Student Subsidies and the Federal Government

I’ve written before about the failure of subsidies, their feel-good and superficial benefits notwithstanding.  The student subsidy that is a Pell Grant is a case in point.

Jenna Robinson and Duke Cheston, of the Pope Center for Higher Education, reported a bit ago on the growing excesses of the Pell Grant program (the full report can be read here or here).  The program consumed some $36 billion in the 2009-2010 academic year, half the Department of Education’s budget.  This also is—surprise—the Federal government’s largest education expenseinvestment.

Here’s what’s been done over the last several years, of which those $36 billion are only the latest, with/to a program that began life 30 years ago as a well-intensioned program to help the poor go to college.

  • In the 2009-2010 academic year, 60% of all college students received a grant—9.6 million students.  Between 2008 and 2010, the number of Pell recipients increased by almost 50%, roughly doubling taxpayer cost (this is a government charity, not a private one).
  • The maximum grant was raised to $5,550 beginning 2011 from 2008’s $4,731 per year.  This further encourages creative accounting: a 2009 study by Christina Chang Wei and Laura Horn (“A Profile of Successful Pell Grant Recipients: Time to Bachelor’s Degree and Early Graduate School Enrollment”) found that 60% of Pell Grant recipients were “financially independent” of their parents, compared with 34% of non-recipients.  Being “financially independent” means the parents’ finances have no bearing on student need or eligibility.
  • Better-off students often take their large Pell Grants and go to more expensive schools.  In that 2009-2010 academic year, 20% of Pell grantees from families making over $60,000 (so much for “financially independent”) went to schools that cost $30,000 or more per year with the aid of those Pell Grants.  Students from lower income families, without that wealthier base underlying their own grants, attended those higher-cost schools at a significantly lower rate—13%.  (By itself, this should be no big deal; people should go where they can afford to go with their money.  But this isn’t their money, it’s our taxpayer money—and our charity should help folks get by, and get a leg up, not help them live large.)

What did we gain from this…government largesse?  The usual subsidy distortions, but no improvement in academic performance or ultimate success.

  • An apparent increase in college enrollment by poor students—from 46% in 1970 to 59% in 2009, but
  • Poor actual performance, at least comparatively: graduation rates were lower for students who received Pell Grants than for those who didn’t.

And, as the WSJ points out, in the manner of all subsidies

  • Pell Grants contribute to the ever-rising tuition spiral: colleges and universities learned long ago how to capture that extra cash, and they adjust their price schedules accordingly.


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