Over the past three months, some in the higher education community have launched a large, well-organized campaign to double the size of the federal Pell Grant for low-income college students. The Double Pell campaign is supported by a who’s who of college associations, universities, and college opportunity advocates, with a total of 1,200 groups and counting

In one sense, there is nothing surprising about this broad support for Pell Grants: increasing funding in this way is an easy way to signal college and university support for low-income students. But in another sense, the sudden emergence of this major campaign, right now, deserves a closer look, since the universities, not just the students, stand to benefit financially, and some of those now excited about Pell have not always considered it a priority. 

Some college leaders, in other words, may now be more enthusiastic about a Pell increase because they are concerned that other higher education investments on Democrats’ agenda will not send as much revenue their way. With the Build Back Better budget slated for approval, Congress and the Biden administration are prioritizing an equity agenda that features support for community colleges, HBCUs and other minority-serving institutions, and financial aid for Dreamers. These investments are being proposed in the wake of an unprecedented push from the left about student debt, and in particular the racial impacts of student debt. 

Congress is poised to put a healthy portion of the $3.5 trillion (or whatever total amount ends up being negotiated) into higher education. Who will get the money? The momentum has been pointing toward community colleges and HBCUs. The Double Pell Grant push could shift the momentum, steering Congress in a direction that sounds like it benefits low-income students, but actually spreads the funds to a broader set of institutions where the benefits will end up being less targeted to  needy students, and in many cases does not make college more affordable for such students. 

The Double Pell campaign puts supporters of HBCUs and community colleges in a tough spot. They can’t oppose the movement because Pell—a mainstay of college aid flowing to these schools—has always been a high priority. But working out the details of a national free-tuition community college plan—and an investment in HBCU endowments, if it gets traction—is going to be vexing. That makes the simplicity of a Pell Grant boost attractive in comparison. A larger Pell Grant, for example, doesn’t require any new formulas, state opt-in decisions, or matching funds. It’s a classic example of the worst kind of incrementalism, in which modest bump-ups of resources in one funding pipeline do nothing to change the underlying system of higher education finance. And if the nation truly wants to address equity concerns in higher education (and beyond), that system needs change. 

So while doubling the Pell Grant sounds dramatic and well-intentioned, it does too little to change the status quo, not least of which because it allows universities  to claim a financial windfall without ensuring that needy students get more overall aid. 

An alternative Pell plan is needed, one that truly and more accurately directs whatever investment toward college equity and affordability comes out of the Build Back Better plan. It could be called the Pell Bonus: a premium on top of the Pell Grant at institutions that are actually using the money to reduce student debt, and that are serving students from low- and middle-income families.  

This commentary briefly reviews how Pell Grants work in practice right now, followed by some details about how a Pell Bonus proposal could be fashioned in service of targeted, more effective change. 

Pell Grants Don’t Necessarily Reduce Student Costs

The Pell Grant program is popular with the public because it has been promoted—especially by private colleges—as money that “goes to the student” to help them afford higher education. It doesn’t really work that way, however. Pell Grant funds are paid directly to colleges, which include them in their pricing and financial aid strategie. Too often the Pell funds displace institution-given aid or tuition discounts, which means at the end of the day, the school has more revenue while the student’s costs are unaffected.

When more money becomes available to the leaders of a nonprofit or public college, they essentially have two options for what to do with it. They can increase their investment in any of the college’s operations, such as reducing class size, providing more services to students, or improving facilities and equipment. Or they can pass the money along to students through scholarships or tuition waivers, reducing the amount that students may need to borrow or work to attend school. (For-profit schools have a third option: they can deliver more profits for owners and investors, which has caused repeated scandals. Government aid to those schools should not be delivered through vouchers such as Pell Grants and student loans, or the U.S. Department of Education should screen out any institutions that do not put most of these funds into instruction and student support.)  

