Tag: pell grants

Yet More Empirical Evidence That Yes, Federal Student Aid Fuels College Price Inflation

For a few years, I have been posting an evolving list of empirical studies that have found that federal student aid programs help fuel rampant college price inflation. Why? Because I continually encounter people, often who work for or in higher education, who insist that there is no meaningful empirical evidence of big subsidies enabling big price increases, even if the possibility makes mammoth intuitive and theoretical sense.

A few days ago a new entry arrived for the list, a paper from the Federal Reserve Bank of New York. It finds that student loans have big inflationary effects, especially at four-year private schools not focused on top academic performers, and that Pell Grants have smaller direct effects, but also likely lead to reductions in aid funded by institutions. It is yet one more study that shows that, contrary to the hopes of the American Council on Education–the premiere higher ed advocacy group–the inflationary effect of student aid is absolutely a subject that should “play a major role” in discussions about college affordability.

And now, the updated list:

David O. Lucca, Taylor Nadauld, and Karne Shen, “Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs,” Staff Report No. 733, July 2015.

Dennis Epple, Richard Romano, Sinan Sarpça, and Holger Stieg, “The U.S. Market for Higher Education: A General Equilibrium Analysis of State and Private Colleges and Public Funding Policies,” NBER Working Paper No. 19298, August 2013.

Lesley J. Turner, “The Incidence of Student Financial Aid: Evidence from the Pell Grant Program,” Columbia University, April 2012.

Stephanie Riegg Cellini and Claudia Goldin, “Does Federal Student Aid Raise Tuition? New Evidence on For-Profit Colleges,” NBER Working Paper No. 17827, February 2012.

Nicholas Turner, “Who Benefits from Student Aid? The Economic Incidence of Tax-Based Federal Student Aid,Economics of Education Review 31, no. 4 (2012): 463-81.

Bradley A. Curs and Luciana Dar, “Do Institutions Respond Asymmetrically to Changes in State Need- and Merit-Based Aid? ” Working Paper, November 1, 2010.

John D. Singell, Jr., and Joe A. Stone, “For Whom the Pell Tolls: The Response of University Tuition to Federal Grants-in-Aid,” Economics of Education Review 26, no. 3 (2006): 285-95.

Michael Rizzo and Ronald G. Ehrenberg, “Resident and Nonresident Tuition and Enrollment at Flagship State Universities,” in College Choices: The Economics of Where to Go, When to Go, and How to Pay for It, edited by Caroline M. Hoxby, (Chicago, IL: University of Chicago Press, 2004).

Bridget Terry Long, “How Do Financial Aid Policies Affect Colleges? The Institutional Impact of Georgia Hope Scholarships,” Journal of Human Resources 30, no. 4 (2004): 1045-66.

Rebecca J. Acosta, “How Do Colleges Respond to Changes in Federal Student Aid,” Working Paper, October 2001.

Bad Stuff in Obama Ed Budget

Details are still emerging about the Obama Administration’s 2014 education budget proposal, but from the overview there seems to be a lot of bad stuff. Here are the hi – or low – lights, and links to some important context:

  • Increase Department of Education spending to $71.2 billion, up 4.6 percent from 2012 enacted level: This is neither constitutional nor effective.
  • “Invests” in preschool: Head Start, Early Head Start, and state programs either are shown to fail, or have little to no good evidence supporting them.
  • $12.5 billion in mandatory funds to “prevent additional teacher layoffs and hire teachers”: We’ve been getting fat on staff – including teachers – for decades, and it hasn’t helped.
  • $1.3 billion for 21st Century Community Learning Centers: Federal studies have found these have negative effects.
  • Race to the Top for higher education: So far, RTTT has been big on promises, small on outcomes, and huge on coercion to adopt national curriculum standards.
  • $260 million to scale up higher education innovation: MOOCS and other innovations have been developing pretty well without federal “help.”
  • Maintain “strong” Pell Grant program: Pell is part of the tuition hyperinflation problem, not the solution.

There will no doubt be more-detailed analyses of specific education proposals to come. Stay tuned!

