Congressman Ryan’s budget proposal on Pell Grants: effectiveness over popularity

Annie Hsiao Contributor
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President Obama has committed the United States to having the highest proportion of college graduates in the world by 2020 — up from its current ninth-place ranking. This noble goal has been his primary justification for increasing Pell Grant spending. But how effective have Pell Grants been in reaching this ambitious goal? And if they have not helped, then why increase funding?

Created more than 30 years ago, the Pell Grant program is the nation’s largest need-based grant program for low-income students. The goal of this program is “to help students with financial need enroll in and graduate from college by providing them with a basic foundation of financial aid,” according to the Department of Education (emphasis added). The program has grown by more than 50 percent since 2009, from 6.2 million students to 9.4 million.

Last year alone, the Pell Grant program cost $36.6 billion, having doubled over the past three years. President Obama’s budget request for over $40 billion includes maintaining a maximum grant amount at $5,550. In contrast, House Republicans and Congressman Paul Ryan’s budget proposal aims to return Pell Grants to their pre-stimulus level of about $4,705.

The president maintains that increasing the amount for Pell Grants is vital to ensuring that the U.S. once again leads the world in college graduation rates. His undersecretary for education, Martha Kanter, argues that the budget request is driven by higher college enrollments due to the economic downturn. However, the Obama administration’s fiscal year 2012 budget documents show that only 40 percent of the growth in Pell Grant costs from 2008-12 can be tied to enrollment increases, according to the New America Foundation. Approximately 14 percent of the increase is due to changes that Congress made to the eligibility formula in 2007. About 22 percent came from the multiple Pell award in a year rule, adding $4 billion to program costs; and 25 percent resulted from increasing the maximum grant amount to $5,550. Thus, 60 percent of the growth in Pell Grant costs is a result of policy changes that Congress made to the program. The downturn in the economy and subsequent increase in student enrollment is not the main reason for the increase in Pell Grant costs.

Spending more money on Pell Grants does not make sense. Despite their bi-partisan popularity, it’s not clear that Pell Grants are effective. In 2002, the Department of Education issued a report on the graduation rates of low- and middle-income beginning students who were enrolled at four-year institutions in 1995–96. It found no differences in three-year persistence rates (to graduation) between Pell Grant recipients and non-recipients. This study found that among similar groups of students, controlling for income, Pell Grants made little or no difference in helping students graduate. College access can be helpful, but since college graduation is the ultimate goal of the program, it is not meeting its goal.

Further, the determination of the maximum grant amount was largely arbitrary, not informed by any evidence of how the additional $845 would help students meet the goal of college graduation. Even supporters of Pell Grants agree that reform of the program is necessary, especially regarding eligibility and award amounts. And until reforms are made, an automatic increase would be unreasonable and irresponsible.

Ensuring that low-income students are supported in efforts to reach their educational goals is a noble aspiration. And we serve the best interests of the nation’s students when we support programs that work. In addition to limiting spending on Pell Grants, Congressman Ryan’s budget also proposes reauthorizing the D.C. Opportunity Scholarship Program (OSP), a voucher program that similarly serves low-income and at-risk students, enabling them to attend private schools. The Department of Education has found that the OSP raises the probability of students completing high school by 12 percentage points, from 70 percent to 82 percent. The program also improves students’ reading scores and increases parent satisfaction with their children’s educations. And yet, despite the evidence that OSP is working, President Obama has firmly opposed the program.

“Education is an investment we need to win the future,” the president said when he announced his budget proposal at a school in Maryland. Hardly anyone disagrees with the president on this, but now is the time to invest wisely, in programs that work, not just programs that are popular.

Annie Hsiao is Director of Education Policy at the American Action Forum (@TheActionForum).