Urban Wire Excluding For-Profit Students from the Pell Increase May Not Have the Intended Effect
Bryan J. Cook
Display Date

Man sitting in bed using laptop

President Biden’s signature economic package, the Build Back Better Act (BBB), which was passed by the House of Representatives in September 2021, appears to be stalled in the Senate and passage of the bill looks increasingly unlikely. But as Congress considers possible revisions to the bill, it may want to revisit one small but important caveat included in the House bill: the exclusion of low-income students enrolled at for-profits from a proposed increase in the maximum Pell grant.

BBB currently includes a much-championed $550 increase to the maximum Pell grant, the single largest source of federal grant aid supporting students with financial need. Historically, the type of school a student chose to attend would not affect the amount of Pell grant for which the student were eligible.

BBB proposes to limit the increase to eligible students enrolled in public and not-for-profit colleges and universities. By excluding students at for-profit institutions from this additional federal aid, Congress would set a precedent that could have ripple effects for how federal dollars are used to implement accountability in higher education. Even if this exclusion doesn’t pass this time around, it’s critical Congress consider whether such a change would have the effects it intends.

Understanding the for-profit student population

For-profits have long faced scrutiny from policymakers and student advocates because their business model, which involves producing financial returns to investors, is often considered to be in conflict with the mission of educating students. That for-profit students consistently have some of the highest debt levels (PDF) and default rates while having some of the poorest postenrollment outcomes suggests this scrutiny is justified.

However, understanding which students would be affected by excluding eligible students at for-profits from the increased Pell dollars is important. Compared with other sectors of higher education, for-profit students who receive a Pell grant are more likely to be older, independent, and students of color. They are also disproportionately single parents and military veterans.

Additionally, Pell students at for-profit schools have lower average expected family contributions and are more likely to take out a student loan than Pell students at other types of schools. When asked about their ability to come up with $2,000 within a month in an emergency, 44 percent of Pell students at for-profits stated they certainly could not, compared with 37 percent of Pell students at community colleges.

A table outlining the demographics of students who receive Pell grants and attend public, private not-for-profit, and profit institutions.

As these data reveal, excluding for-profits from the Pell increase would disproportionately affect financially vulnerable students. As such, this policy may create an even greater disparity in borrowing (and default rates) between students at for-profit schools and students enrolled at other type of institutions because Pell grant students in other sectors would now have to borrow less money to cover the same expenses as for-profit students.

The need for more effective accountability

The increased focus on developing accountability measures for US colleges and universities has largely been driven in part by concerns over the quality of education students are receiving. This is particularly true regarding the for-profit sector. If the goal of the BBB legislation is to improve the quality of education provided by for-profit schools, it is hard to see how that happens when the Pell exclusion is not tied to any actionable metric.

Historically, institutions’ access to federal student aid has been tied to their ability to meet key metrics, such as with the cohort default rate, the 90/10 rule, or gainful employment regulations (PDF). When schools fail to meet certain metrics, their students lose access not to a portion of their federal grants or loans but to anyfederal aid while enrolled at the school. So accountability measures like these provide some incentive for schools to improve to ensure their students do not lose access to federal financial aid.

If the intent of this legislation is not to change the behavior of for-profits but rather to dissuade low-income students from enrolling in them altogether, it is unclear whether limiting their ability to receive a max Pell grant will accomplish that goal. Though some students choose for-profits because of their deceptive marketing practices—a concern the BBB Pell exclusion does not address—many others do so because they offer credentials unavailable at other nearby institutions or because they offer more flexible schedules than public and private not-for-profits.

Though some suggest this exclusion could actually benefit Pell students by removing an incentive for for-profit schools to raise their tuition, it is likely for-profit institutions would continue to increase tuition and simply encourage students to borrow more.

Preventing Pell-eligible students from using their maximum allowable grant at a school solely because it belongs to a particular sector ignores much of the efforts over the past decade to create more effective accountability in higher education. There is an abundance of research that explores institution-level accountability,  program-level accountability, and risk-sharing options that would target specific schools that demonstrate an inability to provide educational benefits to students.

The US Department of Education will soon begin negotiated rulemaking on gainful employment, an accountability effort aimed at, but not exclusive to, for-profits created during the Obama administration. These types of accountability measures attempt to shine a light on ineffective institutions regardless of sector. A recent report from New America that supports the BBB provision acknowledges there are some good for-profit schools just as there are some ineffective community colleges. BBB may address the predatory for-profits but does nothing for the students in poor performing community college programs.

Whether BBB ultimately becomes law as currently drafted is uncertain and increasingly unlikely. But if limiting an increase in Pell only to students enrolled in public, not-for-profit colleges and universities becomes law, Congress will have made the decision that an entire sector of higher education can have limits placed on how much federal aid their students can access, regardless of whether individual schools within that sector effectively serve their students.

The Urban Institute has the evidence to show what it will take to create a society where everyone has a fair shot at achieving their vision of success.

Show your support for research and data that ignite change. 

Research Areas Education
Tags Financial knowledge and capability Higher education
Policy Centers Center on Education Data and Policy
Related content
data connections rendering
Doubling the maximum Pell grant award would substantially expand access to college funding, providing a large increase in grant funding for current recipients and increasing the number of eligible students.
Media Name: gettyimages-1248521772_crop.jpg
Pell simplification policies could improve educational outcomes for students from low-income families