Pell Grant Mission Creep: How a Federal Program for Low-income Families Expanded to the Middle Class

Key Points

• The federal Pell Grant program was designed to help low-income students pay for college, but in recent years more middle-income students have become eligible.
• In 1995–96, a student from a three-person family earning $60,000 in today’s dollars was ineligible for a Pell Grant. Today, he or she would receive over $1,000.
• Pell Grant eligibility among middle-income students has increased because the effective income cutoff rises when lawmakers increase the maximum grant more quickly than inflation.
• Lawmakers could adopt a number of policies to prevent middle-income families from receiving grants, ensuring that future grant increases benefit only low-income students.

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Executive Summary

The federal Pell Grant was designed to help low-income students pay for college. But over the past two decades, a growing share of middle-income students have become eligible for the program. This was not policymakers’ explicit goal.

The change appears to have happened inadver­tently and gradually. Eligibility for a Pell Grant is pri­marily based on the size of the maximum grant that the program awards, and there is no absolute income cut­off. If lawmakers increase the maximum grant more quickly than inflation—which they have on average over long periods of time—then more middle-income families become eligible for grants. In 1995–96, a dependent student from a three-person family earn­ing the equivalent of $60,000 today would not have qualified for a grant; today the student receives more than $1,000 through the program.

This report examines how the program came to increasingly provide students from middle-income families with grants, particularly those earning between $50,000 and $60,000, focusing on changes that occurred between the 1995–96 and 2018–19 aca­demic years. It concludes with recommendations for policymakers to improve the targeting of the Pell Grant program.

Introduction

The federal government has provided Pell Grants to low-income families to help pay for an undergraduate education since the 1970s. Today, the program disburses roughly $28 billion in aid to 6.6 million undergraduate students per year.¹ The maximum grant that a student may receive in the 2018–19 academic year is $6,095, an amount that lawmakers set annually.

A common talking point among advocacy organi­zations and lawmakers is that the purchasing power of a Pell Grant has failed to keep up with rising col­lege prices.² They point to the 1970s, early in the pro­gram’s history, when the maximum grant was enough to cover nearly 80 percent of the cost of attending a typical public four-year university. While lawmakers have routinely increased the grant, college tuition and living expenses have outpaced those increases. Today the maximum grant covers about 29 percent of col­lege attendance costs, which advocates note is the lowest share in the program’s history.³

Many advocates call for restoring the value of the Pell Grant to cover the same share of college prices today as it did in the mid-1970s. They argue that this would help more low-income students attend college and reduce debt burdens.

What they do not say is that such a change would also transform the Pell Grant program into a generous benefit for middle-income and even upper-income households. Eligibility is based on a sliding scale that incorporates the maximum grant size rather than on absolute income limits; as the maximum grant rises, students from families with incrementally higher incomes become eligible.

For example, if lawmakers increased the maxi­mum grant to $16,855, thereby restoring its purchas­ing power to 1970s levels based on college prices, many students from families earning $90,000 or more would qualify for grants.⁴ That would make the program unnecessarily and prohibitively costly because the funds flowing to those families would do nothing to advance college affordability for the low-income students who the program is supposed to assist. (Many advocates who support restoring the purchasing power also oppose implementing an income cap on eligibility.⁵)

This scenario may seem theoretical—the chances that lawmakers triple the maximum grant in the near future are slim—but the effect it illustrates is already evident. Over the past 20 years, increases to the maximum Pell Grant have quietly and uninten­tionally caused the program to creep further into middle-income territory. In the mid-1990s, students from families earning the equivalent of $50,000 in today’s dollars typically would not qualify for Pell Grants. Today, these students can each expect to receive a $2,890 annual grant. This change occurred largely without any identifiable agenda to provide Pell Grants to families at these income levels.

This report details how and why the Pell Grant program came to provide grants to families earning between $50,000 and $60,000 (which this report refers to as “middle-income”) and why the grants they receive have been increasing ever since. It cov­ers the changes that occurred between the 1995–96 and 2018–19 academic years and focuses on years for which data from the quadrennial National Postsec­ondary Student Aid data set are available to provide supplementary statistics.⁶ We chose 1995–96 to start our analysis because it is the earliest year for which we could locate Department of Education worksheets to calculate a family’s Pell Grant eligibility.⁷ We con­clude by providing several recommendations for pol­icymakers who wish to increase program benefits while keeping those funds targeted to students from low-income families.

