How Would You Spend $87-Billion?

Yesterday, at Higher Ed Watch, we urged Democratic Congressional leaders to keep their eye on the ball and move forward with President Obama's plan to make Pell Grants into a true entitlement for low-income students.

But what if eliminating the Federal Family Education Loan (FFEL) program doesn't produce enough savings for Congress to achieve this lofty goal (as recent media reports suggest)? Or what if opposition to creating a new Pell Grant entitlement program is strong enough among fiscally conservative Democrats and appropriators to kill the proposal? What then should be done with the tens of billions of dollars the government would save by providing loans entirely through the Direct Loan program?

We have a few ideas at Higher Ed Watch about how that money could be spent -- none of which involve extending the interest rate reduction that we wrote about yesterday.

Boost the Maximum Pell Grant

Using the mandatory money that would be saved by eliminating FFEL to provide another substantial boost in the maximum Pell Grant is the obvious solution that lawmakers would undoubtedly pursue. There are advantages to this approach. After years of neglect, and skyrocketing college prices, the grant's purchasing power remains disappointingly low. A massive infusion of funds could potentially restore the purchasing power of the maximum grant to what it was 20 years ago -- 60 percent of the average in-state tuition at a public four-year college (today the maximum award is worth about half that amount). That would be a worthy goal.

This approach, however, also has some significant downsides. For one thing, funding provided through budget reconciliation bills is often temporary due to complicated budget rules. If lawmakers do not provide a sufficient amount of funding to make the increases permanent, Congress will once again face the difficult choice of either substantially decreasing the Pell Grant (by thousands of dollars) or finding billions more per year just to keep the maximum award constant. And, without FFEL around, lawmakers will no longer be able to rely on lender subsidy cuts to make up the difference.

In addition, the progress that Congress makes with this infusion will be fleeting if lawmakers do not make a commitment to increase the maximum grant every year. With college prices continuing to escalate, a couple years of flat funding could drive the program's purchasing power back down. The Obama administration recognized this danger. "It is not enough just to make Pell Grants more generous and to put on a short-term patch," administration officials wrote in February, explaining why the President felt it was necessary to make Pell Grants an entitlement program. "Fourteen times since 1973, the maximum Pell Grant has failed to increase even in nominal dollars." The President's proposal would guarantee yearly increases in the maximum grant that exceed the rate of inflation.

On balance, it probably makes sense to use a large share of the savings to boost spending on Pell Grants if Congress is unable or unwilling to stick to the President's proposal. But given the limitations of this approach, we think it's critical for Congress to take other steps to increase college access and completion for low-income students.

Expand the Government's Early Intervention Efforts

Inside Higher Ed recently ran a column by Arnold Mitchem, the president of the Council for Opportunity in Education, arguing that increasing spending on "the Pell Grant alone will not solve the problem of getting first-generation and low-income students through college." He called on the President and Congress to take "a more comprehensive approach" by making a substantial investment in the federal government's early intervention efforts such as the TRIO programs, for which his organization advocates. "What is desperately needed instead is a more comprehensive view of student aid that reflects the recognition that low-income and first-generation students face multiple barriers -- class, cultural, informational, academic, and social -- to postsecondary education, and not just a lack of funds."

We wholeheartedly agree, although we think that Congress should concentrate its efforts on significantly expanding the Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP), which research suggests offers the most promising model for preparing and motivating low-income students for college. Under GEAR UP, colleges partner with schools to provide counseling, mentoring, academic support, and college outreach services to entire grades of disadvantaged students. The partnerships serve these students for seven years, starting no later than seventh grade and continuing through at least high school graduation.

Funding for the GEAR UP, however, has been stagnant for much of the last decade, limiting the program's effectiveness. For example, many partnerships have been serving only one grade level in a school, rather than multiple cohorts, as the program's creators envisioned. The benefit of directing savings from ending FFEL to GEAR UP is that a relatively modest increase - doubling or tripling the program's budget, which is currently about $313 million - would go a long way to improving its performance and expanding its reach.

In exchange for the additional money, Congress should require the partnerships to serve multiple cohorts or even whole schools of low-income students, rather than just individual grade levels at the schools.

Reward Colleges for Serving Low-Income Students

Colleges currently have little incentive to enroll low-income students and their institutional aid policies increasingly reflect that fact. Under the sway of enrollment managers, many public and private colleges are using their limited institutional aid budgets to provide merit aid to the kind of high-achieving students that improve their rankings in U.S. News & World Report and other publications. Others use "merit" aid to attract high-income students who will otherwise be able to pay the full cost of attendance.

Congress could begin to reverse these trends by creating a new program that would reward colleges for enrolling and graduating low-income students. Under the program, colleges that admit a certain percentage of economically disadvantaged students would receive an institutional grant award from the government. Additional aid would be provided when these students graduate. Institutions would primarily use the money they receive for academic tutoring and student support services to help these students adjust to and succeed in college.

Variations on this proposal have been put forward by the leaders of the California State University system, the College Board's Rethinking Student Aid panel, and student aid expert Rupert Wilkinson in a guest post he wrote for Higher Ed Watch and his 2005 book Aiding Students, Buying Students: Financial Aid in America "Creating financial incentives for [higher education] institutions to remain committed or to recommit themselves to the public needs of society should be among the federal government's highest priorities," Charles Reed, the chancellor of the California State system and F. King Alexander, the president of Cal State-Fullerton, wrote in a column that ran in Inside Higher Ed in March. We couldn't agree more.

Those are our suggestions. But we'd love to hear what you think. Please write in with your recommendations.