Report Suggests Replacing Pell Grants With a Federal-State Matching Grant

January 24, 2013

Pell Grants and other nonloan federal student aid should be replaced with a single federal-state matching grant, according to a new report from the Committee for Economic Development.

The report, one of 16 studies commissioned by the Bill & Melinda Gates Foundation as part of its Reimagining Aid Design and Delivery project, also proposes eliminating federal tax credits for higher education, and suggests streamlining the process of applying for student aid and repaying student loans.

Several of the report's ideas have been offered before, in other reports, in bills, and in budgets. Many lawmakers and policy groups are eager to end tuition tax credits, arguing that they do little to expand access to college. Moreover, says the report, abolishing the credits could free up $18.2-billion for other programs. But doing so has proved politically impossible, as the credits are popular with middle-class voters.

The report also calls for expanding the federal Race to the Top program from schools to colleges—an idea President Obama has proposed but Congress has rejected, citing budget constraints (though the report, at least, offers an offset for the cost).

The report also suggests making income-based repayment the "default" option for student loans, echoing a recent proposal by Rep. Tom Petri, a Wisconsin Republican.

But the report's top recommendation—replacing Pell Grants and the other federal grant programs with a need-based grant that would be partly matched by states—is both novel and controversial. At a luncheon held here on Thursday to release the report, several audience members voiced skepticism about the plan, worrying that it would penalize students in states that chose not to participate, and expressing doubt that a federal methodology for determining need would distribute aid fairly.

William R. Doyle, the Vanderbilt University professor who wrote the report, said he doubted states would refuse the aid, given the consequences for their students and colleges. He noted that states fought matching requirements in Medicaid and elementary and secondary education, but ultimately accepted the money.

"The federal government can't be the only actor that's concerned with access," he argued. "They have to start expecting something back from states and institutions."