New America’s New Entitlement

The Bill and Melinda Gates Foundation has delivered a lot of money for ideas to make higher education more affordable. One of the many papers it funded came out of the New America Foundation last week, and the report contains lots of proposals for Gates to work with. Unfortunately, its backbone – making the Pell Grant an entitlement program – is a complete nonstarter. Not only does Washington need a new entitlement like the Super Bowl needed a sudden spike in hair dryer use, the Pell Grant is utterly unjust, taking from Peter and giving to Paul so that Paul can make a million extra bucks.

The first point should be self-evident. Entitlements such as Medicare and Social Security are already gigantic fiscal asteroids hurtling directly at us. Indeed, at their present rate of growth, by 2050 entitlements will likely eat up every single cent the federal government brings in, leaving not a dime for defense and other discretionary spending.

A Pell entitlement would certainly be small compared to, say, Medicare. If I’m reading NAF’s report right, the total Pell cost in 2022, after all their recommended reforms, would be about $53.3 billion. (NAF says its plan would cost $94.4 billion over the next ten years “compared to current policy.” For simplicity, dividing $94.4 by ten and adding the resulting $9.4 billion to the CBO-projected 2022 Pell cost of $43.9 billion yields $53.3 billion.) In contrast to that $53.3 billion, Medicare is expected to cost about $1 trillion in 2022. But while the cost would be relatively tiny, the root pathology would be the same: a program with funding put on autopilot.

And don’t think Pell won’t sneak up to include increasingly higher-income people. No one likes seeing others get free taxpayer money, and no politician will let the “middle-class” – whoever that is – get “squeezed.” Indeed, NAF tries to soften the blow for those who would lose tax deductions and credits under their plan (very good proposals, by the way) by noting that “some of the aid that these benefits provide to families with middle incomes will be replaced with the significant increases to the maximum Pell Grant that are proposed in this paper.”

All that said, the root objection to Pell applies, whether it is an entitlement or not: There is no just reason for taking money from Paul and giving it to Peter so that Peter can get much wealthier. But that is precisely what Pell is intended to do: Take money from taxpayers and give it to other people so that they can get degrees and earn “$1 million more over their lifetimes.” If any entity other than government were to do that, we’d call it “stealing.”

The Pell Grant program absolutely should not be an entitlement – we have way too many of those as it is. Even more important, though, Pell shouldn’t exist at all. It is, essentially, legalized theft.

Cross-posted at seethruedu.com

Care about the Poor? Consider Consequences

On the day of the second presidential debate, I had the pleasure of participating in a panel discussion at debate-host Hofstra University. The topic was “defusing the student loan debt bomb,” and I was the lone voice calling for an end to inflation-fueling federal student aid. My co-panelists were Tamara Draut of the think tank Demos, Above the Law blog co-editor Elie Mystal, and U.S. PIRG’s Ed Mierzwinski.

I had perhaps the best interaction with Mystal, with whom I had interesting chats throughout the day. Mystal’s response to my proposal was basically that poor and minority students need help, and phasing out federal aid would disproportionately hurt them. It was an argument with which I could sympathize, and it made more sense than just proclaiming “college education is a public good and should basically be free.” Unfortunately, writing on his blog post-debate, Mystal said that my “view makes a certain kind of sense” but nonetheless smacks of “the classic, Republican ‘f**k ‘em’ approach that disproportionately screws the poor and minorities.”

Um, ouch. Ascribing callousness or cruelty to either me or Republicans because we don’t like the negative effects of aid is, frankly, precisely why we can’t have a reasoned debate about these things. Maybe I’m an exceptionally gifted multi-tasker, or maybe I’ve just contemplated some important logic and facts, but I can be against mega-inflation without being indifferent to the poor. Indeed, quite the opposite.

First, much aid goes to people with little regard to their income. Pell Grants might be pretty well targeted – though they’re getting less so by the minute – but “unsubsidized” federal loans, which are backed by taxpayers, are available irrespective of need. Tax-based aid also skews high-income. The American Opportunity Tax Credit, for instance, can be claimed by joint filers making up to $180,000. And the well-to-do are best positioned to maximize their aid because they can afford financial planners to tell them how to hide wealth, or temporarily reduce income to optimize their eligibility. The cumulative effect of all this is to push up college prices.

