Changing the Incentives for Colleges to Enroll and Graduate Low-Income Students

That colleges have little incentive to enroll low-income students is increasingly reflected in their student aid policies. Under the sway of enrollment managers—private consultants who advise institutions on admissions and financial aid policies—many public and private colleges are using their limited institutional aid budgets to attract the students they most desire: the “best and brightest,” and the wealthiest. They are, in other words, providing merit aid both to high-achieving students who can help them rise in the U.S. News & World Report rankings and to affluent students who can help them increase their revenues.

Congress could begin to reverse these trends by creating a new program to reward colleges for enrolling and graduating students with Pell Grants, federal aid that typically goes to students with annual family incomes below $50,000. Under such a program, colleges that enroll a substantial share of Pell Grant recipients (20 to 25 percent) and graduate at least half of their students school-wide would receive an institutional grant from the federal government. Colleges could use this money to increase their need-based institutional aid budget and therefore reduce the net price—the average amount of money that students and their families pay after all aid is deducted from the list price—charged to the neediest students. They could also use the money for academic tutoring and student support services to help these students adjust to and succeed in college.

This “Pell-Bonus” proposal would not only aim to change admissions practices; it would also provide much-needed funds to the colleges that low-income students tend to enroll in: community colleges and non-selective public and private four-year colleges that have small endowments. Financially strapped, these colleges have a hard time providing adequate support to students with the greatest need. As a result, students at these institutions often take on significant amounts of debt, or engage in activities that lessen their likelihood of completing degrees, such as working full-time while attending college or dropping out until they can afford to return.

The lawmakers who created the federal financial aid programs four decades ago understood that colleges enrolling large numbers of low-income students need additional support. When Congress created the Pell Grant program in 1972, it also established a separate program to provide supplemental funds to colleges that enrolled Pell Grant recipients. The program, known as the “cost of education allowances,” recognized that it’s more expensive for schools to help low-income students, who tend to come with many educational disadvantages, to and through college than it is to do so for wealthier students. Though Congress authorized this program, it went unfunded and was eventually eliminated.

F. King Alexander, the president and chancellor of Louisiana State University, has been perhaps the most impassioned champion of reviving the “cost of education allowances” program. “Imagine for a moment what might have resulted from the creation of an institutional funding stream that would reward colleges and universities for enrolling and educating more low-income or Pell students,” Alexander said in a speech at the American Association of State Colleges and Universities’ annual meeting last October. “Currently, there are no incentives to do so, only disincentives, since they cost more to educate, have lower graduation rates, and have an overall negative impact on the current private magazine rating systems.”

The idea of creating a Pell Bonus for colleges that enroll and graduate a substantial number of Pell Grant recipients has begun to catch the attention of policymakers.

For the last two years, President Barack Obama has called on Congress to spend $7 billion over 10 years to create a “College Opportunity and Graduation Bonus” program. Under the proposal, “colleges that successfully enroll and graduate a significant number of low- and moderate-income students on time” would receive grants “based on their number of on-time graduates that receive Pell Grants.” Schools that substantially increase the graduation rate of students with Pell Grants would receive an even larger award. Colleges would also be required to have acceptable graduation and student loan default rates to participate in the program.

Under the White House plan, colleges could use the funds “for expanding need-based financial aid, enhancing student instruction and support strategies, and adopting other best practices to increase college access and success for low-income students.”

In November, former Sen. Tom Harkin, the Iowa Democrat who led the Senate committee in charge of overseeing higher education, included a “Pell Bonus Demonstration Project” as part of a broader bill he wrote to reauthorize the Higher Education Act, the law governing federal student aid programs.

Under the legislation, the U.S. Department of Education would provide grants to colleges in up to five states that have “a strong record of supporting, reforming, and improving the performance of the state’s public higher education system.” States would be eligible if they have invested significantly in their public colleges and universities, helped smooth the student transfer process among public colleges, and devoted their financial aid dollars primarily to need-based aid.

In exchange, colleges in these states would receive additional funds depending on the proportion of Pell Grant recipients they have in their graduating class, the school’s graduation rate, and its average net price. Funds could be used to increase spending on need-based financial aid; strengthen support programs for low-income students; improve student learning while reducing costs; use technology to scale and enhance improvements; and establish or expand accelerated learning opportunities.

It is encouraging that the “Pell Bonus” proposal has received such high-level attention. However, the Republican Congressional leadership has yet to express much interest in the idea.

That’s too bad. As King Alexander and Charles B. Reed, former chancellor of the California State University system, wrote in a 2009 Inside Higher Ed column on this topic, “Creating financial incentives for institutions to remain committed or to recommit themselves to the public needs of society should be among the federal government’s highest priorities.”

This post ran first on The Hechinger Report."