Pell Grants

Essay: Hauptman revise Pell to focus on neediest students

Despite its many accomplishments since its enactment in 1972, the Pell Grant program has strayed in key ways from the initial conception of the Senator for whom it is now named. Instead of disadvantaged students and their families knowing years in advance of their eligibility for aid, the process of applying for and receiving a Pell Grant (and federal student aid more generally) is excessively complicated and often serves as a barrier to access.  Also, roughly one in two undergraduates now receive a Pell Grant, meaning that it is far less targeted to the neediest students. 

This expansion of eligibility also means that it takes a lot more money to fund Pell Grants at any given level of maximum award.  Moreover, there is reason to be concerned that the recent large increases in Pell have had the unintended effect of accelerating the trend for more than a decade in which institutions move their own aid up the income scale because Pell is viewed as taking care of the neediest students.  

In short, there is little evidence that the large investments over time in the Pell Grant program have moved us much closer to meeting national goals such as narrowing gaps in the participation, completion and attainment rates of rich and poor students and those from different ethnic and racial groups.  In a world of more plentiful resources, this ineffectiveness might be less of a problem, but in the current climate of soaring federal deficits, it is neither likely nor desirable for Pell Grants to continue to be shielded from a sharp-eyed review of their effectiveness. 

The Forgotten Middle Class
In a companion essay,
Hamid Shirvani argues for
expanding Pell by ending
federal tuition tax credits.

One way to react is to make further modifications in the current program structure in the hope that such changes will lead to greater effectiveness. But this seems a faint hope. The hundreds of pages of program rules that have accumulated over four decades are virtually indecipherable; further patches will make them more so.

A better way to proceed, in my view, is to start from scratch, including a reaffirmation or an adjustment in principles for modern times and then designing a program that meets those principles.  Luckily, contrary to student loans where hundreds of billions of dollars of outstanding loans make the process of starting from scratch much more difficult, in the case of grants, every year represents a chance to start anew.

My candidates for reform principles would include a radical simplification of the application process and a better targeting of benefits to the neediest students.  I would also include as a principle that Pell Grants should be better integrated with other federal policies so that they work in concert to meet key policy goals rather than the current situation where they too often work at cross-purposes.

To achieve these purposes, I suggest the following elements of a redone Pell Grant program:

1) The FAFSA should be eliminated and replaced with a provision whereby parents and students can apply for aid by allowing their federal income tax submissions to be used to calculate their eligibility for all forms of federal student aid. Families who don’t submit income tax forms but who are eligible for welfare, Medicaid, food stamps or the Earned Income Tax Credit (EITC) would be automatically eligible for the full amount of Pell Grants and other federal student aid.

2) The rules for determining eligibility for Pell Grants would be based on the 1040A income tax provisions. These tax-based amounts could be translated into categories of eligibility rather than precise dollar amounts so that students with the least family resources would have the highest category of eligibility and thus be eligible for the maximum Pell Grant award.

3) Eligibility for Pell Grants would be more restricted than is currently the case in at least two key ways. The family income of students qualifying for Pell Grants would be limited to a certain percentage of national median income or some other indicator of family financial strength.  In addition, eligibility for Pell would once again be limited to students enrolled half time or more. To address the legitimate needs of the groups of students who would no longer be eligible for Pell grants, their eligibility for tuition tax credits could be enhanced (see below).

To make the overall student aid system more effective, in addition to changes made to Pell Grants, other student support policies should be changed to allow for more effective integration with Pell Grants.  Three specific examples of this are:

1) Integration with tuition tax credits.  For any given student, as family income increases, eligibility for tax credits should increase up to the maximum credit as Pell Grant eligibility recedes. This integration would recognize that tuition tax credits can be a more effective way of providing aid to middle-income students and students enrolled for only one course than cramming these students into Pell Grant eligibility and thereby reducing the effective maximum award for any given level of program funding.

