Growing Pell-Mell

America is going bankrupt, in large part due to a vast and ever-growing array of federal aid programs. One of these that has expanded enormously in recent years is the federal Pell Grant Program. Started in 1972 to help poor students pay for college, Pell now extends well beyond the original intention.

The amount of money given to each individual student has stayed largely flat over the program’s four decades of existence. But the number of students in the Pell Grant Program has grown so vast that currently about 60 percent of undergraduate students in the country are receiving stipends from it. At some schools, upwards of 80 percent of students receive Pell grants; in other words, only one in five students at those schools doesn’t get one. As a result, the nation is spending billions on the program—nearly $42 billion in 2012.  Pell grants are the biggest expenditure of the Department of Education.

Much of that increase is quite recent. In the short span between 2008 and 2010, Pell grants roughly doubled, with total disbursements growing from $18 billion to $36 billion. The number of grant recipients grew from 4.1 million in 2000 to 9.6 million in 2010—when there were only 16 million undergraduates in the country. Though not technically an entitlement program, it has become a de facto entitlement—everyone who qualifies gets a grant, regardless of budgeted funding.

What are we getting for all that money? The latest Pope Center report, Pell Grants: Where Does All the Money Go?  by my colleague Jenna Ashley Robinson and me, indicates that the answer is not very much.

There are two major problems with the program: Not only has it expanded to cover more than half of all students, but almost anyone—regardless of academic background—can qualify. Recipients must meet only a minimal academic standard: obtaining a high school diploma or the equivalent. There are no minimum SAT scores or GPAs.

Consequently, many grant recipients go to college but flunk out or lose interest, often going deep into debt at the same time.

That doesn’t mean that Pell is completely ineffective. Our review of existing research on Pell grants shows that Pell grants have helped to attract more poor students into college. The problem is that they haven’t been much help in getting them to graduation.

The federal government does not regularly publish graduation rates for Pell recipients. Thus, we don’t know precisely how well recipients do.

What we do know is that low-income students (the supposed focus of Pell grants) aren’t graduating at better rates since the program began in 1972. Since 1970, the percentage of high school graduates from the bottom income quartile going to college has increased by about 60 percent—a substantial amount. However, the percentage of those students who received a bachelor’s degree by age 24 actually decreased from 21.9 to 19.9 percent.

The legislation that founded and expanded the Pell program over time apparently assumed that providing access was the same as enabling students to graduate. But now we know that there’s a vast difference.

Moreover, although available data suggest Pell grants are more effective when targeted to genuinely low-income students, the grants are increasingly going to middle-income families. With 6 percent of Pell recipients in 2009-10 coming from a family with income over $50,000, the grant is losing its effectiveness.

Perhaps most distressing of all, a number of studies show that the Pell program is actually contributing to higher tuition, working against the initial reason for which it was set up. This phenomenon is known as the “Bennett Hypothesis,” after former secretary of education William J. Bennett. The scientific literature on the subject was recently collected and refined in a paper from the Center for College Affordability and Productivity titled “Bennett Hypothesis 2.0” by Andrew Gillen. Gillen’s thesis is that programs that target the genuinely poor usually don’t lead to higher tuition prices, but when money is given to everyone, colleges raise their tuition. They can capture more revenue without causing more students to seek an education elsewhere.

While Pell began as a program of the first variety, targeted to the poor, it is becoming one of the second type, driving up the cost of college.

The problem with Pell, then, is that it has grown out of control. To rein it back in, we must:

  • Target the grants to low-income students
  • Target the grants to well-prepared students
  • Require the federal government to regularly track the performance of Pell recipients.

With these steps, this enormous federal expenditure can begin to make sense.