Pell Grants: Extensions and Corrections

By Richard Vedder

An earlier blog I wrote about Pell Grants ("Academic Child Molesters...") brought about two strongly worded comments, one a private communication written with impeccable academic civility by a distinguished leader in American higher education, and the second a nasty, brutish attack on me written by an executive officer of Duke University (while I have a thick skin and wasn’t too bothered personally, I was appalled that a school as distinguished as Duke would have a senior official behave publicly in such a non-gentlemanly, non-collegiate manner). The writers said that I was just dead wrong in some statements I made about institutional ability to use Pell Grants. My sources of information were high level officials in the U.S. Department of Education, so I was, to put it mildly, somewhat confused. So I shared the comments with the Department, received their reaction, and now feel confident in replying.

There is no question I overstated the ability of universities to use Pell Grant funds, as well as the legal ability of schools to move Pell Grant funds around or keep them on hand for a significant period of time. If a person goes from an expensive school to a cheaper school, she will NOT lose a Pell Grant, but the amount of the grant could well be lower, according to the most recent Department communication. I misstated things, although the basic thrust of the remarks captured a reality --federal aid is greater, other things equal, for students attending expensive schools. Similarly, schools do not maintain formal escrow accounts with huge quantities of funds, at least that is what departmental regulations say.

At the same time, apparently the enforcement of the rules is far from perfect; there are abuses and they are not always punished. I misspoke, but the practical extent to which I was wrong is apparently somewhat debatable, if the Department that enforces the program is to be believed (and I have no reason to suspect that it should not).

On the major, dominant, crucial point, I think I am still right. Pell Grants are administered by schools that also administer large amounts of institutional aid (this is not so true, however, of the community colleges or some of the poorer four year state schools). Institutions can easily get into the habit of viewing all student aid running through their operation as fungible, and can alter downward institutional support that otherwise would be given to Pell Grant recipients in order to meet ITS (the school's aid objectives, not those of the federal government). The net amount of incremental student assistance occasioned by the receipt of a Pell Grant may well be significantly less than the stated, nominal amount of the grant.

Indeed, the more prestigious and costly colleges over the past decade have reduced the proportion of assistance given on the basis of need, favoring aid to middle class students with high academic potential. I suspect some of them have taken the view, "let the federal government fund poor students; we will use our money to fund good students who can help improve our national rankings." The relative decline in the importance of lower income students at some of these institutions is usually attributable to the fact that Pell Grant support grew less than college tuition fees, but I think there is the additional factor of colleges using Pell funds to substitute for institutional aid as schools downplay equity concerns relative to national rankings (there are some signs that may be changing, to be sure).

Nothing I have read or heard makes me believe that we should not be moving to have Pell Grant money go to the students directly --or at least be given to schools only after students register for classes and enroll. There is a plethora of ways that funds can move into college accounts within 24 hours of students formally registering for classes. You can give Pell recipients credit cards usable only at universities for tuition and fees, for example. I think the funding should become more clearly student centered and controlled. Nonetheless, I apologize for overstating the ability of schools to administer Pell funds as they wish.