder; 11.3 percent of Pell recipients in 2008-9 earned at least $40,000 and 1.1 percent of them earned more than $60,000, compared to 7.8 percent and 0.5 percent in those income categories, respectively, in 2004-5.

"[Increasing the maximum] essentially built a doubling of the cost of the program into its structure," says Arthur Hauptman, an independent policy analyst who has written widely about federal financial aid.

Like other aid experts, Hauptman is all for bolstering financial support for needy students. His concern, though, is that the choices made by policy makers -- when combined with the economic and societal trends of more people applying to college -- have sent Pell spending soaring at a time when politicians in Washington are increasingly looking to rein in what they characterize as runaway federal spending. The result, as we're seeing especially from Congressional Republicans but even from the Obama administration, is a recognition that the overall costs of the Pell program cannot continue to grow unchecked, and that federal officials may have to start making choices about which aspects of the program to keep, and which to jettison.

"It's great that we were able to add those [Pell recipients], but now, when you have real tight times, you have to decide whether to keep those kids in or not," Hauptman says.

While the cut in Pell proposed by House Republicans would slice the maximum grant to $4,705, President Obama's 2012 budget proposal would sustain the $5,550 maximum by ending the new, and highly popular, policy that allows students to attend college year-round by receiving two Pell Grants in a single award year. Administration officials also anticipate, quietly, that new rules they are instituting to strengthen the integrity of federal financial aid programs -- some of them aimed at for-profit colleges -- could slow Pell spending.

The threats to Pell, even from friendly politicians like Obama, appear to have convinced many staunch supporters of the program that it is time for more careful scrutiny of how the program's funds flow -- at least to ward off less-thoughtful efforts to just cut it outright.

"I do think it's time to look at the program carefully and make sure the dollars are being spent as effectively as possible," says Sandy Baum, an independent higher education analyst and financial aid expert. "People tend to look at the program and say, 'Is it good or bad?,' and it's clearly good. But I don't think anybody who looks at Pell carefully can honestly say that we really know which aspects of the program help the most."

Some of those who concede that the Pell program deserves more scrutiny do so only grudgingly. Sara Goldrick-Rab, an assistant professor of educational policy studies and sociology at the University of Wisconsin at Madison, bristles at the idea -- coming even from the Obama administration, "despite all of their talk about supporting the needs of low-income folks and investing in their education" -- that the country is spending "too much" on Pell Grants.

"You can look at other programs where we spend a lot of money and nobody seems to ask whether they're cost-effective -- look at the tax credits for college, for one higher education example," says Goldrick-Rab. "But when we spend a fair bit on poor people, we get worked up about it and talk about cutting it.... There's a scrutiny of these programs that's not being applied equally elsewhere."

Goldrick-Rab says that, as a researcher, she is "not a true believer in aid regardless of the evidence," and that recent studies by well-regarded higher education scholars like Stanford University's Eric Bettinger have shown that Pell Grants "probably work better for some students than for others."

"I like cost-effectiveness as much as the next guy," Goldrick-Rab says (with her typical wryness), and "it's important that we make the program as effective as it can be.... It is time to stand up and say, 'Yeah, these costs are high and we're taking a look at this,' but it has to be about meeting the program's goals, not just about cost containment."

Education Department officials should work with researchers to figure out what's working and what's not in Pell, Goldrick-Rab says. In the meantime, however, U.S. officials shouldn't be acting rashly by "cutting off parts of the program that probably do on average have effects," like the year-round Pell provision that department officials now plan to cut. "Making changes like that in the name of not having evidence, when they don't have evidence about any of it, seems like kind of a mess."

How Might Pell Be Fixed?

Financial aid experts throw out a range of possibilities when asked what kinds of changes they might make in Pell given a truly intentional effort to improve it.

Mortenson, of the Pell Institute, says he would focus not on finding a way to cut back on Pell but on "doubling or tripling it" -- but not with federal money. "If we had a Pell maximum award that bought the same amount of college as the end of the 1970s, it would have to be $12,000, and we have people crowing about $5,500 being too high," he says. "There's no way we can achieve Obama's [college completion] goal unless we start making policy very differently, and something like the $12,000 Pell would be achievable if we required states and institutions to put up money to match whatever the feds provide."

Asked where that kind of money would come from in an era when states are cutting back on their institutional support for colleges and institutions are struggling to expand their financial aid budgets, Mortenson says: "Merit aid and tax credits.... We need to make a straightforward economic argument, challenging the notion that it's more important to subsidize kids who don't need it at the expense of educational opportunity for kids from lower economic families."

Several aid experts suggested that the government explore changes in the Pell eligibility criteria that would allow federal funds to be targeted to the highest-need students without raising the maximum grant (since that also significantly increases the number of recipients over all). Hauptman, the independent analyst, says that at the time the Obama administration raised the maximum Pell Grant in the stimulus legislation, he had argued for giving additional $500 grants just to the 2 million lowest-income Pell recipients. "Right now, instead of a $28 billion program [in 2010], you'd have had an $18 billion program, and a deficit of $10 billion less," Hauptman said.

A 2008 proposal by the Institute for Higher Education Policy suggested several possible changes aimed at directing Pell Grant aid to the neediest students, including raising the Pell Grant minimum along with the maximum (which would disqualify some of the comparatively higher-income students) and allowing additional Pell money to flow to students whose family incomes are so low that their "expected family contribution" falls below zero. "Students whose families have a 'negative' EFC currently receive the same amount of aid as higher-income students whose families’ EFC is zero," the institute said at the time. "A targeted and effective solution involves allowing the lowest-income students, those with a negative EFC, to receive up to an additional $750 in Pell aid."

Any changes in Pell Grant funding are likely to help some students and families and hurt others -- at least in a zero-sum financial climate like the one the country seems to be in. But even longtime advocates for the program seem to agree that it'd be better to have thoughtful, data-driven decisions than scattershot or slash-and-burn policies that might otherwise emerge.

"The political reality is that if you blink, you could throw the baby out with the bath water," says Flanagan of NAICU. "But I also think there is enough bipartisan support for this program that an open and honest conversation is possible. It's a different conversation when the program is this big, and we have to be willing to ask the questions."


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