Should Pell Grants Be Entitlements?

President Obama has made reforming federal assistance to college students—with the aim of making it financially easier for more of them to obtain their degrees—-a centerpiece of his administration’s goals. In his State of the Union address on Jan. 27 he called for expanding the Pell grant program that currently serves about 7 million low-income college students, both by raising the maximum annual amount of the grants, currently $5,500, to $6,900 by 2019, and by turning the Pell program into a Social Security-style entitlement that would require Congress to allocate funds automatically to cover every student who qualified.
The rationale that Obama gave to Congress for the huge proposed boost in the size of Pell grants, outstripping inflation and accounting for a major portion of the president’s proposed $77.8 billion in Education Department spending for fiscal 2011 (a 31 percent increase over fiscal 2010) is that “no one should go broke because they choose to go to college.” That’s a worthy sentiment, but it raises an important question: What exactly will a massive additional transfer of federal funds to college students accomplish? The Pell program already costs the government $18 billion a year (Obama’s proposed changes would raise that amount to $30 billion), and another $92 billion goes to support the federal student loan program. Yet there’s evidence that, while the cash infusions from the government, which date back to President Johnson’s Great Society initiatives of the 1960s, have certainly boosted college enrollments, they have also contributed to skyrocketing college tuitions (a 500 percent increase since 1980, far outpacing inflation), along with generally dismal graduation rates indicating that for nearly half of all young people who enroll in college these days, the years they spend there are a waste of time and money, much of it taxpayers’ money in the form of grants and loan assistance.
Yet the Obama administration seems determined to throw good higher-education money after bad, so to speak. In his State of the Union address, Obama also proposed making it easier for college graduates with low-paying jobs to pay off their federal loans. Their monthly payments would be limited to no more than 10 percent of their “discretionary income” (adjusted gross income that exceeds 150 percent of the poverty line), and after 20 years (10 years if they work in public service), all federal loan balances would be forgiven. Under current law (enacted by Congress in 2007) student borrowers already have a pretty good repayment deal in the federal loan system: Monthly payments can’t total more than 15 percent of discretionary income, and loan balances are forgiven after 25 years. Obama’s proposals would make the deal even sweeter, and also more expensive for taxpayers.

In order to pay for some of these aid increases, Obama has been pushing Congress to get rid of the Federal Family Education Loan (FFEL) program created in 1965 in which private banks and other institutions such as Sallie Mae make loans to students that are in turn guaranteed and in some cases interest-subsidized by the government. Under Obama’s plan all students needing higher-education loans would instead obtain them through the William D. Ford Federal Direct Student Loan Program (Direct Loan), a Clinton administration creation of 1993 in which the Education Department itself lends money for post-secondary education. His administration contends that eliminating banks as middlemen would save the government $87 billion over the next 10 years, of which $40 billion would go toward funding teh expanded Pell program.
The House of Representatives passed a bill in September, the Student Aid and Fiscal Responsibility Act of 2009, or SAFRA, that would enact those changes (minus Obama’s call for turning Pell grants into entitlements), but a similar measure has stalled in the Senate. Sallie Mae and the banks have campaigned vigorously against SAFRA, arguing that the administration has exaggerated the savings to be gained from the switchover and that private financial institutions are more efficient than federal bureaucrats at overseeing student loans. The proof of that, say the banks, is that college financial-aid officers overwhelmingly prefer FFEL to Direct Loan, which until recently accounted for only 20 percent of the federal-loan market. Furthermore, the banks argue, with the elimination of privately raised capital to fund student loans, the government would have to borrow $1 trillion over the next 10 years to pay for an all-Direct Loan program, burdening a U.S. fiscal system already groaning under multi-trillion-dollar projected debt loads.
