"Undermining Pell" Indeed

April, 2013

Washington -- The Education Policy Program at the New America Foundation has published an accurate, unblinking look at the sorry state of the country's student financial aid efforts. In "Undermining Pell: How Colleges Compete for Wealthy Students and Leave the Low Income Behind," author Stephen Burd documents that the higher education access gap across income lines is widening as more and more colleges turn their backs on students and families that are struggling financially.

The reaction to this report on Capitol Hill will not be pretty. Congress -- both houses, both parties -- will claim that this not their fault and will congratulate themselves on support for Pell grants; they will then blame colleges for raising tuition and threaten that someday they are going to do something about those greedy colleges.

It will be the rare member or staffer who reads the report and asks whether colleges are simply and rationally responding to federal incentives to move to the so-called High Tuition, High Aid model of student aid finance. There are a lot of advantages to moving to this model, and a whole new profession of enrollment managers has been eager to sell colleges on it. One big advantage is that the model creates enough institutional aid so as to make Pell grants completely fungible in student financial aid packaging. Why allow Pell grant increases to go to the needy when for all intents and purposes the federal funds can be used to recruit the wealthy and thereby raise institutional ranking? So many colleges have done it with impunity and success, it is hard for remaining colleges to hold out.

Congress could eliminate its counterproductive incentives by applying the tools of fiscal federalism that are common in other federal programs and agencies, such as maintenance-of-effort, matching requirements, or performance standards. The New America Foundation, to its credit, advocates changes to the Pell program to lessen tuition increase incentives and to make certain that more of the Pell billions actually wind up helping those Congress intends to help.

The new report cites a 2002 paper I wrote while at the Department of Education. In this paper I found that student loan debt for the low income went up over time regardless of whether Pell grants increased or decreased. Pell increases were actually related to lower borrowing among the non-needy. To my knowledge, no one else has looked at these relationships, although Lesley Turner has admirably put an annual price tag ($6 billion in 2011) on the amount of Pell grants essentially lost to the low-income due to their fungibility with institutional grants.

When I testified in 2007 on the reauthorization of the Higher Education Act and advocated killing the corrupt FFEL program in favor of putting billions of resulting savings into federal student grants, I did not do so to see low-income borrowing escalate and the access gap widen, but that is unfortunately what has happened. And the blame lies as much on the Hill as it does among the colleges.

[This post also appeared on the web page of the New America Foundation as "Don't Let Congress Off the Hook for 'Undermining Pell'".]