Pell Grants Are Less Progressive Than You Think

Recent proposals from relatively moderate Democrats like Pete Buttigieg or the think tank Third Way would go even further by providing Pell Grants to many families earning $100,000 or more. But these candidates and advocates are not upfront about this fact. Instead they simply call for doubling or tripling the maximum Pell Grant, an agenda that most people believe—mistakenly—helps only the low-income students who already qualify for the program.
 
The Pell Grant’s quiet middle-class transformation is the result of an arcane eligibility formula. Rather than an income cutoff, eligibility is primarily determined by the size of the maximum grant (currently $6,095) that Congress and the president set in law each year. If that amount increases faster than inflation, then the effective income limit for the grant rises. Lawmakers tend to increase the maximum grant faster than inflation in response to rising college prices, causing the program’s eligibility to expand to higher earning families. So long as college prices rise faster than inflation, and lawmakers respond with commensurate Pell Grant increases, the program is fated to provide aid to families with ever higher incomes.
 
The Pell Grant crossed over into middle-class territory in the late-1990s, but it was a gradual change. Then the trend really took off when President Obama enacted historic increases in the maximum grant. We document this shift in a new report that uses Department of Education financial aid worksheets to compare Pell Grant eligibility for hypothetical families earning $50,000 to $80,000 (in today’s dollars) between 1995 and 2018.
 
We show that in 1995, a student from a three-person family earning today’s equivalent of $60,000 would not have been eligible for a Pell Grant. But if that same student were to apply today, she would receive a $1,000 grant. This effect is even more pronounced for families with multiple children in college. Consider a four-person family earning $80,000 with two children in college. Such a family can hardly be considered poor, and in the 1990s they would not have qualified for a Pell Grant. Today, however, those students would eachreceive over $1,100 through the program.
 
While these are hypothetical examples (although they reflect actual eligibility rules), the trends they illustrate are also borne out in data. In the 1990s, less than 5% of all Pell recipients came from families earning more than $50,000. By 2015, that share had more than doubled. And the bulk of the newly eligible recipients came from families earning between $50,000 and $60,000. In 1995, only a quarter of students from that income group who applied for financial aid received a Pell Grant. By 2015, nearly 60% of these students received one.
 
Bear in mind that the policy driving this change is not part of an explicit agenda to expand eligibility to middle-income families. It is the knock-on effect of a maximum Pell Grant that, after adjusting for inflation, is now $2,646 larger than it was in 1995. And the increases during the past two decades are actually quite modest compared with what Democrats are proposing today. The plans from Buttigieg (who would double the grant to roughly $12,000) and Third Way (which wants to triple the grant to more than $18,000) would easily allow many families in the top income quartile to qualify for the program.
 
None of the proposals to increase Pell Grants mention any provision to mitigate these effects. That means proponents are either unaware of them, or their aim is to keep this issue under wraps. (Some organizations, like the Institute for College Access and Success explicitly oppose any income cap on Pell Grants). Now that presidential candidates and advocacy groups are calling for ever-larger increases in the program, policymakers need to have an open debate about whether high-income families should qualify.
 
At a minimum, that would make the debate more honest. It might also make it easier to increase grants for students from the lowest-income families. Doubling the maximum Pell Grant would cost billions of dollars less if the program was limited to students from families earning less than $30,000 or $40,000 a year. Even the current level of support, if restricted to those families, would free up enough savings to boost students’ grants by hundreds of dollars without requiring any new money from taxpayers.
 
For too long policymakers have ignored the Pell Grant’s slow transformation into a middle-class program. If proposals to double or triple the grant gain traction, that issue needs to be at the center of the debate—because the only thing worse than a government grant program for high-income households is a government grant program for high-income households enacted while no one was looking.