Pell Grants Flunk Out

On campus, they'd call this frosh econ, but Washington is having a bit more trouble getting its mind around the expanding debacle of helping college students pay for their education.

According to a study released last week by Jenna Robinson and Duke Cheston from the Pope Center for Higher Education, the federal Pell Grant program is starting to look like a runaway train. At $36 billion a year in 2009-2010, it took up half the Department of Education budget and is the federal government's single biggest expense on higher education. This is what President Obama calls an "investment." The returns, the report says, have not been strong.

Started in 1972 to help poor kids pay for college, Pell Grants are now so broad that more than half of all undergrads benefit. In the 2009-2010 school year (the most recent data available), 60% of all college students received a grant—a total of 9.6 million students. Between 2008 and 2010, the number of Pell grantees increased by almost 50%, roughly doubling taxpayer cost.

The Obama Administration has increased the maximum grant awarded to students to $5,550 since 2010 from $4,731 per year in 2008. Some students engage in their own creative accounting to qualify, declaring financial independence from their families to avoid getting nixed by means-testing. A 2009 study by Christina Chang Wei and Laura Horn found that 60% of Pell Grant recipients were "financially independent" of their parents, compared with 34% of non-recipients.

The program is set up in other ways that invite abuse. Because the amount of a Pell Grant for full-time study depends on both a student's financial straits and the cost to attend school, better-off students often receive the large Pell Grants and apply them to more expensive schools. According to Ms. Robinson and Mr. Cheston, in 2009-2010 20% of Pell grantees from families making over $60,000 opted to take their federal checks to schools that cost $30,000 or more per year. That luxury wasn't available to students from lower income families, who attended ritzy schools at a much lower rate.

Universities learned long ago how to capture the extra cash and adjust their price schedules accordingly. While Pell Grants and other student aid are intended to make college more affordable, they're contributing to the ever-higher tuition spiral. Write 100 times on the chalkboard: Student aid raises tuition.

Last month, Mr. Obama touted the success of Pell Grants and boasted that his Administration has expanded the program to three million more students. But the real metric should be how many students the program helps.

In the Pope study, the authors considered whether the grants were helping kids get to college, stay in college and graduate. While the grants may have contributed to a rise in college enrollment among low-income students—to 58.9% in 2009 from 45.8% in 1970—graduation rates for all Pell Grant recipients went in the wrong direction. According to a 2011 National Center for Education Statistics study, overall graduation rates were lower for students who received Pell Grants than for those who didn't.

The one bright spot in graduation rates was for low-income grant recipients—the ones the original program was supposed to help. The best thing Mr. Obama could do for students, and taxpayers, is to get Pell Grants away from being a broad entitlement and back to their core mission of helping the poorest students.


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