SOURCE: NextStudent

May 08, 2008 13:16 ET

Federal Pell Grant System Failing to Aid 5.2 Million Low-Income College Students, Study Shows

PHOENIX, AZ--(Marketwire - May 8, 2008) - Some 5.2 million of the nation's most "financially needy" undergraduates are unable to pay for school even after receiving federal Pell Grants and maxing out supplemental financial aid like scholarships and student loans, according to a recent study by the Institute for Higher Education Policy.

The federal Pell Grant system is specifically targeted at helping low-income students afford a college education. But while Pell Grants provide some of the most fundamental financial aid for these students, the program's awards have failed to keep up with rising tuition costs, researchers write in the IHEP report, "Window of Opportunity: Targeting Federal Grant Aid to Students With the Lowest Incomes."

Over the past 10 years, tuition and fees at public four-year colleges and universities have increased 4.4 percent a year, after adjusting for inflation, according to the College Board.

As college costs have spiraled upward, the purchasing power of Pell Grants has diminished. Currently, the largest Pell award only covers about 32 percent of the full cost of attendance at the average four-year public institution. Twenty years ago, the maximum Pell award would have covered 52 percent of these costs.

Congress has moved to increase the maximum Pell Grant award amount to $5,400 by 2012-13, up from $4,310 in 2007-08. However, for over half of the 5.2 million Pell Grant recipients last year, the average cost of attendance was more than $15,000, leaving these students with over $10,000 in college costs to cover with student loans, work-study income, or other financing.

The majority of Pell Grant recipients in 2005-06 had family incomes of $40,000 a year or less, and more than 40 percent of financially dependent students had annual incomes of $20,000 or less. In 2005, even with their Pell Grant award, those students in the lowest income quintile still had a college payment requirement of 73 percent of the family's total income, according to the National Center for Public Policy and Higher Education.

Although low-income students can qualify for free aid like Pell Grants to help pay for their college expenses, when those costs exceed their grant aid, these students are often forced to turn to either federal student loans, credit-based private student loans, or both.

Inside Higher Ed reporter Scott Jaschik writes that while college loans may be another option for students who need to supplement their Pell Grant aid, "the student population being served is so poor that loans may not be seen as an option by some."

In an attempt to help the government improve the Pell Grant system's effectiveness, the authors of the IHEP report propose three possible policy changes:

The first is to raise the maximum Pell Grant award amount. This option would increase award amounts for eligible students across the board, expand the pool of applicants, and allow for more students at higher-income levels to receive awards.

Another proposal, in addition to raising the maximum Pell Grant award amount, would increase the minimum need threshold to qualify for a Pell Grant award from $200 to $1,000. While this policy change would cut those students out of the program whose financial need is calculated as falling between $200 and $999, it would specifically target more aid to those with more financial need.

A third option proposes a rule change that would allow families to report a negative expected family contribution, or EFC, up to $750. Under the current system, families can list a financial contribution to their child's college expenses that is less than zero, but the Pell calculation will automatically convert that EFC back to zero. While these families with the most limited financial resources are currently eligible to receive the maximum Pell award, the new proposal would allow them to receive even larger Pell awards, up to an additional $750, after reporting an estimated negative EFC up to the same amount.

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