Pell Grant Increases Mean Little if Washington Acts Alone

June 09, 2014

In 2009 and 2010, the Obama administration secured more than $15-billion in additional annual funding for the Pell Grant program—money that goes to help the nation’s poorest students afford college. Repeatedly hailed by administration officials as "the largest investment in student aid since the GI Bill," these funds almost doubled total yearly spending in the program and increased the maximum grant by more than 15 percent between 2008 and 2010, going from $4,731 to $5,550. And the number of recipients during that period grew from six million to over nine million. The Pell increases are arguably the administration’s biggest higher-education accomplishment to date, and while other stimulus benefits have receded, the administration has successfully fought time and again to protect Pell.

Unfortunately, colleges and the states have not shown similar levels of concern about protecting the value of such a significant federal investment. Instead, as recently released data from the U.S. Department of Education demonstrate, this near-doubling of the Pell Grant appears to have kept constant the rate at which these low-income students turn to debt, while those who do borrow are facing even greater loan burdens than ever before. Given the increase in the number of students receiving Pell Grants and the size of their average debt burden, the federal government would have to spend approximately $7-billion more a year just to keep the average amount borrowed each year the same. And that doesn’t include closing the expected shortfall that begins in 2016 that will require billions of dollars in additional funds over time.

The story of Pell and its inability to meaningfully restrain borrowing exemplify the challenges of unilateral federal financial-aid investments. Without conditions on states and institutions that introduce real requirements about providing an affordable education, federal dollars will keep getting gobbled up by insatiable college budgets and state officials looking for ways to supplant their own education spending. Taxpayers will be footing part of the bill, but so too will the poorest college students who will keep turning to debt to finance their educations.

A rational financial-aid system would distribute benefits so that grant aid would flow to the lowest-income students, while loan aid would go to those with middle incomes that just need some additional assistance. But the lowest-income students getting Pell Grants and those taking on loan debt are increasingly one and the same. Of 2011-12 graduates who used federal loans for their education, 71 percent also received Pell aid at some point. By contrast, just 32 percent of 2011-12 graduates who never took out federal loans also received Pell aid.

The latest debt figures for Pell Grant recipients should not be interpreted as a sign that the program provides no value. Pell is indisputably important for helping the lowest-income students get access to and afford a postsecondary education. Without Pell, millions of students would not be able to pursue their educational dreams. But how much more effective could it be if states and colleges treated the program with the same degree of importance that federal policy makers do?

The increased funding for Pell Grants provided colleges across the country with billions of dollars in additional revenue and resources. And it had arguably the least restrictive requirements of any stimulus dollars. Colleges did not have to ensure that Pell dollars supplemented and did not supplant funds already provided by states and schools. States were not told to avoid cutting their postsecondary budgets, as they were in other programs. This lack of strings left states and colleges free to slash support, increase tuition, and use Pell to make up the difference.

The federal government did not even ask for more transparency about whether colleges successfully graduated students getting this aid—a common last gasp attempt at oversight. Rather, colleges took the dollars and continued the same trend of increasing prices they’ve been following for decades.

One cannot expect the federal government to keep taking such a laissez-faire approach to federal student-aid investments. If there is any hope of meaningfully reducing or even constraining loan debt, the federal government’s relationship to institutions of higher learning and the states cannot keep being so one-sided. This does not mean suddenly ushering in a new era of No Child Left Behind at colleges. But if the federal government cannot demand even basic requirements like protecting the purchasing power of its investment or data and transparency about basic outcomes like completion, then enthusiasm for future financial-aid increases is likely to wane. This country operates on a system of federalism. Student aid should too.

Ben Miller is a senior policy analyst at the New America Foundation.