Under the current structure of the Pell Grant program, colleges can use the nefarious science of enrollment management to increase their capture of financial aid and use it for purposes other than reducing costs to the students whose enrollment delivered that aid. These colleges, knowing that the grant money is coming, invisibly reduce the amount of tuition discount or other aid they would have given these students, and instead use the “extra” funds for purposes other than reducing the student’s need to borrow or work. 

Another unfortunate truth is that state lawmakers, ever-strapped for budget funds, often will reduce their support of public institutions in response to the growth of federal grants. That seems to be one reason a previous era’s near doubling of the Pell Grant resulted in only a scant increase in low-income enrollment. 

In practice, very little about the Pell Grant actually results in a more affordable system for low-income students. Instead, the program simply provides colleges with more money, absent accountability. That is why, if the goal is to reduce debt among low-income students, making a major federal investment in community colleges instead makes more sense. One idea, based on a plan first proposed by President Obama in 2015, is to provide matching funds to states for two-year colleges that do not charge tuition at all, ensuring that grant aid such as Pell could be used to help address the cost of books, supplies, rent, child care, transportation and other expenses that low-income students often cannot afford without taking on crippling debt. That is the approach that the House Education and Labor Committee has taken in its Build Back Better plan. 

Still, politically, the Pell Grant is more compelling than a complicated-formula matching grant to states. In fact, the battle between a support-for-institutions plan and a misleading but more compelling support-for-students plan is precisely the debate fifty years ago that led to the Pell Grant and student loan programs of today. Congress chose the bumper sticker “money to students” plan, in the form of grants and loans—money that has, in many cases, been gobbled up by well-endowed, high-tuition colleges and has undoubtedly contributed to state disinvestment in public higher education systems.   

In any event, attaching accountability to the Pell boost is the way that progressives can better direct Congress’s investment, whether it ends up focusing on community colleges and HBCUs or on Pell Grants. 

That accountability should focus on two metrics: diversity, and affordability.

Accountability for Diversity

To be eligible for the Pell Bonus, colleges should be enrolling an undergraduate population that is not skewed excessively in the direction of wealthy families. Many elite colleges highlight their generous programs of aid while conveniently leaving out the fact that they enroll very few students who qualify for such aid. These colleges have higher completion rates for these types of students in large part because they have the resources to support them. If the point of increased federal investment is to improve affordability and outcomes for Pell-eligible students, then investing in the colleges where more of those students enroll would boost graduation rates for a larger group of them.

To better assist lower- and middle-income students, the Pell Bonus could be limited to those institutions where students from the top two income quintiles do not outnumber those from the bottom three; that is, schools where no more than half of student enrollment are from the top 40 percent of the income spectrum. This student enrollment is still slightly skewed to the well-off, but to a much lesser degree than at elite schools. Congress, or the Department of Education by regulation, could use as a model the types of measurements pioneered by the Equality of Opportunity Project, which categorized colleges by their enrollment of students from five different family income ranges. The scope of data needs to be expanded, and the measurement for this purpose should be based on the catchment area of the college: a school that enrolls students from all across the country should seek economic diversity based on national figures, while one that enrolls mostly students from a particular state or county should use that jurisdiction’s figures.

To better serve historically underrepresented racial groups and disabled students, the Pell Bonus could also reward colleges excelling on enrolling and supporting those students. In other words, a college that enrolls too many wealthy students compared to the non-wealthy could nonetheless qualify for the Pell Bonus if its disabled student population, or its Latinx or African American enrollment, was impressively high, based on current minority-serving institution or other criteria the secretary of education would establish.

Schools seeking the Pell Bonus would need to demonstrate their economic and/or racial or ability diversity. A school that does not meet the measure could later gain access to the bonus program by improving its diversity; colleges that become less diverse while in the program would lose eligibility. (In the latter case, to prevent a cut in aid to students who enrolled when the college was eligible for the bonus, the program should continue the bonus payments and affordability commitment for continuing students.)

Accountability for Affordability

A college that demonstrates a reasonable level of economic, racial, or ability diversity would then—to qualify for Pell Bonus—have to make a commitment to affordability: assuring that all (or nearly all) undergraduates have enough aid to prevent them from having to borrow excessively, if at all. 