2) Distributing other federal student aid.  The formula for distributing campus-based student aid funds to institutions and LEAP funds to states should be changed so that in the future any appropriated funds would be distributed on the basis of the number of Pell Grant recipients who graduated in the previous year from that institution or institutions within a state. Institutions and states should also be given greater autonomy to spend those funds as they see fit to enhance the chances of Pell Grant recipients graduating from college.

3) Limiting in-school interest subsidies.  Eligibility for in-school interest subsidies in the federal student loan programs in the future would be limited to Pell Grant recipients.

The collective effect of these changes would be to reduce substantially the $60 billion in federal funds that are currently expended annually on federal student aid, thus contributing to the overall federal deficit reduction effort.  These changes also would help to make federal student aid investment more effective in meeting the goals of increasing college participation, completion and attainment and to narrow chronic equity gaps in these indexes.

Arthur M. Hauptman is a public policy consultant specializing in higher education finance issues.

Essay argues for revamping Pell Grant to protect the forgotten middle class

The Pell Grant Program, enacted in its earliest form in 1972, provides financial assistance to lower-income students who otherwise would not be able to afford college. Award amounts depend on the family’s expected financial contribution and remaining financial need, with a current maximum award of $5,550 per year. Our economy has reaped the benefits of a more educated population as a result. 

However, Pell Grants are no longer keeping up with need, and the problem of affordability is no longer limited to lower-income students. Today, a college education is unaffordable for many students who are considered middle-class, but who do not qualify for Pell Grants. 

More realistic expectations of what families can afford should be reflected in Pell Grant awards. Families with higher incomes, perhaps even $100,000, should qualify for Pell Grants. And families that currently qualify should receive larger grants. 

To help fund this expansion of the Pell Grant program, tuition tax credits should be eliminated. The equivalent of the tax revenue previously lost to the credits should be spent on Pell Grants.

Focus on the Neediest
In a companion essay,
Arthur Hauptman argues
for revamping Pell to
ensure that dollars flow
to the poorest students.

In 2010 Congress created the $2,500 American Opportunity Tax Credit, which is designed to give middle-income families some relief from costs for tuition, fees and course material. Yet I question the usefulness of a tax credit that only benefits families who already have the resources to pay college-related expenses. This tax credit has been most beneficial to wealthier families with an adjusted gross income of $100,000 to $180,000; they received an average credit of $1,773 in 2009.  In comparison, the average credit was $1,572 for recipients with incomes of $75,000 to $99,999; $1,164 for recipients with incomes of $50,000 to $74,999; and $866 for recipients with incomes of $25,000 to $49,999.

Somewhere in between the families benefiting from the tax credit and those eligible for the Pell grant are families who have substantial need, but receive very little or no assistance from either program.

Because tax credit-equivalent funds (approximately $5.5 billion in 2009 but estimated to increase to an average of $9 billion in 2011 and 2012) most likely will not cover the full cost of expanding the existing $30 billion program, the federal government will have to spend more on Pell.

Pressing Need

The facts for today’s students are bleak, as are the implications for future students.

Tuition is skyrocketing. The average tuition at a public four-year university for 2011-12 is $8,244, an 8.3 percent increase from the previous year that also follows a 7.9 percent increase the year before. A longer-term perspective is even more dramatic; tuition at public four-year universities, when adjusted for inflation, is more than 3.5 times greater than it was in 1981-82. Thus, a college degree is roughly 3.5 times more expensive for this generation than the previous generation. 

At the same time that tuition increases are far outpacing inflation, incomes are faltering. The median household income was $49,445 in 2010. When adjusted for inflation, this represents a 6.4 percent decline since 2007 and a 7.1 percent decline since 1999.  Families with declining purchasing power find it even more difficult to keep up with rising tuition. Unsurprisingly, then, the average amount of student debt for graduates of public four-year universities is also increasing, reaching $22,000 per borrower in 2010. Unless these trends change, student and family debt will continue to increase as tuition increases.