Then there’s the psychological effect of hugely inflated sticker prices. If the message “college is astonishingly expensive” is repeated often enough, who do you think will more often be deterred from attending college, the rich or the poor? Probably the latter.

Next, the poor and minorities are no doubt disproportionately burdened by debt. Data indicate that’s definitely the case for African-Americans, and is likely the case for the poor considering that even debt loads that are small compared to some totals might be huge relative to a poor student’s wealth.

Finally, while people of all income levels and races spend too much time and treasure on higher education, the poor and minorities are probably the most snookered by “college for all.” The unfortunate reality is that those groups tend to be the least prepared to do college-level work or pay mammoth, inflated bills, and as a result tend to most readily pursue degrees without completing them. Among first-time, full-time students entering college in 2004, a weak 58.3 percent that didn’t transfer schools completed a four-year program within six years. Much worse, only 39.5 percent of African-Americans completed their degrees, and 50.1 percent of Hispanics. In large part this is the fault of factors preceding higher education – including our moribund K-12 system – but the dismal college completion reality remains.

In light of all this, is it really fair to proclaim that those who want to phase out inflationary, consumption-driving aid don’t care about the poor and minorities? Or is it long past time to give them a full and fair hearing?

Cross-posted from SeeThruEdu.com

Pell Grants Best for Buying Votes

Quite simply, Pell Grants are not supposed to be for the middle class. As the U.S. Department of Education’s website makes clear, Pell is supposed to be for “low-income undergraduate and certain postbaccalaureate students.”

So why characterize Pell as a benefit for the middle class? Because lots of people consider themselves to be in that group — which federal politicians rarely define — and policymakers want their votes.

Unfortunately, as Rep. George Miller (D-CA) recently demonstrated, saying Pell is intended for the middle class also makes it a valuable weapon in waging class warfare.

“Pell is the reason they are able to go to college and get ahead,” Miller said in response to congressional Republicans purportedly looking to trim the program as part of debt reduction. “It’s a shameful excuse and an attack on middle class families.”

Other than their usefulness in browbeating those who’d dare propose education cuts, Pell Grants are, at best, of limited value. Yes, they are needed by some people to go to college, but that’s because they are largely built into college prices. Basically, give me a dollar more to pay for school and my college will charge me another buck.

Of course it’s not just Pell that influences prices — there are lots of other sources of aid, and colleges confront numerous variables that affect their costs — but subsidize something and prices will go up. And boy, do they go up in higher education!

One last consideration is crucial but rarely mentioned. One of the great political benefits of Pell is that to recipients it’s free dough — no need to pay it back. That lets politicians play Santa Claus, not the mean banker who sinisterly comes after you to return student-loan money, plus interest. But keep in mind what, in most cases, college is ultimately for: to enable attendees to greatly increase their earnings. In light of that, how can politicians justify simply giving away money from taxpayers? Quick answer: They can’t.

Were you or I to do that it would be called “stealing.” When government does it, apparently, it’s called “helping the middle-class.”

C/P from the National Journal’sEducation Experts” blog.

In Class War, It’s the “Middle” Ground that’s Key

Want to know a major reason Washington won’t make the cuts we need? Because winning elections is largely about getting “middle-class” votes, and just about any program can be spun as a savior for that big – but rarely defined by politicians – chunk of Americans.

Case in point, an animosity-stoking assertion uttered last week by House education committee Ranking Member George Miller.  As reported by CNN, the subject was the possibility of a cut being made to the federal Pell Grant program:

Rep. George Miller, a California Democrat, defended Pell Grant funding on Friday, calling it the “great equalizer” for millions of students.

“Pell is the reason they are able to go to college and get ahead,” Miller said. “It’s a shameful excuse and an attack on middle class families.”  

Now, what’s wrong with this assertion (other than its obnoxiousness and assumption that Pell doesn’t mainly enable colleges to raise their prices)? According to the U.S. Department of Education’s  description of Pell – and the long understood intent of the program – it isn’t for the middle class. It is for “low-income” Americans:

The Federal Pell Grant Program provides need-based grants to low-income undergraduate and certain postbaccalaureate students to promote access to postsecondary education.

