Student loan debt in the United States totaled almost $1.75 trillion as of April of this year. The average public university graduate who takes out loans owes roughly $30,000 for a bachelor’s degree.
As policy makers debate solutions such as canceling some or all student debt and doubling the Pell Grant, I want to argue that while we should Roughly double the maximum annual Pell award (from the current $6,895 to around $13,000), a significant structural and regulatory reform also needs to take place in tandem to lessen future student loan debt. Under my proposal, Pell awards would only go to institutions where 80 percent of the cost of attendance can be covered through a combination of Pell Grants and state, private and institutional grant aid. In essence, a student receiving the maximum Pell amount should only have to take out loans to cover up to 20 percent of the cost of attendance.
While this reform focuses on students receiving a Pell, this solution would have a trickle-down impact on those students who do not qualify for a Pell and would still need to take out loans to college attendees.
Why Do Pell Students Currently Take Out Loans?
Pell students still take out significant loans because Pell only covers a fraction of the cost of attendance—and that fraction has decreased substantially over the past two decades. According to the College Board’s latest “Trends in College Pricing and Student Aid” report, a maximum Pell award covered 42 percent of tuition, fees and room and board at a public four-year institution and 16 percent at a private nonprofit four-year institution in the 2001–02 academic year. By 2021–22, the maximum Pell Grant covered just 29 percent of average tuition, fees and room and board at public four-year colleges and 13 percent of average tuition, fees and room and board at private nonprofit four-year colleges.
Why Focus Reform Around Pell?
A significant portion of students receive some form of Pell. According to the College Board report, about 30 percent of all students who enrolled in undergraduate programs in the United States received a Pell Grant in the 2020–21 academic year. From an equity perspective, underrepresented a minority students are more likely to receive Pell Grants.
If you centered eligibility of an institution to access Pell grants, you would force higher-cost institutions to either receive more state and/or local support, work with their foundations to raise funds for institutional financial aid, or significantly lower their prices. How many colleges could, should or can neglect 30 percent of the student population and still survive financially?
Even If You Double Pell, Can Students Attend a Public Four-Year College Under Your Proposal?
Increasing the maximum Pell award to $13,000 would cover an estimated 56 percent of the cost of tuition, fees and room and board at public bachelor’s institutions, according to the National College Attainment Network.
An institution would be eligible to get to the 80 percent threshold I propose if other forms of aid were added for the student. For public institutions that would not meet the 80 percent threshold, it would force states and local governments to either contribute more to their public four-year institution or have the institution lower its costs and/or provide an institutional match to reach the minimum threshold.
Another (or partial) solution for some would be to reduce the cost of attendance by having students commute to campus and live with family, saving money on room and board costs, which average $11,950 at public four-year institutions, according to the College Board . Seventy-two percent of Pell students already do not live on campus, according to the Urban Institute, which would indicate calculating off-campus living in cost of attendance is already being done with Pell students the vast majority of the time.
The average in-state tuition and fees (no room and board) at a public four-year institution is $9,400, according to the National Center for Education Statistics. For a student who lives off campus with family, the average cost of attendance at a public four-year institution is $14,900 (or about $5,500 above tuition and fees). A $13,000 Pell award alone would cover more than 80 percent of this cost, without the need for additional state or institutional aid.
By contrast, NCES estimates the average cost of attendance for students attending a public four-year university and living on campus as $25,500: for those students, the institution would need to discount the price or find other forms of aid in the amount of about $7,400 to supplement Pell to cover 80 percent of the cost of attendance.
It should be noted that the cost of attendance for a student living off campus and not with family is comparable to that of students living off campus. Not all Pell students have the ability to live with family off campus, and perhaps exceptions can be made and/or alternative solutions can be explored for those students.
Even If You Double Pell, Can Students Attend a Private Four-Year College Under Your Proposal?
For private four-year institutions, some will be able to reach that threshold, while others will not. NCES estimates the total estimated cost of attendance for students living with family while attending a four-year private nonprofit university to be $42,200 and average cost of just tuition and fees as $36,700. Currently, the average tuition discount is around 50 percent, as reported recently by Inside Higher Ed. A 50 percent discount gets tuition and fees down to $18,350. For students living with family, that brings the cost of attendance to around $23,850. The institution would need to find other forms of aid to reduce the cost by another $2,410 to reach the 80 percent threshold. If it means an institution would lose access to 30 percent of potential students, many will get creative with student awards to make it work.
Wait! Are You Limiting Choices for Pell Students?
Probably. Students can still choose to attend inclusive institutions but do so at their financial risk and expense. But keep in mind that Pell is a federal program and benefit. We currently have similar restrictions with other government programs, such as Medicaid and Medicare. If you are on either one of those programs, not every doctor accepts that insurance due to the lower reimbursement rates, limiting the patient’s choice of doctors and specialists. We also currently restrict federal financial aid to accredited institutions. The key is that students must and will have access to high-quality, affordable college choices.
Why Can’t You Just Double Pell and Call It a Day?
While doubling Pell would provide some relief, we would fail to prevent a student debt crisis in the future. Former education secretary Bill Bennett formulated a hypothesis in 1987 that increases in federal aid are linked to increases in tuition. While there is debate on the merits of this hypothesis, we do know that the cost of college has increased at more than twice the rate of inflation since the mid-1980s. There are numerous reasons for this increase, from changes in state and local funding to the increase in offices and services needed to run a college (such as technology, institutional research, holistic student supports, etc.).
Simply increasing Pell without taking any other action is like doing a personal credit card debt consolidation. Yes, you may provide temporary relief, but if you do not change your spending behaviors or increase revenue sources, you will most likely wind up back in the same situation that got you there in the first place. The 80 percent minimum threshold I propose would force institutions to reimagine their core functions to control costs and make an argument to state legislatures for investments in public institutions.
What About Students Who Are Not Maximum Pell?
To receive any Pell dollars under this proposal, students would need to attend an institution that meets the 80 percent threshold. Students who qualify for a lower Pell award than the maximum amount can choose to attend an approved institution or forgo their Pell Grant and assume the financial risk of attending an inclusive institution. For example, if a student is eligible for 50 percent Pell, they can receive those funds at an approved institution and pay for the rest through a combination of loans and personal/family contributions. But by attending an approved institution, they will still benefit from a lower cost of college, lessening the amount of loans they may need to take out.
We cannot completely solve the need for students to take out loans to fund college. It is, in the end, an investment from a personal, governmental and social perspective. But what we do know is that business as usual has led to a student debt crisis that disproportionately impacts our poorer students and has forced many others into a situation that may potentially take them decades to climb out of. From an economic justice standpoint, we need to increase the federal government’s contribution by significantly increasing the Pell award. States and local governments that want to have high-quality public institutions would need to make proper investments. The responsibility of higher education is a shared one between all levels of government. Finally, institutions that wish to serve all students will need to fundamentally change the way they do business to bend the cost curve on their end.
This proposal is meant to start a dialogue. There are parts of the proposal that those across the political spectrum might like and not like—and that is OK. Finding a sustainable solution is the best way forward.