The lone exception to this is the for-profit sector. Stephanie Cellini at George Washington University and Claudia Goldin at Harvard University have shown that for-profit colleges charge more for short certificate programs if their students are eligible for federal aid than do otherwise similar for-profit programs whose students are not. But for the 95 percent of students attending mission-driven not-for-profit colleges, and public universities whose tuition is often set by state boards, there is no substantive evidence that federal aid increases the tuition prices they pay.
The main drivers of sticker price tuition are broad national trends. These include cutbacks in state appropriations for public university budgets, increasing income inequality that allows schools to charge a high and rising list price to high-income families while offering discounts to lower-income students, and the longstanding rise in costs of personal services — everything from dental care to child day care — relative to manufactured goods.
President Joe Biden’s proposed increase in the size of the maximum Pell Grant would provide enough funding to cover the full tuition at almost all community colleges, and at many 4-year public universities. In the Pell Grant’s early years during the 1970s it covered the entire cost of attendance — tuition plus room and board, books and other expenses — at community colleges and about 80 percent of these costs at most public four-year institutions.
This prior level of federal support put students from low- and middle-income families on a more even footing with their wealthier peers, allowing them to attend college with minimal or no borrowing and reasonable work expectations of generally less than 10 hours per week. A significant boost to the maximum Pell Grant would begin the process of returning it to the purchasing power enjoyed by earlier generations of students.
The Wall Street Journal editorial cited the eight-year graduation rate, which is really low, to discredit the Pell program. But it turns out the eight-year graduation rate for non-Pell students is roughly the same. For students who move directly from high school to college, also called “first time full time” students, graduation rates for Pell recipients are lower than for higher-income students who aren’t eligible for Pell support. This reflects the problems of poverty, not of the Pell program. An enlarged Pell would help improve completion rates.
Low graduation rates are driven by many factors. One is financial need that forces many low-income students to attend school part time while working long hours. Many of these students drop out before finishing a degree. The largest student loan default problem lies with students who borrow relatively small amounts ($5,000 to $10,000) and who leave school with no credential or degree to boost their earnings. An increase in Pell support will improve graduation rates by decreasing financial insecurity among low-income recipients and helping more students attend full time.
Low graduation rates are also driven by low university spending per student on instruction and student support. The vast majority of Pell Grant recipients attend community colleges, regional public universities, or not-for-profit private colleges that have very limited endowments to help subsidize the cost of attendance. And what these schools spend per student on instruction and student support is often a small fraction of what is spent providing small classes, intensive mentoring, advising and counseling at the colleges and universities where America’s higher-income students tend to cluster.
Historically, public universities have passed most or all of any increase in Pell support on to students as a lower net tuition. Net tuition is list price tuition minus grant aid students receive from all sources, including from the schools as a tuition discount. Cutting the net tuition makes a year in school more affordable, but does nothing for making it better.
A substantial boost to the maximum Pell Grant would allow these under-resourced institutions to achieve two goals. The first is to reduce net tuition as the nation emerges from the pandemic. Of equal importance, these schools could repurpose some of their own aid spending into investing more in student services and support, which in turn will help Pell recipients complete their degrees at a higher rate.
The Pell program is one of America’s bipartisan political success stories. It is a well-targeted program that is supported on both sides of the aisle, and it has broad reach into every congressional district in the country. A Pell Grant isn’t welfare; it is an investment that encourages student effort and commitment to building their own future. College graduates, because of their higher earnings, pay more in taxes than do people with only a high school diploma. One study estimated that college graduates paid almost half a million dollars more in taxes over their lifetimes.
The Pell Grant should not be the scapegoat for other failures in higher education accountability. Republicans tired of increasing tuition costs and mismanaged aid dollars could instead push the federal government to do much more to hold education providers accountable for how they use Pell Grant money.
The biggest accountability problem lies with the for-profit sector, whose students are disproportionately large borrowers and who often do not earn enough to pay back their loans. For-profit institutions receive a disproportionate share of Pell Grants. In 2019, while enrolling only 5 percent of all undergraduate students they received 13 percent of Pell Grant dollars. The federal gainful employment standards, which were an important accountability metric to curb abuses at the nation’s for-profit colleges, were nixed by the previous administration. The Department of Education should reinstate some form of these standards to ensure that for-profit institutions are operating in the best interests of the nation’s students.
America’s labor markets are demanding more people with the types of skills and experiences imparted in postsecondary education. The nation should respond with policies that make access to a quality degree more readily available to students regardless of family income. Increasing the size of the maximum Pell Grants is the most powerful and targeted tool we have for making college more affordable for families of modest means. This should be a bipartisan priority for America’s future.