Evaluating Proposed Changes to Pell Grants
The federal Pell grant program, which provides grant aid to low-income college students, has long enjoyed bipartisan support, but many policymakers and advocates have argued for reforming the program. Proposals from Congress and presidential candidates take different approaches to rethinking Pell, leading to different distributions of benefits, according to the Urban Institute’s Pell model.
There are two approaches to reforming the Pell program currently on the table. The first is to simplify the formula, as Senators Lamar Alexander (R-TN) and Doug Jones (D-AL) have recently proposed. The second approach is to increase the maximum grant, currently capped at $6,195—about the same, in inflation-adjusted terms, as it was 40 years ago.
In a plan released last month, House Democrats proposed increasing the maximum Pell grant to $6,820, and Democratic presidential candidates, including Mayor Pete Buttigieg, Sen. Elizabeth Warren (D-MA), former secretary Julián Castro, former vice president Joe Biden, and Sen. Amy Klobuchar (D-MN), have all proposed increasing Pell awards, pitching maximum grants ranging from $7,195 to roughly $12,000.
Simplifying the Pell formula
Sen. Alexander and Sen. Jones’s FAFSA Simplification Act of 2019 would create a new formula for the Pell grant based on the student’s family income as a percentage of the federal poverty level (FPL). The bill provides a maximum grant to students with family incomes up to a certain percentage of the FPL and phases out the grant as income increases above that point. The phase-out occurs at a higher ratio of income to the poverty level for students who are dependent children of single parents and for students who themselves are single parents.
The Urban Institute Pell model shows the Alexander-Jones proposal would slightly increase the share of undergraduate students receiving Pell grants, from 41.8 to 42.5 percent.
Independent students who are not single parents see the largest changes in their likelihood of receiving Pell. Independent students without children are 4 percentage points more likely to receive a Pell grant under the simplified proposal, while married students with children are 8 percentage points less likely to receive a Pell grant.
In addition to being more likely to receive Pell awards, dependent students and independent students without children would also receive larger average grants. Grants decrease for married students with children and stay about the same for single parents.
That the share of students receiving Pell grants remains about the same under the Alexander-Jones proposal does not necessarily mean all individual students would receive the same award. Based on our model, 12 percent of current Pell grant recipients would see their award decrease by at least $500, and 15 percent would receive an award that is at least $500 larger.
The lowest-income students are least likely to see any change, while Pell recipients from higher-income families are much more likely to see their award decrease. This likely reflects the factors in the current formula, such as financial assets and the number of children in college, which can affect the size of Pell grants received by relatively higher-income families.
Increasing the maximum grant
Increasing the maximum Pell grant—the approach proposed by House Democrats and presidential candidates—does more than just give more money to students already receiving Pell awards. Pell awards are currently calculated as the difference between the maximum grant and what the federal government estimates a student and her family can contribute (the expected family contribution). So as the maximum Pell grant goes up, more students become eligible.
The Urban Institute Pell model shows that making Pell more generous can lead to large increases in the number of students from middle- and upper-income families receiving grants. For example, doubling the maximum grant would increase the share of eligible students from families making between $75,000 and $92,000 from 13 to 40 percent. And 21 percent of families making between $92,000 and $112,700 would receive Pell, up from 2 percent under current policy.
Increasing the maximum Pell award would also increase the average grant size. Doubling the maximum award, for example, would roughly double the average award for most income groups. Though white students are more likely than Black or Hispanic students to become newly eligible under an increased maximum, the effects of increasing the size of students’ grants are larger than the effects of expanding Pell eligibility up the income distribution.
How much would it cost?
Even small increases in the average Pell grant and the share receiving Pell grants can have a significant cost to taxpayers when aggregated over almost 7 million students. Under the Alexander-Jones plan, model projects increased annual spending of about $1.2 billion, or about 4 percent on baseline spending of $30.7 billion. This is approximately equivalent to increasing the maximum grant size by $200 under the current formula.
Of course, that means proposals to increase the maximum grant by more than $200 will cost significantly more. Model estimates indicate that House Democrats’ proposal would increase annual costs by about $3.54 billion, or 11 percent. Doubling the maximum grant to $12,000 would more than double the annual cost of the program, from $31 to $66 billion.
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