It is impossible to identify a specific income where students become ineligible for Pell grants, since awards are calculated based on a number of factors, including family size and the cost of attendance. But it is possible to identify ranges where students will probably not be eligible for Pell grants. Well over half of dependent students with a family income of $39,999 or less receive federal grants (Pell grants are by far the most common, though a small small number of other grants are included). However, less than a quarter of dependent students with family incomes of $40,000-$59,999 receive federal grants, and almost no dependent students with family incomes of $60,000 or more receive federal grants.

Who, then, do we consider to be middle-class, and can they still afford higher education? The $40,000-$59,999 range for comparing federal grant recipients is roughly equivalent to the middle quintile of household income in 2010: $38,044 to $61,735. Some would argue that this could be viewed as the true “middle” class. Yet, the long held notion of middle class has always been associated with norms that include home ownership, retirement savings, and college educations. Many might argue that the fourth quintile, with incomes from $61,736 to $100,065, and even some households in the fifth quintile, with incomes of $100,066 or more, could also be considered middle-class. 

Can these families afford higher education? The average annual cost to attend a four-year public university, including room, board and expenses, is $21,447. At the higher range of the middle quintile, $60,000 is one-third of the family’s annual income for just one child. Yet, the fact that this family would likely have an expected contribution so high as to disqualify the student from Pell grant eligibility seems totally unreasonable. These students still have great financial need!

Widespread opposition to the existing Pell grant program will make expansion politically challenging. However, as President Obama has said, "A world-class education is the single most important factor in determining not just whether our kids can compete for the best jobs but whether America can out-compete countries around the world. America's business leaders understand that when it comes to education, we need to up our game. That's why we're working together to put an outstanding education within reach for every child." 

If we do nothing to help students who are falling into the middle-class abyss, and if college continues to become unaffordable to a growing number of students, we must be willing to accept the consequences of a less-educated workforce at a time when a quality education is more important than ever, not only for the betterment of the individual (intellectually and financially) but for the future of our country. 

 

Hamid Shirvani is president of California State University at Stanislaus.

Spending cuts loom due to supercommittee failure

Smart Title: 

The Congressional "super committee" announced Monday that it could not agree on deficit reduction, setting the stage for automatic spending cuts in 2013.

Financial aid 'experiment' would let colleges set borrowing limits for some federal loans

Smart Title: 

An experimental financial aid program would let colleges restrict students' borrowing for federal unsubsidized loans as part of a test run.

Suddenly Ineligible

Smart Title: 
As details emerge on Republican plans to cut Pell Grant spending, many say it could be worse, while community colleges see a "body blow."

Why We Need the SMART Program

For the first 20 years of my adult life I served on research universities’ faculties, worked with medical students, and wrote peer-reviewed papers. As a medical doctor, a scientist, and a professor, I had enormous pride in the strength of America’s scientific establishment. The United States trains the world’s best scientists, runs the best research universities, and attracts the brightest minds from all over the world. Year after year, we take the lion’s share of Nobel Prizes.

I proposed the SMART Grant Program to make sure that we retain our global leadership in the sciences. The program will provide grants up to $4,000 on top of Pell Grants (a total of $8,050 in assistance per year) to help bright, hard-working, full time students of modest means pursue degrees in math, science, and strategic foreign languages. Between now and 2010, the Congressional Budget Office estimates that almost 600,000 students will benefit from the program. These students, I am sure, will go on to teach at our leading research universities, run our top medical research labs, and administer our national science establishment. For them, the program will help a lot: at most land grant universities, in-state students receiving the maximum Pell Grant and a SMART Grant will pay no tuition for their last two years of college. Much of the money to finance SMART Grants comes from revisions to student loan formulas that ask private banks to accept reduced profits.

The SMART Grant program will also help America’s research universities retain their global preeminence. Today, India and China together graduate more than twice as many engineers as the United States. Both nations will continue to increase their ranks of scientists and engineers rapidly in the coming years. Meanwhile, many American employers have a difficult time finding qualified scientists and engineers. Since 85 percent of growth in U.S. income comes from technological change, we need to do everything we can to encourage our best and brightest to enter key scientific fields.

