Restrict Pell Grants to the Neediest Students

The Pell Grant program is the single largest source of federal grant aid to low-income students for postsecondary undergraduate education. For the 2010-2011 academic year, the program is estimated to provide almost $37 billion in aid to about 8.9 million students. A student's Pell Grant eligibility is chiefly determined on the basis of Expected Family Contribution (EFC), a federal calculation of his or her family's ability to pay for postsecondary education. The EFC is based on factors such as the student's income and assets and, for dependent students (in general, unmarried undergraduate students under the age of 24), the parents' income and assets, as well as the number of other dependent children in the family attending postsecondary schools. Generally, families with high EFCs have less financial need than those with low EFCs and are able to contribute more to their child's education.

Since 2008, funding for the Pell Grant program has had both a discretionary and a mandatory component. Mandatory funding supports automatic increases to the maximum award set in each fiscal year's appropriation act. The automatic increase for the 2010-2011 award year is $690, which, when added to the maximum award of $4,860 set in the appropriation act, results in a total maximum award of $5,550.

Under current law, students with an EFC exceeding 95 percent of the total maximum Pell grant award ($5,273 for academic year 2010-2011) are ineligible for a grant. This option would make students with an EFC exceeding $2,500 ineligible for a Pell grant. Assuming that, under current law, the maximum discretionary award level specified in appropriation acts would remain at $4,860 in future years, the Congressional Budget Office estimates that this option would yield discretionary savings of $2 billion through 2016 and $7 billion through 2021, along with accompanying mandatory savings of about $1 billion through 2016 and $5 billion through 2021.

A rationale in favor of this option is that it would focus federal aid on those students with the greatest need. Furthermore, students who lose eligibility under the option would probably still be able to afford a public two-year college according to federal needs analysis. Tuition and fees at public two-year colleges for the 2008-2009 academic year averaged about $2,140, which is still below the EFC of students who would lose eligibility under this option. Those students may also be eligible for $3,500 or more in federal student loans that are interest-free while students are enrolled.

An argument against the option is that among Pell grant recipients with an EFC above $2,500, significant educational expenses are not covered by their EFC or by federal, state, institutional, or other aid. For example, 70 percent of those students had expenses that were not covered by those sources. Denying Pell grants to those students would further increase the financial burden of obtaining an undergraduate education and might cause some to choose less postsecondary education or to forgo it altogether. The amount of postsecondary education received is an important determinant of future wages. In 2009, for example, the median wage for men ages 16 to 64 with bachelor's degrees was 72 percent more than the median wage for men with only high school diplomas or GEDs.