Recently, I spoke at a seminar sponsored by the American Association of Community Colleges. My presentation (which can be viewed below) focused on CBO’s report The Federal Pell Grant Program: Recent Growth and Policy Options, which was released in September.
The Federal Pell Grant Program was created to improve the access of low-income students to postsecondary education. Recipients of Pell grants enroll in all types of educational institutions. The largest group is enrolled at public two-year schools, but Pell grant recipients also constitute the highest percentage of the student body at for-profit schools. Grant eligibility is determined on the basis of several criteria, including demonstrated financial need and the ability to meet several academic requirements. With a few exceptions, eligibility ceases when students complete a bachelor’s degree.
The cost of the Pell grant program has risen dramatically in recent years and totaled $32 billion in the 2012-2013 academic year. From 2006-2007 to 2010-2011, real (inflation-adjusted) spending on Pell grants increased by 158 percent. That change resulted in part from an 80 percent rise in the number of recipients. More undergraduates enrolled in school, and a higher percentage of those students received grants—36 percent in 2010-2011 compared to 24 percent in 2006-2007. The large increase in the number of grant recipients had its roots in changes in the economy, changes in the way postsecondary education is provided, and choices made by policymakers to expand the program. The increase in spending on the Pell grant program also resulted from a 43 percent real increase in the amount of the average grant during those four years. The growth in the amount of the average Pell grant was primarily the result of legislated changes to the program that increased the amount of the maximum grant each year from 2006–2007 to 2010–2011. Nevertheless, Pell grants generally do not cover the full cost of attendance. In 2012–2013, for example, the maximum grant of $5,550 covered about 65 percent of the average cost of in-state tuition and fees—and only about 30 percent of tuition, fees, room, and board—at public four-year colleges.
Analysts and policymakers have expressed concerns about the cost of Pell grants, the grants’ adequacy to pay for postsecondary education, and the complexity of eligibility rules and the application process. CBO has examined a number of options that have been proposed to address those concerns:
- Several of those options would reduce the number of students receiving grants by tightening one or more of the major criteria for eligibility. Over 10 years starting with 2014-2015, those options would reduce the number of Pell grant recipients anywhere from 3 percent to 35 percent and save between $3 billion and $100 billion.
- Other options that CBO analyzed would lower the cost of the program by reducing the size of all of the grants or by shrinking the amounts available for some students. Those would save between $23 billion and $68 billion during the same 10-year period.
- Alternatively, if policymakers believe that the current grant amounts are too small, they could increase the size of grants for low-income students or offer larger grant amounts to students who make particular educational choices, such as completing a rigorous high school curriculum or enrolling in degree programs in mathematics, certain fields of science, and certain languages. Over 10 years, those options would increase the program’s costs by $11 billion to $53 billion.
- Two options that CBO analyzed would reduce the program’s complexity by simplifying the criteria for eligibility and the grant application. One approach would reduce the amount of financial information applicants must provide on the Free Application for Federal Student Aid; another would tie eligibility to federal poverty guidelines. Depending on how they were structured, those two options could increase or decrease federal costs in the near term.
Nabeel Alsalam is an analyst in CBO’s Microeconomic Studies Division.