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November 12, 2015

Breaking down the proposals for Pell grant reform

November 12, 2015

On Tuesday, we released a report analyzing eight different plans to change how students apply for Pell grants. Our previous blog post stressed the need for a simpler Pell grant application and explained how we envision this happening. Now, we turn to the differences in the details of those plans.

Of the eight plans we examined in our report, five use simple look-up tables, allowing students to input a few key numbers and know instantly how large a grant they will receive, and three use more complex formulas. All eight plans aim to simplify the Free Application for Federal Student Aid and better target Pell grants to the neediest students. But each solves the problem slightly differently, putting varying weights on factors like family composition or assets.

The table below shows how this plays out.  A student in a family that earns $15,000 would receive the maximum Pell grant under virtually all plans, but as income increases, the differences between the plans become apparent. A student whose parents earn $60,000, for example, could receive nothing, or as much as $3,675, depending on the proposal. Below, we explore some of the reasons why.

Pell table

Family size

All proposals take family size into account, but they do so in different ways. The two-factor Pell proposal bases awards on income relative to the federal poverty line, which increases with family size. This means Pell awards would be larger for students from larger families, assuming equal income. Other proposals set award levels independent of family size, but give extra dollars on top of the maximum grant to families with additional children. Under these systems, students eligible for the maximum grant award ($5,775) could actually have their awards pushed beyond the maximum if they have siblings at home.

Other family members in college

Beyond just family size, some consider whether other family members are also in college, though they treat this information in very different ways. The three-factor Pell proposal would increase aid by an even proportion across income levels for an additional student. Under the current method and other proposals using more complicated formulas, however, some low-income families (though not the lowest income families who receive a maximum Pell grant) can actually be hurt by having another child in college. (See our example for a household earning $37,000 in the table.) These formulas assume that having additional children in college lowers a family’s living expenses, because fewer family members are presumed to be living in the household. With lower expected household expenses, the income protection allowance– the amount of income not seen as available to pay for college--decreases and the expected family contribution (EFC) increases. The final EFC amount is divided by the number of college students in the household, but for lower-income families this is not always enough to overcome the effects of the lower income protection allowance. Mid- to higher-income families, on the other hand, always benefit and receive a higher award when their EFC is divided by the number of students in the family, in some cases becoming eligible for an award only as a result of this adjustment.

Households with significant assets

A major potential shortcoming of using a look-up table rather than a more involved formula could be that households with low incomes but high wealth might be awarded Pell grants, even when they could actually afford tuition. If a family holds a lot of stocks or bonds, for example, but did not buy or sell these assets, the look-up tables or an EFC formula using only IRS data wouldn’t factor in that wealth. In proposals calculating EFCs from more detailed data, the Pell grant eligibility varies with the composition of assets and the specific formula used.

The Gates Foundation and the National Association of Student Financial Aid Administrators proposals require asset information only for families with complicated tax returns, as a way of better screening for low-income, high-wealth families but also minimizing the burden of the application.

These are only a few examples and effects of specific rules. Our web tool allows you to explore these and other scenarios more in-depth—and highlights how easy applying for Pell can be.

Reginald Dawson studies in his dorm room at North Carolina State University in Raleigh, N.C., on March 16, 2007. Dawson wants to design jumbo jets or Air Force fighters. But big plans carry hefty tuition bills, and he doesn't want his mother working two jobs to help him through school. Photo by Gerry Broome/AP

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