How To Fix Pell Grants

Taxpayers are spending $36 billion a year on federal college grants. Here's why the program is in serious need of an overhaul

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A decade ago I was involved in an effort to rethink federal college aid programs in partnership with the Brookings Institution. We brought together a diverse set of thinkers to brainstorm about how to better target federal dollars to help the neediest students. Sounds pretty mundane, right? But it was a circus. People were so miffed by any suggestion of changing the Federal Pell Grant Program that one advocate even circulated a cowardly anonymous poem insulting the wife of a participant. (Who says education policy is boring?) There was hardly any useful data about who was using various federal aid programs because different federal agencies — including the Internal Revenue Service and the Department of Education — wouldn’t talk to each other. In short, I quickly learned that when it comes to higher education reform, war is Pell.

The attitude in Washington is different now, and even advocates acknowledge some changes are necessary. Pell grants are being scrutinized because taxpayers now spend more money on them — $36 billion this year, up from $14 billion in 2007 — than on entire federal agencies. Almost half of all college students currently receive some Pell grant assistance, ranging from $555 to $5,550, based on their financial need. In July, Congress is tightening the purse strings by reducing the number of semesters a student can receive a Pell grant (to 12, down from 18) and, most controversially, lowering the household income level that determines which students’ families are not required to contribute any money for their college education. That threshold is dropping from $32,000 to $23,000.

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There aren’t many families poor enough to qualify for the zero-contribution plan; the recent changes will bump about 12,000 students  out of that category and will lower the grants for an additional 274,000. But much broader changes to the Pell program are necessary to make it more beneficial and effective. A variety of ideas about how to achieve that are ricocheting around Washington. Here are five that policymakers should consider:

Front-load the grants. The Clinton and Bush administrations considered making Pell grants larger early in a student’s career.  The idea was to keep debt loads down at the beginning so that students wouldn’t have to borrow so much until the finish line was in sight. Critics worried that this would lead to an erosion of aid for students later in their college careers. But that’s a false choice. There’s no reason why there can’t be some front-loading — which could disproportionately help community college students — while also preserving some support for students further down the road.

Focus more on the poorest students. On one level it’s great that Pell grants are now touching so many students, but the program arguably should be focused most on low-income Americans and able to give them grants far larger than the $5,500 maximum today. In a country where only 8% of low-income students earn a four-year college degree by age 24 (compared with three in four affluent students), poorer kids should be Pell’s top priority. Some analysts also urge incentives for colleges to do more for Pell students. Stephen Burd, a higher education analyst at Education Sector, suggests conditioning extra aid to colleges based on a high-enrollment of Pell recipients.

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Reward colleges for graduating Pell recipients.  Colleges and universities don’t have much skin in the game when it comes to federal aid. It’s one of several reasons college costs continue to rise. Higher education analyst Art Hauptman suggests conditioning some aid on graduation rates for Pell Grant recipients. In 2011 the Obama Administration took steps to restrict the eligibility of low-quality for-profit colleges to receive federal dollars. It’s a good first step, but many private and public colleges have deplorable outcomes as well. They should be held accountable, too.

Keep it simple and create an information trigger. To qualify for federal aid, students have to fill out an elaborate form called the FAFSA. In 2009 the online version started including some performance information about schools to at least signal to students that they should think about the quality of the degree they’d be getting at these places. But the form is still too complicated, which deters some students from even filling it out. Using tax return data like the standard 1040 form, augmented with a few additional education-specific questions such as how many schools a student is applying to, would accomplish the same goals and be a lot more user-friendly.

When I asked college aid expert and former Obama Administration official Bob Shireman for his ideas about Pell grants, he suggested a more aggressive campaign to inform students about a school’s average student debt load and graduation rates, i.e., what kind of debt they’ll be getting into versus how valuable of an education they’ll be receiving. Shireman says that when students indicate that they are only applying to one school or that they are choosing a school solely based on an advertisement, for example, that should trigger a call from a federal college aid counselor to make sure the student is aware of free resources, including counseling from the Department of Education.

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Reform federal tax credits and deductions as well as the Pell. The federal government helps students through a variety of aid programs and tax breaks. But these different programs evolved independently, so there is overlap and a lot of confusion among families. Some analysts have suggested getting rid of the tax credits altogether because they disproportionately benefit higher income Americans.  That’s not likely to happen in the current political climate, but there are intermediate steps Congress can take to better integrate Pell grants with the various tax benefits.

Of course, every one of these ideas offends some constituency or sends a special interest group scurrying to Washington to fight the change. But instead of simply talking about how to pay for Pell grants, Congress needs to start seriously debating how to make them more effective for students.

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