The affordability commitment should generally follow best practices in financial aid packaging, in which the amount that a student and family are expected to pay (formerly known as the Expected Family Contribution, or EFC, now known as the Student Aid Index) is capped at a level that can be met with a modest amount of work or, if work is not realistic or unavailable, loans that come with a safety net. In the language of financial aid policy nerds, the commitment campuses would need to make to be eligible for the Pell Bonus aid would be: 

Cost of Attendance – Student Aid Index – Grant Aid  ≤  Wage x Minimal Work

The factors affecting college affordability are, of course, more complicated than a simple formula, so there will need to be some flexibility in implementation and some details to be addressed. For example:

  • Not every student. The affordability requirement should allow for some flexibility in the college’s implementation of the commitment, such that perhaps 90 percent of undergraduates at the school who applied for federal aid must have financial aid packages that meet the measure. Some institutions, to preserve their own institutional aid for the neediest students, review students’ and families’ financial situations at a much deeper level than does the federal government, finding that some families have more resources and are not as needy as others. The 10 percent leeway allows for these exceptions without micromanaging the aid decisions. Also, some state institutions may enroll out-of-state students who are choosing to pay more than at their own state institution, even if it is not affordable. 
  • Work expectation. Students from wealthy backgrounds don’t need to work while attending college, and neither should other students. But realistically, even a doubled Pell would not eliminate all financial need, so some gap is necessary. The work amount—which students would have the right to cover with loans instead, if they so chose—should be lower for the students from the most impoverished backgrounds, and should increase to no more than 500 hours per year for other students. A college that draws mostly from its local area or state (which describes most colleges) would use that jurisdiction’s minimum wage. At $10 per hour, the need not met by grant aid could be no more than $5,000. If the minimum wage was $15, then the maximum unmet need would be $7,500. The politics of developing this formula will likely result in different figures, or a phase-in over time, but the principle remains: affordability, not just financing colleges, is a goal of the Pell program.
  • Measuring ability to pay. Some will complain that the Student Aid Index frequently asks families to contribute more than seems reasonable. It’s a fair criticism, and Congress could consider a lower unmet need cap to account for it, or adjust it downward over time. Regardless, the complaint is not an argument against the affordability guarantee, but rather underscores the need for a commitment to make college more affordable. 
  • Estimates of indirect costs. In implementing this approach, the Department of Education will need to take some steps to prevent colleges from playing games with their estimates of indirect expenses, the non-tuition components of cost of attendance. For example, a college could lowball its estimate of living expenses or textbooks in order to make it easier to meet the affordability target, while students actually are facing much higher expenses. As a benchmark, the department could consider using some standard measures, such as those used for the military, and require colleges to justify any lower figures that they adopt for their aid packaging. Helpfully, this policy would give colleges an incentive to find ways to reduce textbook and other non-tuition costs that plague many students. 

Build Back Better’s Big Bet

The last two presidential election cycles have featured college affordability and student debt as key topics unlike any period ever before. The cost of college, and the discrepancies in degree attainment across racial and socioeconomic groups, is a core component of progressive criticisms of the current economic order. The budget reconciliation legislation sets the stage for Congress to be able to take unprecedented action to address these ills. 

Congress is poised to act, and the House committee’s current draft makes the right choice, favoring investments in free community college, HBCUs, and Dreamers over a dramatic increase in the Pell Grant. However, political and practical forces, especially in the Senate, could easily steer the bill’s investments toward an unaccountable Pell Grant program, resulting in legislation that fails to really address the frustrations that have led so many activists and families to put college affordability high on their list of priorities for elected officials. 

In the budget reconciliation plan now being considered by Congress, the highest priority in postsecondary education should be HBCUs, Dreamers, and the tuition-free community college proposal. If the bill puts resources toward a larger Pell Grant, the approach should demand accountability, for diversity and affordability, from the colleges. 

header image: Cal State Los Angeles graduates sit at their commencement ceremony which was held outdoors beneath a tent on campus in Los Angeles, California.