Those are compelling arguments, but they bypass the larger problems generated by the readily available pools of federal higher-education cash: tuition inflation and a campus population explosion of students, many of whom lack either the qualifications for or an inclination toward higher learning. It’s hard to believe that as recently as 1980 the cost of attending a private college was only about $5,600 a year. Now it’s about $34,000, much of that going to pay for posh dorms, fitness centers, and a growing array of campus “diversity” and “green” programs unrelated to education. Not surprisingly, two-thirds of college students graduate burdened with loan debts totaling $20,000 on average and in many cases far more than that.
An even larger percentage of students will take the federal aid but won’t graduate at all. More than 17 million Americans are currently enrolled in institutions of higher learning, compared with only 6 million in 1965. Yet only 54 percent of students attending nonprofit four-year colleges manage to graduate within six years, and for colleges on the bottom half of the admissions-selectivity ladder, the graduation rate is only 45 percent. At community colleges, where an associate degree can typically be earned in two years, fewer than a third of the 7 million students enrolled in for-credit courses earn degrees of any kind even after spending six, seven, or eight years in classrooms. In a scathing article for the journal Democracy, Kevin Carey, policy director for the think tank Education Sector, observed that it is exactly in those low-performing schools that the vast majority of Pell grant recipients are enrolled. Although a progressive who generally supports federal aid to education, Carey pronounced the Pell program, created in 1973, a “failure.”
Jackson Toby, a retired sociology professor at Rutgers University, pinpoints the problem in his new book The Lowering of Higher Education: that the federal government, far from not being generous enough to young people aspiring to college as the Obama administration assumes, has been far too generous. That is, Toby argues, the vast pool of readily available aid from the government has submerged what used to the chief basis for giving money to needy students: academic merit. Before the federal government got into the student-assistance business during the 1960), states, private foundations, and universities themselves awarded scholarships to low-income young people strictly on the basis of their having proved themselves by earning good grades in high school or scoring high on standardized tests. (The one exception was the limited program of aid to veterans under the G.I. Bill.) Those criteria not only provided an incentive to study hard in high school but tended to assure all concerned that the money would not be wasted. Chief among those assured, Toby points out, were the scholarship students themselves. They would not be wasting valuable earning years taking courses for which they were not prepared academically or intellectually, then dropping out with feelings of bitterness and, in many cases, crippling loans they were legally bound to repay even though they could not get the jobs for which a college degree was supposed to prepare them.
Merit and academic ability play no role whatsoever in the current $100 billion-a-year federal student-aid system, where the only criterion for obtaining funds is need. The concentration of Pell recipients in what are essentially open-admissions institutions where the majority of students never graduate is implicit evidence that most low-income Pell students, whether because of poor secondary education or lack of aptitude and study skills, shouldn’t be wasting their time in college classrooms. Toby writes, “[G]iving grants to academically underprepared students and not helping them survive academically is…programming them for failure.”
Toby proposes that if Congress wants to continue the strictly need-based Pell program (which is politically popular because it appeals to notions of equal opportunity), the Education Department at the very least ought to offer remediation programs to the unqualified, which would serve as a warning that their chances of succeeding in college are slim, and add a merit component of extra cash that would reward a top tier of high-achieving college freshmen and sophomores who pursued a rigorous academic curriculum while in high school. As for federally guaranteed or subsidized student loans, Toby advocates pegging all government lending to merit—the student’s demonstrated academic success both in high school and college. Partially restoring the old merit-based criteria to government education aid would not only ease taxpayers’ burden in covering defaults, but would free many young people both from an unbearable load of debt and from frittering away time in college that could be better spent working productively. Perhaps most important, it would give young people an incentive to study instead of partying away their high school and college years. Toby writes, “Ideology to the contrary, if college is not useful for everybody seeking well-paid jobs, not every high school graduate should be encouraged to attend college.”
Yet the Obama administration wants to reform the federal student-assistance system by doing more of the same: handing more students even more no-strings-attached money that is certain to be wasted. Wouldn’t it better, if the administration is truly committed to education reform, to rethink the whole idea of student grants and loans–better for the taxpayers and better for the students themselves?