With all the attention paid to student loans of late, there is a risk that policy makers will lose track of an issue of even greater importance for college access for low- and moderate-income students: grants for postsecondary education. Research has long shown that grants, not loans, are the most effective financing vehicle for encouraging the postsecondary attendance and persistence of low and moderate-income students.
While Congress has been pursuing the student loan scandal, it also has recognized the importance of grant aid. In June, the House Appropriations Committee approved an increase in funding that would lift the maximum Pell Grant by $390. That boost would come on top of a $270 increase enacted by Congress earlier in the year. The combined $660 increase would bring the maximum Pell Grant to $4,700. Meanwhile, efforts are also underway in the House and Senate to reduce the government subsidies student loan providers receive and use the savings to increase the maximum award.
This increase in the Pell program is an important step toward improving college access. But Congress and the Administration have a long way to go to return Pell to the prominence it enjoyed during its heyday. Thirty years ago, the maximum Pell Grant had a purchasing power equal to approximately 80 percent of the cost of attendance at a typical public, 4-year college (though legislation capped the amount the student was eligible for at 50 percent of the cost of attendance). As recently as twenty years ago, the maximum Pell had a purchasing power of 60 percent of the public college 4-year cost of attendance. Today, the maximum Pell Grant is worth about half that amount, or 30 percent of the cost of attendance.
To restore the Pell Grant to what it was twenty years ago would require a maximum grant of about $8,000. A ballpark estimate of the additional cost associated with such an increase is approximately $13 billion a year. Given the constraints on discretionary spending that Congress has imposed on itself, not to mention President Bushs veto threat of current contemplated spending levels, it is unlikely well see a Pell increase in this range any time soon.
Low- and moderate-income students arent likely to get much more help from either of the two other primary sources of grant aid: the states and colleges and universities themselves. According to the National Association of State Student Grant and Aid Programs (NASSGAP), state spending on higher education grants totaled $7 billion in 2005-06, the most recent year for which data are available (the federal government spent $12.7 billion on the Pell Grant program that year). But after taking inflation into account, state spending on grants increased at a slower rate than in the prior year, even though most states fiscal conditions had improved.
In addition, over 25 percent of the money that states spend on grant aid to undergraduate students is awarded based on "merit" criteria and without considering the financial need of the student or her parents (and merit grants are the fastest-growing form of state grants). Merit aid, as opposed to Pell and other need-based aid, goes disproportionately to students from wealthier families; that is kids who otherwise would go to college whether the grants existed or not. Its what budget experts call "buying out the base."
More important are the colleges. The nations 6,000 colleges and universities are the single largest source of grant aid to students. The most recent data from the U.S. Department of Education indicate that in the 2003-04 academic year, over $14 billion in institutional grants was awarded to undergraduate students, representing 40 percent of all grants received.
But as with state grant aid, merit grants are the fastest growing form of institutional aid. Today, more than half of the institutional grant dollars awarded to students are provided without consideration of financial need. Spurred by the intense competition for the best students, colleges and universities have relied on enrollment management tools, including the awarding of merit aid, to boost their rankings.
As states and colleges and universities continue to shift their priorities away from low- and moderate-income families, the Pell Grant program will become even more critical for ensuring student access. It is incumbent upon Congress to recognize the foundation of student financing support that Pell provides, invest in this program to return it to its prominence of two decades ago, and keep colleges and universities from using the grants to supplant institutional need based aid. At the same time, states and colleges and universities need to recommit to the important goal of providing financial aid to students who truly need the assistance in order to be able to afford to attend college and persist through to a degree once enrolled. Without such a commitment, low and moderate-income students will continue to be left behind in higher education.
Donald E. Heller is associate professor of education and senior research associate in the Center for the Study of Higher Education at The Pennsylvania State University in University Park.