According to U.S. Department of Education data released today, the University of Phoenix became the first college in the history of the United States to take in more than a billion dollars worth of Pell Grants disbursements in a single academic year. Students at the for-profit chain received a total of $1,042,372,699.50 spread amongst 304,583 awards in the 2009-10 academic year.
That’s what happens when your average Pell Grant dollar disbursement increase is 62 percent. In 2008-09, Phoenix took in $656 million. The year prior to that it was $398 million and the year before that it was $244 million. Phoenix received more in additional Pell money this year than it got in the entire 2006-07 academic year and almost more than the 2007-08 year as well.
While Phoenix has steadily seen a huge increase in its Pell dollars disbursed, the general growth in the proprietary sector is astounding. For-profits received $7.34 billion in the 2009-10 academic year, or 70 percent more than they got the year prior. The sector took in $44 million less in 2009-10 than it did in the prior two years combined.
These patterns are amplified trends of what’s going on in the program overall. Total dollars disbursed increased by more than $11 billion this year, a 61 percent gain. Even if you take out dollars given to for-profits, the increase is still 58 percent. For-profits still increased faster than the rest of schools, but the rate is only 12 percentage points higher. By contrast, Pell dollars disbursed increased by 21 percent last year at public and nonprofit schools, but 40 percent in the for-profit sector.
These numbers are also a powerful testament that we should not rely upon Pell Grant increases to deal with rising college costs. The maximum Pell award increased by $619, or 13 percent this year; the program’s cost went up $11.1 billion, or 61 percent. Hoping to use the Pell Grant to curb the effects of annual 5 percent tuition growth will become prohibitively expensive very quickly. At some point the onus must be on keeping tuition down, not finding ways to pay for it.
Update: Craigie in the comments below also notes that a major cost source could be the year round Pell Grant, which allows students to get multiple awards in a year. Either way the point still stands that Pell Grants can’t keep up with tuition and rising costs.
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Craigie,
First off thanks for the lengthy reply. So a couple of thoughts on the Pell award calculation/EFC. I see your point about basing the Pell award on state college cost, but if I recall correctly the post-9/11 GI Bill benefits are handled this way and it’s started to create some problems with the methodology that are causing them to move away from that type of formula.
As for the connection between aid award levels and tuition growth, in most cases I don’t think there’s much of a link between the two. PLUS loans can cover basically all COA and rampant tuition growth has been around since before those loans were introduced. Not to mention the fact that tuition growth far outpaces increase in federal aid. At public universities, the problem is much more about varying state support, while at nonprofits it’s a combination of endowment money, the connection between prestige and price, and just regular 5% increases every year. For-profits are the one where I’m still thinking through how much tuition there is tied to federal aid levels, but I don’t think the connection there is that strong either. For example, I don’t think 90/10 is the reason why tuition levels at those schools end up where they are.
One thing that isn’t entirely related to this that I do wonder about though is the fact that students can borrow more than their actual costs suggest they need. Would we be better off with something that limits borrowing based on COA or some other metric? Or do we lose too much with making the system rely on the complex calculation?
http://www.nasfaa.org/publications/2009/ryearround052609.html
http://www.nasfaa.org/publications/2009/rfinalrule102909.html
http://ifap.ed.gov/dpcletters/GEN1014.html
The general way things are implemented is unfortunately that the new features that benefit schools, lenders, guarantors and states are implemented immediately after enactment. If there are features that need to be fleshed out by regulation, then stakeholders are told to make a good faith legal effort to implement things in advance of official regulations. The implication is that stakeholders will be held harmless for any fraud, waste and abuse that happens to occur as dozens, if not hundreds, of “interpretations” of the same statute are made by individual stakeholders. Conversely, the general way that things are implemented is that those features that benefit students, borrowers, taxpayers, program integrity and oversight in general are implemented only after exhaustive study, review, and the full negotiated rulemaking cycle, even if they appear on the surface to be self-implementing. After all, stakeholders needs sufficient time to modify their systems and processes . . .
