Reforming Pell Grants

With Democrats in control of the House of Representatives, it is likely that they will begin to draft their own version of the Higher Education Act reauthorization.   \When they do so, I hope they will examine ways to strengthen and reform the Pell Grant program to bring it into the 21st century. 

The primary problem with the current Pell Grant system is that the grants are too small to make higher education truly affordable. When the program was first devised, Pell Grants covered 92 percent of the costs of a state institution education. Now a grant only covers 29 percent. The simplest reform would be to double the Pell amount, currently around $6,000, to $12,000.  This would pay for tuition, at least, at most public programs. The cost of that change would be significant: somewhere in the range of $30 billion. Though that price looks significant, one might recall that the Trump tax cuts will cost an average of $230 billion per year for each of the next 10 years. 

Increased grants will be meaningless if tuition continues to rise much faster than wages. Another useful -- though controversial -- reform would be to require colleges and universities to control tuition increases in return for expanded Pell grant support. We might, for example, require institutions that want their students to receive the new $12,000 Pell Grant to limit future tuition increases to the inflation rate. If an institution chose to increase tuition above inflation, the institution would lose eligibility. This incentive would force colleges and universities to engage in more serious efforts to control costs.

A third badly needed reform is to cut Pell Grant eligibility for failing programs, so students do not waste their time, effort, and financial resources -- and the taxpayer’s money -- on programs unlikely to help them achieve their personal and financial goals. We might use loan default rates as one measure of success.  The average student default rate in higher education is slightly under 11 percent.  If a program has a default rate above 25 percent, we might cut them off from Pell eligibility. This will steer low SES students away from economically exploitative programs that leave students with high debt and limited employment prospects. We might also cut off programs with low graduation rates. For example, we might eliminate Pell eligibility for two year colleges with less than a 20 percent graduation rate and four year institutions with less than 40 percent graduation. This would incentivize institutions to make completion a priority and keep students away from programs that will not help them succeed. Over time, we might increase required performance levels as weaker institutions are forced to improve or close. 

We could include a waiver system for institutions to provide needed flexibility. For example, schools with a high default rate, but a tiny number of defaulting students, or institutions with a low graduation rate, but very high rate of successful transfer, might still be eligible. 

Finally, we might begin to discuss middle class Pell Grants. Right now, Pell Grants are cut off at family income of approximately $50,000 per year. We should begin to raise this gradually, with an ultimate target of $75,000. This would begin to address the clear problem of middle class tuition squeeze, with millions of families too wealthy for federal aid, but not wealthy enough to have any hope of paying for college. 

These ideas might, at first glance, appear a bit too radical. Colleges and universities will object, I imagine, to any graduation or default requirements or tuition regulation. But federal aid to students should be a two-way street.  If the federal government is going to fund students to attend a college or university, the least we can expect is that the institution will maintain some minimal performance standards and not immediately negate Pell Grant increases with equally big tuition increases.

What do you think? I look forward to your feedback.