In the wake of the recent Supreme Court decision on racial affirmative action and ongoing barriers to student-debt cancellation, state and federal policymakers are seeking new ways to reach racially marginalized students. We say, take a close look at family wealth.
Right now, formulas for awarding federal financial aid to students are based primarily on family income. That overlooks the realities of wealth inequality — especially as it is stratified by race. Students from low-wealth families are disproportionately Black and Latino. Inevitably, without family wealth to lean on, students may decide not to attend college, borrow more to attend college, struggle to pay back their loans, or find it difficult to achieve financial security.
We have a proposal to address this unmet financial need: a supplemental wealth-based Pell Grant, layered on top of students’ existing Pell Grant awards and calculated via existing data on students’ and their families’ assets collected via the Free Application for Federal Student Aid. This “front-end” solution is designed to prevent — or significantly reduce — borrowing in the first place, particularly among students who lack the family wealth that allows some to leave college debt-free.
By wealth, we mean financial assets like money in a checking account, a college-savings account, an income-producing property, or an investment fund. Higher-income parents typically draw on some of their annual earnings from employment to help their children pay for college. But families with more liquid financial assets also use their wealth to pay for college before encouraging their children to borrow.
Wealth matters for how we award financial aid because it is even more unequal than income in the United States. The 6-to-1 white-Black wealth gap is a lasting legacy of slavery and the racially biased policies around housing, employment, and education that have followed. More recently, wealth inequality has exploded due to a widening gap in access to capital gains from stock equity; consequently, the white-Black wealth gap has shrunk nary a smidge over the last seven decades.
The Pell Grant was initially designed in the 1970s to be nearly universal, covering almost the entire cost of earning a degree at a community college or public university for most students. Over the past 50 years, however, wealth inequality has skyrocketed, the purchasing power of the Pell Grant has declined, and the Pell Grant has come to serve those in the lowest income echelons.
If our federal financial-aid policies do not target wealth inequality, then we are missing the single largest form of economic inequality facing college students and their families.
Today’s low-wealth students are often from both low-income and low-wealth backgrounds. Our analyses of first-time, full-time, dependent FAFSA filers indicate that nearly 50 percent of all Black filers, around 40 percent of Latino filers, and 20 percent of white filers face this form of double disadvantage. Under existing formulas, such disadvantage is invisible. Take two otherwise similar students, each with $20,000 in family income, but one with $0 in assets counted on the FAFSA and the other with $80,000 in assets; both would receive the same Pell award, despite very different levels of need.
In addition, nine percent of all borrowers, many of whom have only modest income, are low-wealth only, and thus shut out of the existing Pell Grant altogether.
What could a wealth-based Pell Grant do? Even if we extended a wealth-based Pell equivalent to the maximum value of the existing Pell Grant ($7,395), to just borrowers in the bottom 25 percent for family wealth (roughly $500 or less in our sample), we estimate that roughly 85 percent of students could have attended their first year of college debt-free, a 46-percentage-point increase from the share who actually attended did. This translates into one million more full-time students.
Benefits are greatest for racially marginalized students. Because Black students are disproportionately from low-wealth backgrounds, we estimate adding a wealth-based Pell Grant for students with less than $500 of family wealth would roughly double the share of Black students who attended their first year of college debt-free, from 27 percent to 50 percent — eliminating the racial gap in that statistic.
Implementing a wealth-based Pell is simple. The existing FAFSA form already collects a large amount of information on family assets, which play a very minimal role in calculations of student financial need. The FAFSA does not count home equity and retirement savings, and it does not include most debts and liabilities. However, our analyses indicate that students whose families have uncounted assets are also students whose families have the many other assets counted by the FAFSA. In addition, the information already provided on the FAFSA can offer a sound picture of family assets without being muddied by “good debt” — that is, mortgages and other loan debt for high-value assets provided at good interest rates to those with otherwise high wealth.
Working with existing FAFSA items is important for avoiding delays in FAFSA completion. Students who are low-wealth and qualify for the simplified FAFSA could submit a simple attestation regarding their lack of financial assets. And under proposals to use IRS filing data without the FAFSA, a wealth-based Pell Grant could potentially be awarded with even less administrative burden.
We are pragmatists. Suggestions that wealth be better integrated into financial aid have yet to take root because starting from scratch is hard to imagine. We offer one way to get wealth-based aid to students quickly, absent the capacity or political will for a top-to-bottom transformation. We worry that more complex solutions will fall through the cracks or introduce unintended barriers to access, as small changes to the FASFA did in the fall of 2024.
A supplemental Pell Grant for those in the bottom quartile of wealth would cost about $17.4 billion. This is less than the $26.5-billion estimate for doubling the existing Pell Grant. There is no need for these proposals to compete, however. Doubling the existing Pell Grant and adding a supplemental wealth-based Pell could be bundled together in proposed Democratic legislation, as the ideas address different dimensions of economic need.
Such a robust Pell program could boost college completion and bring benefits to the economy, offsetting its costs. And even very small taxes on the wealthiest Americans — like those proposed in the Ultra-Millionaire Tax of 2021 — could easily cover the upfront cost.
It is time that our financial-aid policies acknowledge our nation’s systematic and race-based denial of wealth. Our approach evades some barriers: Because student eligibility for wealth-based financial aid is not contingent on race (and indeed, students from all races will benefit), a wealth-based Pell is unlikely to be a target of litigation seeking to end race-conscious postsecondary policies.
The wealth-based Pell would be an investment in college access, completion, and economic security for Black and Latino students. It would chip away at the largest driver of crippling student debt for communities of color. It is one big-impact solution that is well within our reach.