I designed the program with the needs of students and research universities in mind. College presidents, families, and students told me that financial pressures turned many bright students away from pursuing math, science, engineering, and languages. Friends of mine like James Wingate, the president of LeMoyne-OwenCollege, and Gordon Gee, chancellor of Vanderbilt University, knew about the program from its origins and joined me in praising SMART Grants after the Senate passed the legislation.

I know that some college officials have expressed doubts about the way the program shifts away from the traditional practice of awarding federal aid to undergraduates based primarily on economic need rather than merit. But while I believe that the federal government should provide generous financial assistance to students with a wide range of abilities, I see no reason to apologize for creating a program targeted towards the very type of bright, motivated students nearly all colleges seek to recruit. I’m shocked that some of SMART Grants’ critics appear to believe that low-income students can’t earn good grades. While they use the same financial eligibility criteria, the SMART and Pell Grant programs will remain distinct; one won’t impact the other. The program also limits itself to full time students because they pay the most tuition and have the greatest financial need. Although fiscal considerations will play a role in future action, I am open to proposals that would expand SMART Grants to cover needy part-time students who meet similar academic criteria.

I helped create SMART Grants to help bright students from all backgrounds to learn the skills most vital to our country. The future of our nation’s global leadership depends on America’s ability to produce more graduates with degrees in science and engineering. Once they understand it, I believe that America’s great colleges and universities will welcome the SMART Grant program with open arms.

Author/s: 
Bill Frist
Author's email: 
info@insidehighered.com

Sen. Bill Frist, a former assistant professor of surgery at Vanderbilt University Medical School, is majority leader of the United States Senate.

The Elephant in the Student Aid Office

Secretary of Education Margaret Spelling’s Commission on the Future of Higher Education recently released its report titled “A Test of Leadership: Charting the Future of U.S. Higher Education.”  The report contains a series of recommendations built on a year of deliberation by its 19 members. First and foremost is the recommendation that “the U.S. commit to an unprecedented effort to expand higher education access and success by improving student preparation and persistence, addressing non-academic barriers and providing significant increases in aid to low-income students.”

Last week, in an effort to get out ahead of the momentum that is already building for the report and its recommendations, the American Council on Education and the other organizations that make up the “big six” higher education lobbying groups in Washington issued an eight-page letter to their members. 

This document, “Addressing the Challenges Facing American Undergraduate Education,” describes seven “issues and actions” that the organizations expect will result from the issuance of the Spellings commission's report. The first of these actions, echoing the commission’s first recommendation, is “Expanding college access to low-income and minority students.”

According to the six organizations, “The single most effective step to boost college participation of low-income and minority students is to increase substantially the value of Pell grants.”  Pell grants, the centerpiece of the federal government’s efforts to reduce college cost barriers for low- and moderate-income students, is indeed a critical part of the nation’s financial aid system. 

The letter supports the commission’s recommendation to increase the value of the average Pell award from 48 percent of the average in-state tuition at a public 4-year institution to 70 percent within five years.  This is a noble goal, and having the support of the six lobbying groups is critical in helping to persuade Congress and the Bush administration to support it also. ACE’s own calculations demonstrate that such an effort could require almost doubling the current $13 billion budget of the Pell grant program.

The letter also encourages colleges and universities to find ways to control the growth of costs, again echoing a major theme of the Spellings commission. And it encourages the institutions to do a better job providing to students and parents clearer and more accurate information about the true “net price” of college, after taking into account financial aid.

But in all the discussion in the letter about making college more affordable, these organizations ignore the elephant in the room: how colleges and universities spend their own institutional financial aid funds. While an increase in the value of Pell grants will certainly help achieve the objective of expanding postsecondary opportunity for low-income students, the goal could be promoted much more quickly and effectively through the reform of institutional financial aid policies.

