Pell Grants Play Major Role in College Affordability, but More Must Be Done

Today, the House Committee on Education and the Workforce held a hearing on the role of Pell Grants in keeping college within reach. With the cost of tuition continuing to soar well beyond the rate of inflation, Pell Grants have never been more essential to millions of college students from lower- and middle-class families. As Congress deals with issues related to the long-term future of the Pell Grant program, we urge the House and Senate to ensure the interest of students are the primary factor in the policymaking process.

Key Points on Pell Grants:

Pell Grants, being directed by formula to more than 9 million students with the highest need annually, are considered to be among the most effective federal programs for increasing college attendance.

Despite 151.5% increase to the maximum Pell award since 1993-94, the grant’s impact on college affordability remains mostly unchanged, due to rapid increases in tuition.

Recent sharp increases to the maximum Pell Grant award have been met by similarly sharp increases to tuition shortly thereafter.

The net impact of Pell on affordability relative to median household income has fallen to its lowest point in 20 years, resulting in nearly 90% of Pell Grant recipients needing to take out student loans despite the grant assistance.

In order to maintain the Pell Grant program’s impact on college affordability in future years, substantial increases in Pell Grant funding must be tied to measures that effectively rein in skyrocketing college costs.

The Pell Grant is widely considered to be one of the most effective federal programs to drive college attendance, and for good reason. Pell Grants are targeted to our most needy students, with more than 9 million recipients relying on these grants each year to attend college. Pell Grants are also proportionately awarded–while grants to our highest-need students reached up to $5,645 in the 2012-13 school year, the average Pell Grant was estimated to be just $3,678. Allocating funding in this manner helps funnel grants to those who are less likely to pursue a college degree without it.

Unfortunately, despite their continued value and efforts by the federal government to make college more affordable, the impact of Pell Grants has eroded over the years. Over the last two decades, the size of the maximum Pell Grant award has grown by 151.5%–from $2,300 in 1993-94 to $5,785 this year. Despite this influx of federal aid, the percentage of tuition covered by the maximum Pell Grant hasn’t changed all that much, vacillating from a low of 54.0% in 1994-95 to a high of 75.7% in 2001-02. Currently, the maximum Pell award covers 63.5% of the average tuition at a public four-year institution.

The reason for this is that after Pell Grants increase, so too does tuition. For example, Pell Grants rose by 13.6% and 6.7% over the previous year for school years 2000-01 and 2001-02, respectively. Beginning in school year 2001-02, average tuition spiked by 7.2%, 11.0%, and 7.2% in each of the ensuing years.

This phenomenon occurred after the next major increase in Pell awards in 2007-08 as well. While the maximum award rose that year by 9.8%, tuition increased the following year 9.5% in 2008-2009.

While the Great Recession (and the ensuing decline in state appropriations) is often cited as a major reason for tuition skyrocketing, this recession didn’t start until Fall 2008–after the 2008-09 school year had begun and well after tuition rates for that year had been established. Likewise, the recession of the early 2000’s did not begin until sometime in 2002, after tuition had already begun its rapid ascent.

Worse still, while the act of increasing Pell Grants seems to be interpreted by colleges as a “green-light” to increase tuition, family income levels haven’t kept pace with these changes. The below chart shows the percentage of median household income absorbed by tuition at a four-year public institution after the maximum Pell Grant is awarded. Pell Grants do less to make college more affordable today than at any point over the last 20 years, despite maximum awards that have more than doubled over that timespan. Once again, it must be noted that the ongoing slide in Pell’s impact began in 2001–well before the most recent downturn in state appropriations for higher education. The maximum Pell Grant has grown by more than 46% since 2001.

While tuition increases and Pell Grants have each risen steadily over the last 20 years, household income has not managed to keep pace, particularly since 2001. In 1993, the cost of college tuition after the maximum Pell award represented 5.76% of the median household income. While this rate fell steadily until hitting bottom at 2.86% in 2001, college costs now represent a higher share of the median family’s income than at any point in the last two decades. The cost of tuition at a four-year, public institution now costs the median family 6.18% of their income, even after the maximum Pell award.

The diminishing impact of Pell Grants has a direct effect on student financing of higher education. According to The Institute for College Access & Success (TICAS), Pell Grant recipients are now twice as likely as non-Pell recipients to need student loans. Nearly 90% of Pell recipients now incur student loan debt, with their average debt being about $3,500 higher than non-Pell recipients who take out such loans.

Should future Pell Grants be reduced in size or fail to keep pace with tuition, it is clear that millions of American students would be at best adversely impacted and at worst denied the opportunity to attend higher education because they can’t afford tuition. As such, it is critical for Congress to safeguard the integrity of Pell Grant funding. However, if the goal is to leverage Pell Grants to make college more affordable for students than is currently the case, more must be done to keep college tuition from increasing at its current rate.