The future of Pell Grants

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The Pell is swell. Americans are justifiably fond of programs that help make college affordable today while sticking future taxpayers with the bill. Moreover, supporters reasonably argue that Pell (as is true of every other single domestic discretionary program) has only the tiniest impact on the federal deficit. So the case for inaction is an alluring one, and almost axiomatic in the world of higher education.

But if one believes that serious debt reduction requires that the sacrifice be borne widely, then Pell must take its turn in the barrel. The challenge is to embrace this as an opportunity for fresh thinking. After all, Pell Grants were created in a very different time.

At least four major changes have unfolded since that era. One is an explosion of data on institutional quality and what students actually learn in higher education, and the attendant focus on accountability. Second is the dramatic growth of for-profit postsecondary education. Third is the availability of online learning. Fourth is the massive increase in "nontraditional" students.

The trick is to reconfigure Pell accordingly, so that a smaller grant might continue to effectively promote the familiar mission of expanding college access. One key lever is to foster virtuous changes in student and institutional behavior.

Today, for instance, Pell offers no incentives for institutions to worry about cost-effectiveness. Since Pell dollars are free to a student, institutions are encouraged to set tuition so as to soak up all they can. Meanwhile, the student has no reason to scrimp if tuition exceeds the Pell cap, and only modest incentives to comparison shop below that.

How about transforming Pell into something more like a federally funded education savings account that recognizes the mix-and-match opportunities and lifetime learning dynamic of the 21st century? Students could take courses—online or otherwise—from more than one institution at a time. This would allow Pell to accommodate increasingly customized offerings. Title IV eligibility would obviously need to be rethought accordingly.

Right now, Pell doesn't encourage either students or institutions to accelerate time to completion. Meanwhile, students don't benefit from making cost-conscious choices. Here's a thought: Shorten the eligibility window; reward students who finish their degree or credential in an expedited fashion, as well as institutions whose students finish on time and find employment; and permit students to retain half of any unspent Pell dollars in a dedicated account for future education.

Frederick M. Hess is the director of education policy studies at AEI.

Photo Credit: iStockphoto/Lawrence Sawyer

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