This week, as expected, President Biden announced that his administration would cancel $10,000 in student debt for borrowers earning less than $125,000 a year. What may have surprised those waiting for this announcement was that the president also stipulated that students who received Pell Grants could receive an additional $10,000 in cancellation. That left many people asking: What is a Pell Grant?
Congress created the Basic Education Opportunity Grant Program in 1972 to expand access to higher education for low- and moderate-income students by subsidizing its cost through a federal grant. The program was later renamed the Pell Grant program, in honor of one of the program’s leading advocates, Senator Claiborne Pell (D-RI). Senator Pell was known for saying that “any student with the talent, desire, and drive should be able to pursue higher education,” regardless of their income.
While there was a push from the higher education community at the time to provide federal funding to institutions based on their enrollments, many lawmakers believed that giving aid directly to needy students was the most efficient and effective way to remove the financial barriers they faced. For that reason, individual students can use Pell Grants at the accredited college or university of their choice. Then, as now, Congress set a maximum amount for each award year, but the amount a student receives is determined on a sliding scale, based on a student’s expected family contribution (EFC), the cost of attendance of the chosen school, and the student’s enrollment status (part-time or full-time).
When Congress created the program in 1972, it authorized a maximum grant amount of $1,400, which was phased in over the next three academic years. More than 185,000 students received the grant in the first year of the program, with an average amount of $269. Today, more than 6 million students annually receive Pell Grants. That number reached nearly 9.5 million in the years following the Great Recession, because more families had financial need and more people enrolled in college, either due to poor job prospects or because they lost a job and were trying to re-skill. The maximum Pell Grant award this school year is $6,895, though the average award in recent years was approximately $4,200.
Pell Grant recipients overwhelmingly enroll at public colleges, with 30 percent attending community colleges and 40 percent attending public four-year colleges or universities. Meanwhile, just 15 percent of Pell students attend non-profit private colleges. Unfortunately, Pell students are also more likely to enroll in for-profit colleges, which often charge more in tuition and have worse student outcomes. While for-profits only enroll about 5 percent of all undergraduates, they account for 14 percent of all Pell students.
According to my analysis of the most recent data available from the Department of Education, which covers the 2015-16 academic year, 95 percent of Pell Grant recipients come from families earning $60,000 or less. But the vast majority come from families earning much less. In fact, 68 percent of Pell students have family incomes of $30,000 or less. Pell recipients are also more likely to be people of color. Approximately 32 percent of white students received a Pell Grant in the 2015-2016 academic year, compared to 58 percent of Black students and 47 percent of Hispanic and Latino students.
The Pell Grant program was designed to serve as the floor of federal student aid programs. Lawmakers believed that students shouldn’t have to make their postsecondary education choices on the basis of where financial aid was available. The grant, along with state subsidies to higher education, was intended to help low-income students pursue public postsecondary education without going into debt, or to reduce the debt they might have to take on to attend a private college or university.
But while the Pell Grant program has helped soften the cost to attend higher education for millions of low-income students, it’s not certain that it has fully lived up to the promise of making higher education more affordable for those students. The grant’s buying power has diminished over the last several decades, which can be partially attributed to state cuts in public higher education funding, but is also a product of federal lawmakers not ensuring that funding levels are sufficient to increase the grant in line with rising inflation.
In the 1975-1976 academic year, a student receiving the maximum Pell Grant could pay for 79 percent of the total average cost of attendance—including tuition, fees, room, and board—at a public four-year university with their grant. Gradually, the Pell’s buying power has fallen, with the maximum grant hitting 54 percent of the total average cost of attendance in the mid-1980s, 35 percent in the mid-1990s, and 28 percent in the 2019-2020 year. And that’s just for the students receiving the maximum award. The average award amount in the 2019-2020 year was enough to cover only 19 percent of the cost of attendance at a public four-year university.
The grant’s weakened value has left low-income students and their families forced to take on more debt or forego school altogether. Pell students are more likely to borrow to pay for college than their peers who don’t receive this need-based aid, and they borrow more compared to those who don’t get a Pell, but do borrow.
According to data I analyzed from the Department, of the graduating seniors who got a Pell Grant in the 2015-2016 year—when the maximum grant covered just 30 percent of the cost of attendance—84 percent used student loans to finance the rest of their education. Those student borrowers left college with a median cumulative debt of $29,000. Meanwhile, of the graduating seniors who didn’t receive a Pell Grant to help reduce their costs, 61 percent of them borrowed, and those students had a median debt of $26,400. Black Pell graduates left with even more debt, with the median Black Pell graduate holding nearly $33,000.
Worse, many of these students’ families also take on debt to help them attend college, even though their lack of wealth is what qualifies their children for the Pell Grant in the first place. Approximately half of families who took out Parent PLUS loans to attend public and non-profit colleges also received Pell Grants. At for-profit colleges and historically Black colleges and universities (HBCUs), that rate climbs to 71 and 80 percent, respectively.
That brings us to today. President Biden’s announcement is a good step toward providing relief to many of the Pell students who weren’t able to benefit from the original promise of the Pell program. Of course, this relief doesn’t solve the problem going forward. President Biden has called for the doubling of the Pell Grant and making public colleges tuition-free, but those efforts are currently stalled in Congress.
