Why I Favor Pell Grant Reform

Washington -- Recent news out of the Congressional Budget Office suggests the Pell Grant program is not approaching a funding crisis after all; it is running a surplus.

Well, good. But that does not mean the program shouldn't be reformed.

I hope I still have some street cred on Pell grants, having favored the creation of such a program in the days of the Carnegie Commission forty-plus years ago, having worked in the Senate to prevent the Reagan-era cuts, and having advocated for the program from positions both within the higher education establishment and the Department of Education over three decades. Always favoring grants over loans, I testified before the Senate in 2007 in favor of killing the bank-based loan program (riddled with waste and fraud) and putting the savings into grants. I filed suit against several lenders later that year; the details of the suit became public in 2009; in 2010 Congress killed the bank-based program and put billions of resulting savings into Pell grants.

But until recently CBO projected those funds to run out over the next few years, precipitating a call for reforms to cut Pell expenditures. The Gates Foundation stepped up to invite new ideas not just about Pell but about how to reform the whole federal student financial aid system. That effort is now producing thoughtful reports and promising reforms.

The Pell problem is actually much larger than simply how much the program spends. A more basic question involves its efficiency, and indeed (according to some of the new reports) whether it works at all anymore.

Here are some problems I see with the current Pell program:

• Too much goes to for-profit schools, which have a poor record of graduating their students. Cellini and Goldin documented that these schools raise their tuition as Pell grants increase, defeating the purpose of the grants. Students are loaded down with loans; their default rates are high. The billions in Pell grants that go to students at for-profit schools are an incredible waste.

• Waste -- or at least program abuse -- at non-profits and many public institutions is nearly as great a problem. Through enrollment management mechanisms, many schools move other aid funds around so as essentially to capture the Pell grants for themselves, rather than using the Pell grants as intended to reduce loan and work burdens for the low-income. The captured funds most often wind up aiding the non-needy, turning the Pell program into one that actually increases inequality of opportunity. L. Turner has estimated this abuse at about six billion dollars per year.

• The emphasis on Pell grants has hurt funding for other federal student grant programs such as SEOG and SSIG/LEAP, which historically have been less wasteful. These programs contained incentives to keep institutions and states committed to higher education access for the low-income, but their funding now is negligible (SSIG/LEAP has actually been killed off). The disinvestment of institutions and states in low-income aid has dug a hole in equality of opportunity faster than Pell grants can fill. (Last year at an Ed Sector forum I recommended "rebalancing" appropriations proportionately among the programs back toward what is was in the 1970s, when all the programs were working, in combination, comparatively well.)

• There's not much empirical, peer reviewed research that suggests the Pell program, despite the billions we spend on it, works as intended. In 2002 I tried to find evidence in Department of Education data bases that higher Pell awards meant lower loan burdens for the low-income, in vain. The nation's best higher education researchers have also been increasingly doubtful about Pell over the decades. I am a researcher who believes in evidence-based decision making.

Truth be told, however, I would still like to see the country make a larger investment in the higher education of the low-income, at least back up to the real level of the 1970s. It is a better cause than many of our foolish foreign war adventures (and I write that as a former Navy officer).

It is yet an even better cause if we coordinate our programs and incentives, take the waste out of of them, and fit them into an overall federal deficit reduction plan. Two of the Gates-funded reports have particularly caught my eye: Doyle's report for the Committee on Economic Development and the work of the higher education group at the New America Foundation. Both have ideas as to how to reform our financial aid system and provide states and institutions with incentives to become more constructively involved again. Both would help fund the effort at the federal level by killing off the higher education tax expenditures that N. Turner has shown largely do not work (even though they are politically popular).

Advocates for students and families and taxpayers must resist the temptation to say that now, because the latest CBO estimates show Pell funding not to be in trouble for a few years, there is no need for reform. Responsible college presidents and others who are appalled at how the current system wastes billions and leads to inequality of opportunity must also resist the temptation. Most college presidents know that American higher education is in a downward spiral that will take collective action to reverse; so permeated is the system with perversity that they cannot act individually at their own institutions. If there are not titanic battles within the presidential lobby groups, I will be surprised and disappointed. So should the country. The Obama Administration could also help by putting aside its craven talking points about how it is protecting Americans through Pell and the tax credit programs (many doubtless written by friends of mine). The time for reform is now.