October 1, 2012

Three Pell Grant Scams

By Richard Vedder

Many politicians, including senators such as Tom Harkin and Dick Durbin, have grown indignant over the allegedly vast amounts of higher education money captured by for-profit institutions via the Pell Grant program. In fact, they consider this something of a scam. The truth, of course, is that throughout its history, including now, the vast majority of Pell Grant funds—at least 75 percent-- have gone to students attending not-for-profit colleges.

The implication of the criticism, of course, is that for-profit institutions (or at least many of them) are diploma mills, whereas the educational experience offered by institutions untainted by the corruptive influence of profits is of high quality, and provided by selfless individuals working for the public good. I think that is hogwash, but that is a subject for another day. Suffice it to say that there are documented instances where for-profit institutions pressured relatively unqualified students to enroll using Pell Grants, but there are numerous examples of not-for-profit schools doing similar things. The scam here is much broader than the good senatorial critics claim.

Most Pell Recipients Don’t Graduate

Then there is the second Pell Grant scam, or at least monumental misuse of resources: the probable fact that most Pell Grant recipients do not graduate from college in any reasonable time frame. It is a “probable” fact because the U. S. Department of Education does not routinely publish data on graduation rates of Pell Grant recipients. It is true that researchers have used Pell Grant data to do some evaluation of the program, but it is also true that Department of Education makes it hard to learn the truth, which, I think, is roughly, that most Pell Grant recipients never graduate. This is arguably a scandal, certainly an inefficient use of public money, and whether it is scam-ful depends on your definition of that term.

Arguably the biggest scam, however, is that the Pell Grant program has been hijacked from its original purpose –helping poor people get degrees. As Tom Mortensen of Post Secondary Educational Opportunity has made clear on numerous occasions, the percentage of recent college graduates coming from the bottom quartile of the income distribution (a pretty good, if moderately expansive, definition of “the poor”) is lower today than in 1970, right before the Pell Grant program began. At the very minimum, the Pell Grant program has failed, rather miserably in my judgment, in achieving its ostensible original purpose.

But it is worse than that. Politicians are misleading when they argue we must expand the Pell Grant program for the purpose of aiding the poor, since a goodly proportion of Pell Grant recipients are not “poor” by any conventional use of that term. I took statistics on full-time college enrollments (partially estimated for the 2011-12 year) and on the number of Pell Grant recipients, calculating the ratio of recipients to enrollments (see the chart). Whereas around 1980  the number of  Pell Grant recipients was less than 40 percent of the number of full-time students, and as late of 2006-07 the figure was 47 percent, for 2011-12 the proportion approached 82 percent. To be sure, that probably reflects the growing eligibility of part-time students for Pell assistance but the numbers of grants are still high relative to enrollment of low-income students.

Affluent Students Line up for Pells

Let’s use a really ultra-expansive definition of “the poor” to include families below the middle in the income distribution (a bit over $60,000 in 2011), including a lot of families with $50,000 or more.  Though most people would say that these families live in modest circumstances, their incomes are more than double the threshold for the federal poverty definition. If this group constituted 40 percent of all college enrollees, as some data would suggest is approximately the case (the other 60 percent coming from households of above average incomes), fewer than five million would be enrolled in college with current total undergraduate enrollment levels of 18 million or so. Yet in 2011-12, there were 9,661,460 Pell Grant recipients.

 The number of very broadly defined “poor” college students appears to be perhaps a bit over seven million. What is going on here? Are a lot (maybe 2-3 million) of relatively affluent students getting Pell Grant aid?  Why were there 4.3 million Pell Grant recipients in 2001 and 9.7 million in 2011–what is the economic status of the incremental recipients, and what is their academic performance like? Are we moving towards making college a federal entitlement for all but those “millionaires” that President Obama so often berates? Are there Congressional committees asking these questions? I fear not.

The Pell Grant punishes rather than rewards academic excellence (good students graduate earlier and thus get fewer Pell dollars than laggard, mediocre students).They increasingly encourage colleges to raise fees. They have not increased the proportion of lower income Americans amongst those graduating from college. It is time for a new federal financial aid model – a leaner, more efficient one that is both performance and need driven, not just an entitlement handed out to a majority of those attending college.

Richard Vedder directs the Center for College Affordability and Productivity, teaches at Ohio University, and is an Adjunct Scholar at the American Enterprise Institute.

Comments (4)

Marty Murphy:

Pell Grants are means tested. Why not also merit-test Pell Grants?

Give grants only to those high school graduates who can "prove" that they are ready for college. You can use SAT/ACT scores or HS grades or some combination.

If there are fewer applicants who qualify, then increase the individual grants accordingly. Tax money will be used more efficiently.

Students will get more money towards their education, and more students should be able to graduate. The taxpayers will get more for their money.

Everybody's happy. Right?

The claim that 82% of American college students receive Pell Grants -- the statistic at the heart of this post -- is wildly wrong.

Figures for 2011-12 haven't been published yet, but in 2010-11 there were 26 million undergraduate students in the United States, of whom 9.3 million, or about 36%, received Pell. That's 36%, not 82%.

Your error is in dividing the number of Pell recipients by full-time students, apparently under the mistaken impression that part-timers, who make up a sizable chunk of the nation's total college enrollment, aren't eligible for Pell.

They are.

I look forward to your correcting your error.


For starters, it is not the purpose of the Pell Grant to "... [help] poor people get degrees." Below is a link to ED.gov's webpage about the program. The program is only designed to promote access to higher-education. The existence of the Pell Grant may still be in question, but Dr. Vedder sounds confused when he makes claims about the goal of the program.

Furthermore, Dr. Vedder plays with numbers both in the case of the percent of American college students receiving the Pell Grant and also by making assumptions about families generating yearly income. Yearly income is not the deciding factor that the Department of Education considers when accepting candidates. It is important to consider the number of dependents as well as other financial obligations of a family.

If there is any scam on the system it lies solely on the persons applying for the grant and falsified information. Otherwise, Dr. Vedder should direct his frustration towards the requirements for the Pell Grant and not towards students or institutions of higher education.

Note: This article in its entirety leaves an embarrassing reflection on the Manhattan Institute.



There is a performance requirement with the PELL. Students must meet satisfactory performance standards. I have no doubt that poorer students receive degrees. The PELL is great for helping students at the junior college level; however it does not begin to touch the expenses at a four year public university. Lower income students have a harder time coming up with the money at the four year university level.

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