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Notes

1. US Department of Education, “Department of Education Fiscal Year 2020 President’s Budget,” May 15, 2019, www2.ed.gov/ about/overview/budget/budget20/20pbapt.pdf.
2. For examples of this, see National College Access Network, “Restore the Purchasing Power of the Pell Grant,” www. collegeaccess.org/restorepell; Charlotte Pollack, “Report Details Erosion of Pell Purchasing Power, Suggests Strategies to Improve Equity,” National Association of Student Financial Aid Administrators, February 5, 2015, www.nasfaa.org/news-item/942/Report_ Details_Erosion_Of_Pell_Purchasing_Power_Suggests_Strategies_To_Improve_Equity; Institute for College Access & Success, “How to Secure and Strengthen Pell Grants to Increase College Access and Success,” October 16, 2018, https://ticas.org/sites/default/files/ pub_files/pell_recs_one_pager.pdf; Education Trust, “FY 19 Appropriations Priorities,” press release, March 27, 2018, https://edtrust. org/press-release/fy-19-appropriations-priorities/; United Negro College Fund, “Purchasing Power of Federal Pell Grants Has Dropped to Its Lowest Level Ever,” www.uncf.org/the-latest/the-purchasing-power-of-federal-pell-grants-has-dropped-to-its-lowest-level; and David Reich, “2018 Funding Bill Should Boost Pell Grants,” Center on Budget and Policy Priorities, February 28, 2018, www.cbpp.org/ blog/2018-funding-bill-should-boost-pell-grants.
3. In the 1975–76 academic year, the inflation-adjusted maximum Pell Grant covered approximately 79 percent of tuition, fees, and room and board at a public four-year institution. Authors’ calculations using College Board, Trends in College Pricing 2018, 2018, https://trends.collegeboard.org/college-pricing; and US Department of Education, Institute of Education Sciences, National Center for Education Statistics, “Tuition Costs of Colleges and Universities,” https://nces.ed.gov/fastfacts/display.asp?id=76. Values are adjusted for inflation using the Consumer Price Index. The Consumer Price Index is used in this instance to make figures comparable with those commonly referenced by advocacy groups. For more information, see Federal Reserve Bank of St. Louis, “Consumer Price Index for All Urban Consumers: All Items,” https://fred.stlouisfed.org/series/CPIAUCSL.
4. This assumes a three-person family (married parents and one dependent college student) with assets below the exemption lev­els. Families earning $90,000 would qualify for a $2,640 Pell Grant if the maximum Pell Grant were $16,855. Families earning between $50,000 and $60,000 could easily qualify for a Pell Grant over $12,000. Authors’ calculations using Office of Federal Student Aid Expected Family Contribution worksheets.
5. For example, see Joy Resmovits, “Pell Grants for Poor Students Lose $170 Billion in Ryan Budget,” HuffPost, April 5, 2012, www. huffpost.com/entry/pell-grants-paul-ryan-budget_n_1383178; Michael Stratford, “Higher Ed Cuts in GOP Budget,” Inside Higher Ed, April 2, 2014, www.insidehighered.com/news/2014/04/02/ryan-budget-calls-cuts-pell-grant-elimination-neh; and Michael Stratford, “GOP Would Freeze Pell,” Inside Higher Ed, March 18, 2015, www.insidehighered.com/news/2015/03/18/house-republicans-again-propose-10-year-freeze-pell-grant-maximum-award.
6. The report includes the 2018–19 year because it is the most recent year for which Pell Grant information is available, although the most recent NPSAS data set covers the 2015–16 academic year. For more information, see US Department of Education, Institute of Education Sciences, National Center for Education Statistics, “National Postsecondary Student Aid Study (NPSAS),” https://nces. ed.gov/surveys/npsas/. This report uses the NPSAS for the 1995–96, 1999–2000, 2003–04, 2007–08, 2011–12, and 2015–16 academic years for supplementary analysis and statistics.
7. The US Department of Education archives EFC formula worksheets on their website dating back to the 1997–98 academic year. The EFC Formula Worksheet for the 1995–96 academic year is available in a separate Department of Education manual. To our knowl­edge, there are no online versions of the EFC Formula Worksheets earlier than the 1995–96 academic year. For more information, see US Department of Education, Federal Student Aid, “iLibrary—EFC Formula Guide,” https://ifap.ed.gov/ifap/byAwardYear.jsp?type= efcinformation&set=archive; and US Department of Education, “Precertification Training: 1995–96,” https://files.eric.ed.gov/fulltext/ ED396649.pdf.