In a study I conducted earlier this year for the Wisconsin Center for the Advancement of Postsecondary Education, I examined the distribution of grant awards to undergraduate students.  Using data from the National Postsecondary Student Aid Study, a nationally representative sample of students from the 2003-4 academic year, I looked at what many label “traditional college students” -- those who are still dependents of their parents and attended a single college full-time that year. 

What I found was while colleges and universities provided just over $4 billion in federal grants and $3 billion in state grants to these students, they provided more than $10 billion in grants from their own resources.  The nation’s colleges and universities should be applauded for the effort they make in helping to lower the cost of college by partnering with the federal and state governments to award grants from institutional resources.  

But not all grants are alike. My study found that while 97 percent of all federal grant dollars and 75 percent of all state grant dollars awarded to these students went to those whose parents’ income was below the national median, only 47 percent of all institutional grants were targeted to this same population of students. Over half of the grants awarded by institutions, or $5.5 billion, was awarded to students without any consideration of their or their parents’ financial need. 

This is in contrast to Pell Grants, which are very highly targeted at needy students, and three-quarters of state grants, which also use financial need as the primary criterion for determining eligibility. The lack of means-testing in the awarding of over half the institutional grants, along with broader definitions of “need,” results in a very different distribution of awards as compared to means-tested federal and state grant programs.

There has been much written in the nation about the necessity of helping middle-income students find ways to help pay for college, especially since many of them come from families that are above the eligibility cutoff for federal or state need-based grants. Many institutions have indicated that they are filling that objective through their own institutional grant programs. And while many of these grants do go to students of modest means, the truth is that many go to students who come from families with incomes well above a level that most of us would describe as “modest.”

For example, in 2003-4, institutions awarded more than $2 billion in grant aid to dependent students from families with incomes in excess of $108,000, or approximately twice the median family income of all dependent students in the nation that year. While some may believe that these families deserve help in paying for college, it is difficult to make the argument that this should be a priority in light of the Spellings commission's declaration that its members “are especially troubled by gaps in college access for low-income Americans.” One is hard-pressed to argue that giving $2 billion in grants to students from these upper-income families helps to address the commission’s concerns.

What is particularly troubling is that the letter from ACE and its partner organizations never once lays even a portion of the responsibility for helping lower-income students afford college at the doorstep of the financial aid policies of their member institutions. There is language in the letter, of course, about expanding Pell Grants, and about other “efforts” and “goals” of institutions to improve access for poor students. There is also the announcement of another public service campaign called “Know How To Go” targeted at low-income students (raise your hand if you remember ACE’s “College is Possible” campaign, which was launched in 1997 and sounds awfully similar to “Know How To Go”).

But never does the letter recommend that these institutions conduct an evaluation of their own financial aid programs to determine whether they are working in consort with the goal of expanding access for underserved populations, or whether they are simply rewarding wealthier students who have had many social, financial, and academic advantages in the years before they went to college. 

Rather than focusing solely on public service campaigns, cost-cutting efforts, and new ways of explaining the difference between “sticker price” and “net price,” colleges and universities would be much better off by simply taking this $2 billion and putting it in the hands of low- and moderate-income students. This decision could be made tomorrow, requires no action on the part of the federal government, and would have an immediate impact on the college participation of these students.

The American Council on Education and the other higher education organizations in Washington should be lauded for their attempts to be proactive in supporting the recommendation of the Spellings commission to improve college access for low-income students. But before the organizations and their member institutions ramp up their external public relations and lobbying efforts, they should look inward at their own practices.

Reforming institutional policies so that all financial aid resources are focused on students who truly need them to be able to afford college -- rather than being awarded to students who would attend college anyway -- is an important first step.

Author/s: 
Donald E. Heller
Author's email: 
newsroom@insidehighered.com

Donald E. Heller is associate professor of education and senior research associate in the Center for the Study of Higher Education at Pennsylvania State University in University Park.

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