Why Pell Will Not Save Us From High Tuition

Source: College Board Trends in Student Aid 2010

The past few years have seen a massive investment in the federal Pell Grant Program. This has translated instead substantial increases in the maximum award, which has gone from $4,050 in the 2006-07 academic year to $5,350 in 2009-10. Add in the additional $200 increase for the school year underway and you’re talking about a $1,500 bump in just a few years.

Pell advocates trumpet the gains as massive investments in students. And they’re right to be proud at finding more money for students, especially as a result of good public policy that streamlined the federal student loan programs.

Unfortunately, it’s not all good news, as the above chart shows. It’s a combination of figures 13A and 13B from this year’s edition of the College Board’s Trends in Student Aid. The picture it paints should be exhibit A for why relying on the Pell Grant Program to deal with college costs in the long run is a recipe for financial disaster.

The dark blue line on the chart is the amount in billions of dollars spent on Pell Grants each year. And it’s clear that the large increases in the grant over the past few years have been met with near exponential growth in the overall cost. That reflects not only the higher award, but also a general downturn in family incomes that make more students eligible and also the provision that students can now get multiple awards in a year.

The red and yellow lines are the Pell grant’s buying power—what percent of a sector’s average tuition and fees and room and board are covered by a maximum Pell Grant. And what these lines show should be incredibly frustrating. In exchange for substantial growth in the program costs, Pell’s buying power at nonprofit four-year institutions has stayed at about 15 percent; at public institutions it declined from 39 percent to 35 percent. If you extend the window back to 1990, the picture is even worse–the buying power of the Pell Grant dropped 10 percentage points at public four-year colleges. Maybe the picture would be slightly better if it could take into account multiple Pell awards for a student, but it wouldn’t get back up to the 45 percent level.

And remember, the growth in that blue line is not sustainable. There’s already concerns about finding enough money to pay for the program at a constant level this year, to say nothing of how annual tuition increases well over the inflation rate will readily eat into the future funding bumps from the student loan legislation passed last spring.

The Pell Grant is very good at what it’s designed to do—giving thousands of dollars to low-income students each year. But doing so is incredibly costly. And it cannot possibly hope to keep up with constant tuition hikes (nor should it). Without doing anything about containing college costs and making universities be more productive, all the billions of additional dollars will continue to be swallowed up by the higher education black hole.

Tagged as: Pell Grants, Trends in Student Aid