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Fixing Pell Should be About More Than Just Cutting Costs

Published:  March 30, 2011

Sometimes a crisis presents an opportunity. That might just turn out to be the case with the Pell Grant program.

As readers of Higher Ed Watch know, Congress has not yet found the money it needs to keep the $5,550 maximum award in place for the 2011-12  academic year. House Republican leaders have proposed dealing with the program’s fiscal problems by slashing the maximum grant to $4,705. The Obama administration and Congressional Democrats oppose that approach, but instead have proposed targeted reductions in the government’s student aid programs to keep the current maximum award in place. [As Higher Ed Watch recently reported, the Congressional Budget Office may just have made their jobs harder when it revised its estimate for what lawmakers must appropriate to achieve this goal.]

The battle over the program’s fiscal year 2011 funding is likely to come to a head at the end of next week when lawmakers from both parties have vowed to complete work on a final budget for the remainder of the fiscal year (or potentially face a government shutdown). But even if the White House and Congressional leaders reach an agreement to keep the maximum grant at $5,550 this year, they will face an even bigger battle in setting a budget for the 2012 fiscal year when the cost of maintaining the maximum grant at that level is likely to exceed $40 billion.

Clearly, the Pell Grant program is on an unsustainable path. And there is a growing recognition that action needs to be taken to get its costs under control. 

But just what should be done?

Over the last several weeks, both Inside Higher Ed and The Chronicle of Higher Education have run articles and columns (see here and here) laying out various options for policymakers to consider. Among other things, these proposals include rolling back recent changes that Congress has made to the program that have made it more expensive (such as allowing some low income students to receive two Pell Grants in a single year); tightening the eligibility criteria for obtaining the awards to ensure that only the most financially needy students benefit; reducing the number of years students can receive the grants [they can currently get them for up to 18 semesters]; and/or linking grants “to student outcomes,” according to The Chronicle, by “withholding aid from individual students, programs, or even entire colleges based on grades, completion rates, or some other variable.”

Many of these proposals are certainly worthy of consideration. But at Higher Ed Watch, we believe the conversation surrounding Pell Grants should not just be about cutting costs.  It should also be about restructuring the program so that it can more effectively carry out the mission it was created to serve: eliminating the cost barriers that all too often keep low-income students from attending college.

For too long now, colleges, under the sway of enrollment managers and financial aid leveraging experts, have been undermining that mission. As we have previously reported, both public and private four-year colleges have increasingly used their institutional aid dollars to try and lure in the students they desire, rather than to meet the full financial need of low income students they enroll.  As a result, Pell Grant recipients who choose to enroll in these institutions often must take on substantial amounts of debt to do so, including high-cost private student loans.

Take, for example, Ursinus College, a private college in Pennsylvania.  According to a report that ran in both Kiplinger’s Personal Finance magazine and The Washington Post last year, Ursinus had historically awarded its institutional financial aid dollars according to financial need. But in the mid-1990’s, the college’s new president set out to strengthen the institution’s academic stature and its finances. At that point, the primary purpose of the admissions and financial aid offices became to enroll “stronger students who could also pay a higher portion of costs,” the article states.

To carry out these goals, the enrollment manager at Ursinus devised a system that ranks applicants primarily “according to their grades, standardized-test scores and accomplishments.” Admissions officers then use those rankings “not only to decide which students to admit but also to determine how much merit aid, along with need-based aid, they will receive.” Students in the first tier (those in the top 10 percent of their high school classes and score more than 1300 on their SATs) get the most generous scholarships.

How did this play out for individual students? The article gave examples of the aid packages offered to two prospective students who had been accepted through early decision and received the top ranking. The college offered the first -- who came from a family with an annual income exceeding $200,000 and with “investments and cash accounts that add up to about $150, 000” -- a $20,000 merit scholarship. Meanwhile the school offered another prospective student --from a family with annual earnings of about $26,000 and “no assets to speak of” -- a $13,000 scholarship, which, after taking federal financial aid into account, left that individual $8,000 short.  And that doesn’t even include the $11,000 that student would need to pay for room and board.

Ursinus is hardly the only campus to lavish rich rewards on affluent students while under-funding students with the greatest financial need who qualify for admission. A 2008 study by the Institute for College Access & Success found that about 49 percent of all institutional aid provided by public four-year colleges and 25 percent provided by private colleges was awarded “in excess of need,” while the average unmet need (what’s owed after all grant aid is taken into account) of low-income students continues to grow.

Last year, the research and advocacy group Education Trust found that at public four year colleges, the average amount of unmet need of students from families making $30,000 or less at these institutions now stands at about $10,500, while students from families making more than $115,000 have an average of about $17,500 in excess of need.  At the same time, the group found that the proportion of Pell Grant recipients at state flagship universities was shrinking.

With the substantial increases in Pell Grant funding over the last several years, the federal government has certainly been doing its part to help millions of low- and moderate-income students to obtain a higher education. But colleges, with their institutional aid policies, have all too often hindered the government’s ability to achieve this vital public policy goal.

At Higher Ed Watch, we believe that it is essential for policymakers to address this problem as they look for ways to “fix” the Pell Grant program -- because ultimately their goal should not just be to make the program leaner but also to make it work better.

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