So much for Pell-trimming proposals assaulting the middle class. Buy maybe Rep. Miller was doing more than just inaccurate, uncivil political posturing with his comments. Maybe he was revealing a dirty little secret: While Pell is better focused on low-income students than many federal aid programs, over time politicians increasingly aim all education efforts at the big mass called the middle class. Maybe Miller was accidentally acknowledging that aid for the poor morphs into aid for the not-poor because, well, that’s where the votes are.

Look at Pell, which, again, is relatively well targeted. In the 1975-76 school year, 1.2 million students received grants (table 1). By 2009-10, 8.1 million did – almost seven times more! Meanwhile, overall enrollment in degree-granting institutions grew from about 11.2 million in 1975 to 20.4 million in 2009, less than doubling.  Almost certainly, there has been less precise targeting to truly low-income students. Indeed, about 6 percent of Pell recipients (table 3-A) in 2009-10 came from families making at least $50,000 a year, or about the median household income in 2009.

Such expansion has been seen in K-12 education, too, though one wonders if Pell is singled out for big bucks in the debt-ceiling deal because people get Pell personally, unlike elemetary and secondary aid which goes to states and districts. Regardless, federal K-12 funding has spread farther and wider over the decades as politicians have sought to keep money coming even as their districts have lost people, and as allocations have become less and less focused on individual students. 

When waging class war, a powerful weapon is to portray your political enemy as intentionally hurting the most vulnerable people: the poor, children, etc. But the winning strategy? Sending money to the middle class, and capturing their precious votes.

Republicans Employ Education Weapons, Too

A couple of days ago I blasted President Obama for, in repugnant tradition, using “education” as a political weapon, invoking it to scare Americans into demanding increased taxes for “the rich.” House Speaker John Boehner, thankfully, did not abuse education similarly in his rebuttal. But his proposal for raising the debt ceiling illustrates just how weak the GOP’s commitment is to returning the federal government to its constitutional – and affordable – size. And I say this not because of the relative puniness of his proposed cuts, but what the proposal would do in education, the only area it specifically targets: increase funding for Pell Grants.

Now, I know what many people will say to this: Pell is a de facto entitlement; it has a big shortfall; and Boehner’s bill would offset the Pell increase by eliminating federal student loan repayment incentives and grad student interest subsidies. And do you just hate education, McCluskey, or poor people?

On the first points, yes to all of those, and the CBO even projects that over ten years Boehner’s bill would achieve some savings from his student-aid moves. But ten years is a long time, during which a lot of things – especially spending increases – could happen. And the seemingly forgotten fact of the matter is that we have a $14.3 trillion debt and are sooner or later going to need big, tough cuts. And though Pell Grants sound so nice – they give poor kids money to go to college! – they should be eliminated for several reasons well beyond  frightening fiscal reality:

  1. They are unconstitutional: None of the Federal government’s enumerated – and only – powers say anything about paying for college.
  2. They are inflationary: Maybe Pell Grants, because they target low-income students better than federal loans and tax-based aid, aren’t the biggest drivers of tuition inflation, but research suggests they are a driver, especially at private institutions. There is also good reason to believe that schools target their own aid dollars to other, better-off students when they can use taxpayer dough for low-income ones.
  3. They take money from real human beings – taxpayers – to make others rich: Okay, maybe not rich, but as higher ed advocates will quickly tell you, on average a person with a college degree will make roughly $1 million more over her lifetime than someone without one. There’s a lot of play in that number, but the point is generally correct: A degree helps to significantly increase earnings. How, then – even absent a mind-blowingly colossal debt – can we justify taking money from taxpayers, many of whom did not go to college, and just giving it away to others so that they can get a lot wealthier? At the very least Pell should be made into a federally backed loan program – recipients should at least have to return taxpayers’ “investment” – which Boehner could have put into his bill.

Republicans might not be as quick as Democrats to rattle education-tipped missiles, but they’re fully committed to keeping them in their arsenal.