4 ways the 2021 Congress should improve college grant program for low-income students

Last week, President-Elect Joe Biden reaffirmed his support for erasing some student debt and emphasized that his administration would dedicate more federal aid to lower the cost of college, including doubling funding for Pell Grants. Calls to increase funding for Pell are not new, but less talked about is the notion of reforming the Pell system itself.

First conceived as part of President Lyndon B. Johnson’s War on Poverty, Pell aimed “not only to relieve the symptoms of poverty, but to cure it and, above all, to prevent it.” The federal government today spends about $30 billion a year (100 times what it spent in 1973) on the program. But while the funding has grown, Pell is still falling short of its economic mobility aspirations.

According to the nonprofit Third Way, less than half (49 percent) of Pell Grant recipients ever graduate (18 points lower than non-recipients). Not only will these students fail to realize the return on their educational investments, they may even be worse off, if they have accumulated student loan debt.

But while multiplicity of well-documented factors contribute to troubling completion rates for low-income students, a major contributor may be the business model of Pell itself.

In any company or organization, the business model drives organizational behavior. And when there is tension between the social-impact aspirations of an organization and the business model, the business model most often wins.

Pell’s business model is rooted in an equity paradigm focused on, above all, ensuring broad access to higher education through individual subsidies. By having money follow students, Pell Grants were designed to avoid rationing of higher education.

Despite the best intentions of Pell’s creators, having the money follow the student creates a business model with some perverse incentives. Today, rather than Pell helping students access higher education, it has helped institutions of higher education better access students.

Consider the fact that Pell Grants give institutions guaranteed federal funding for up to 12 semesters per student. That means that colleges have incentives to enroll students and get them to stay until those funds are depleted. Ideally, in that time, the student would complete their course of study. But we know this is all too often not the case.

Reorienting the business model of Pell around student success, rather than just enrollment, would improve the social return on investment.

Doing this would require that policymakers consider not just whether students graduate from college, but also whether they see the economic reward of their education (as evidenced by stable jobs and economic mobility). But it would also require that students actually had access to the data that they need to make good decisions, the support to make it to and through college, and the connections and resources to succeed in the workforce.

Obviously the government can’t do all of this on its own. But by rethinking the business model of Pell, they could create incentives for the sort of collaboration required to make good on the promise of Pell. Here are some ideas to restructure this massive taxpayer investment around the outcomes that matter most and ensure that students are best positioned to succeed:

Ensure students have information about in-demand fields and the education and training programs that will help them get there. Better data on labor market demands, as well as the programs of study that will allow students to develop those skills, should be a priority. In recent years, the digitization of job postings and hiring has given rise to an explosion of far more timely, actionable labor market data which can be cut by region and industry. But those data aren’t readily available to students. Colleges have the responsibility to ensure students have access to this data and consider the market for skills as they choose their course of study.

Already, a growing number of colleges are requiring students to take courses or programs on career exploration and post-college planning. Research has shown that students who start career advising early on in their college experience graduate on time and gain confidence about their prospects in the job market after graduating.

The federal government could stimulate a more data driven approach to college and career planning by determining Pell Grant eligibility at the programmatic rather than institutional level to ensure that students are using Pell dollars for programs that are likely to pay off. The government could also consider broadening the types of programs that qualify for Pell to better serve the needs of its recipients. After all, the program is already serving a different population of students than it did at its inception. Today, over 50 percent of grants go to non-traditional students, compared to only 13 percent in 1973-74. These students are often balancing family and work in ways not envisioned by the original drafters of the Pell program.

Expand eligibility to include non-traditional programs. Pell Grants are currently limited to students attending colleges or universities, but a degree (either associates or bachelors) is no longer the only postsecondary credential that carries weight with employers.

Today’s students can choose from a wide range training programs, apprenticeships and bootcamps that are both popular and viable in today’s economy: more than one-quarter of Americans have a non-degree credential, have higher full-time employment rates than their peers with no credential, and are typically happy with their credential. These may provide a more direct path to jobs in a student’s field of study. At a time of significant dynamism in the economy and the jobs available to individuals, new forms of funding may be a powerful tool to rebuild the American economy.

Ensure that programs that enroll Pell students are preparing them to succeed. Institutions should monitor metrics beyond graduation rates, such as job placement and economic mobility, and be rewarded for positive outcomes for Pell students. This would incentivize institutions to support Pell students with coaching or other resources to help them unlock the value of their education and training in the labor market. Institutions can partner with programs like InsideTrack, which offers personalized coaching for college completion, that have been shown to increase the likelihood of college persistence and graduation.

But it’s not just institutions that could modify their work to better support Pell students. The federal government provides $1.09 billion for student support services to low-income and first-generation college students through the historic TRIO program. As data show, recipients of TRIO-supported services persist and complete college at higher rates than students who do not receive these support services. Over 800,000 low-income, first-generation, and disabled students benefit from these services yearly, which include academic tutoring, career advising, personal counseling, mentoring, and financial guidance, among others. Given the impact of TRIO, the federal government should align the Pell Grant and TRIO programs, ensuring that every Pell Grant recipient receives the benefits of the federal TRIO program services.

Streamline the application process for financial aid. To enable Pell’s ultimate goal of expanding access, we need to make this frustrating and complex process easier to navigate, particularly for first-generation or low-income students. Many people across the political spectrum have called on policymakers to simplify the Free Application for Federal Student Aid, popularly known as the FAFSA, by reducing the number of questions, securely saving students’ information to avoid duplicative work, and making it easier for funds to travel with students throughout their education journey. Limiting the number of times low-income individuals have to prove that they are low-income is one way to improve on the current process.

Connecting individuals to economic opportunity, as Pell was intended to do, no longer means following a one-size-fits-all path through higher education. Pell Grants are an important tool in ensuring access to higher education, but access is only one part of the equation. As this investment continues to grow, it’s worth stepping back and looking at our investment more critically, to ask whether expanding the program with additional resources will provide significant improvements to student outcomes.

The student-driven paradigm that has always informed Pell has profound merit, but making good on its promise requires a concomitant investment in empowering students to be good consumers of education and make the decisions that are right for them. Reorienting the business model of Pell such that outcomes, as much as access, is the goal is crucial to delivering on the promise of long-term economic success and mobility.

Jeffery Keith leads an impact investment firm, Avathon Capital, and is an expert on higher education finance issues.