Check out OIG’s reports on previous experiences with stakeholders’ “good faith effort to comply” with newly-enacted HEA provisions.
Yes, in any case, Pell Grant appropriations will be unable to keep up with tuition and rising costs. Perhaps “COA” in the federal methodology should be calculated on a standard, generic, minimalist tuition and living cost, perhaps based on (i know Ed Sector isn’t going to like this one) an average State college. This will at least take away the policy argument that the federal methodology is a “driver” for sticker price inflation in postsecondary ed. In any case, the “COA” part of the formula is simply too variable, not only for taxpayers but also for middle-school and high-school students trying to guess what type of financial aid they will qualify for when they finally go to college. This is probably much more of an issue for the federal loans, where the annual maximum is typically much higher than the maximum Pell Grant.
@Craigie,
That’s a good point about the year round Pell, which I had forgotten about and added a link in the post to make that point. A couple of related questions on that point, though.
First, it’s my understanding the the regulations around the year-round Pell only went into effect on July 1, 2010. A number of school websites I looked at indicated that they were only going to the year-round Pell starting this summer, not last. So do you have a sense how many started using it last summer versus this one?
Second, I see that in the Federal Student Aid Handbook they describe year round Pell Grants for the 2009-10 academic year as follows: “For 2009-2010, schools should strive to be flexible in adapting their methods to award Pell in the case of two Pells in an award year to best meet the needs of students.” That certainly seems pretty lax, do the regulations they offered that went into effect at the start of last month make the situation any better?
Third, you write that the year-round Pell is “laden with fraud, waste, and abuse, even by traditional, Ivy-league-type institutions.” Do you have examples of that occurring? I’ve seen almost no media coverage of that, and if that’s the case then it seems like that should certainly be discussed.
Ed Sector could not be more off-base as far as the national causes of the increases in Pell outlays. The causes, in order of significance, are (1) the implementation of the “year-round Pell Grant,” (2) the recession, and, way in the back of the pack, (3) the nominal increase in the annual Pell Grant maximum.
The year-round Pell, pushed by “access” advocates for decades and signed into law by George W. Bush during his last rew months of office, is laden with fraud, waste, and abuse, even by traditional, Ivy-league-type institutions.
Year-round Pell effectively eliminates the significance of the nominal, annual Pell Grant maximum, as students can now receive much MORE than the annual Pell Grant maximum during any given 12-month period. And the only lifetime limit on Pell eligibillity for the student is 18 semesters’ worth (or equivalent) of Pell Grants received.
The HEA now requires the DoEd to provide a second Pell Grant for students who pursue “year-round study.” Students who receive a second Pell award may exceed the official, nominal, maximum grant for the year in which they receive it. Traditionally, the summer was “Pell-free” (often no Federal student loans either), and, arguably, students who wished to accelerate their academic progress either had to attend summer school on their own dime (God forbid!) or take out a private loan. Other schools made summer a “loan-only” environment and did provide access to FFELP loans. (Of course, the last thing the schools wanted a public policy discussion of was the possibility that the schools, not the students or the federal govt, should cover these costs out of their own pocket . . . )
One of the goals of year-round Pell was to help more students get back to more of a four-year time-table for completing their bachelors degrees. Instead of shaming colleges into spending more many on undergraduate education and reducing the challenge of students getting into all the classes they need to complete their degree within four years, Uncle Sam simply throws more money at the problem.
Their are no program integrity controls put in place to manage the potential explosion in fraud, waste and abuse of this new program. That’s always done on the “back end,” after the abuses come to light and after the money is long gone.
Similar to the hatched-out-of-thin ear “Grad PLUS” loan type, the year-round Pell lacked the years of quantitative vetting and analysis which would have permitted the govt to get a solid grasp of the risks of future volumes.
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