$1.4-Billion Deficits Prompts Debate Over Pell Grants
[The Chronicle of Higher Education, 4 October 2002]

Supporters of the program differ on whether to focus on the shortfall or push for larger awards

By RICHARD MORGAN

BONUS: See the chart

When layoffs by Boeing and a drought cost thousands of people their jobs in southeastern Kansas over the last year, Butler County Community College saw 400 more of its students receive Pell Grants. The students qualified for $3.6-million in Pell Grants, up $1.1-million from a year earlier.

"Our vocational programs have just exploded. Our classes are maxed. It's just phenomenal," says G. Susie Edwards, director of Butler County's financial-aid office. She calls the Pell Grant program a "godsend."

The extra $1.1-million at Butler might not seem like enough to threaten an $11-billion program.

But at the University of Southern Indiana, 156 additional Pell Grant recipients need some $900,000 more, for a total $4.5-million. At Eastern Arizona College, 115 additional Pell recipients pushed the college's total to $2.717-million, up by nearly $500,000.

Across the country in 2002, which includes parts of two academic years, 230,000 more students than the Education Department had projected received Pell Grants. The result is a huge mess and growing shortfalls in the Pell Grant program.

College officials are debating a number of questions. Why were the estimates off by so much? Has enough money been provided to make up for the deficits? Do those deficits matter? And should supporters of the program focus on fixing the shortfalls for this year, or on trying to get more money for next year?

'Betraying Students'

The problem first surfaced this past spring, with reports that the Pell program faced a $1.3-billion shortfall. Administration officials argued that the wheezy economy and financial fallout from the September 11 attacks led to a flood of needy students -- especially in the vocational programs of community colleges.

The political fights that followed weren't pretty. Senate Democrats charged that the White House had "failed" on education. Sen. Judd Gregg, of New Hampshire, the ranking Republican on the Senate education committee, compared his Democratic counterparts to Islamic militants who "walk around the street, beating people with sticks if they say the wrong thing," adding, "We now appear to have our own thought police on this committee." The Bush administration blamed all of Congress for "betraying students" through "political trades and backroom deals."

Finally, at the end of July, $1-billion in emergency spending was added to the Pell program. That still left $300-million unaccounted for, but because the Pell Grant functions like an entitlement program, grants are typically awarded to eligible students even if the program suffers occasional financial losses. Later in the summer, additional shortfalls of more than $1-billion in the program were identified. Currently, the program is $1.4-billion in the hole.

What Should Be Done?

Weary and wounded after the first shortfall battle, some lawmakers and policy insiders are opting to ignore the new shortfall and to focus on increasing the grant's maximum award. Meanwhile, higher-education lobbyists say that divisions are forming in the Bush administration, as bean counters and Education Department leaders ask for "reductive spending" power, which would give the education secretary the ability to cut the amount of Pell Grants to whatever is financially viable. Under that approach, if the government can only afford to hand out $3,600 maximum grants, then that's what it hands out, but all eligible students would receive something. However, many Bush-administration leaders don't really want to exercise that power for fear of again being cast as anti-education by Democrats.

In May, William D. Hansen, deputy secretary at the Education Department, testified before a Senate panel that "Pell Grants are the president's No. 1 priority in higher education," but that "continuing to spend now and pay later could result in a cut of $400 for the 2003-4 academic year, the largest cut ever."

At that May hearing, he also condemned "longstanding management problems in the student-aid programs" and pushed Congress to restore the education secretary's ability to use reductive spending of the Pell's maximum award. In an interview in September, however, Mr. Hansen denied any tension within the administration over the program. He also said that there had "never been a plan or intention" to use the reductive-spending "management option."

Faulty Projections?

A major problem with the Pell Grant program, says Thomas R. Wolanin, a researcher with the Institute for Higher Education Policy, is that "there is an institutional and systemic bias" in Congress and the administration to "underpredict" the number of recipients. "People don't want to spend money unless they really have to," he adds. "You want to undershoot, cross your fingers, and hope that things turn out all right."

That kind of "budgetary voodoo" plays into a "Ponzi scheme" where "eventually, your whole budget is a shortfall," says Pat Smith, scholar in residence with the American Association of State Colleges and Universities. The Pell Grant program is never balanced; it's always caught in a tide of either red or black ink. But it still ought to be managed well, Ms. Smith says.

The Education Department is "gambling that the boat will rock the other way, a surplus instead of a shortfall. But that's too dangerous of a gamble."

If the shortfall is ignored, the program will still function without affecting grants -- unless the administration regains the reductive-spending power it seeks. In Congress, some lawmakers who are strong supporters of the program also fear that it could attract a bad reputation if it keeps running deficits.

Administration officials, however, say that their projections are reasonable, and so is the idea that they should stick to them.

"You say you're going to spend $10-billion, and that's all you spend," says Thomas P. Skelly, director of budget services for the Education Department. He notes that, in 1993, in the face of a similar $2-billion Pell shortfall, Congress and the Clinton administration agreed on a miserly approach to the program, cutting the maximum award from $2,400 to $2,300, and then maintaining that level until a minor increase in 1995, to $2,340.

He concedes, however, that predicting the extent of student need is nearly impossible. The prediction model is a byzantine microeconomic formula that factors in, among other things, the unemployment rate, high-school-graduation rates, historical trends in Pell Grant use, the amount of the average grant award, and the demand for other federal financial aid. "It's like being on time for a phone call," he explains, "or showing up somewhere exactly at 3 o'clock" -- not an exact science.

Any shortfall, he says, "scares us to death," but, he adds, he is also wary of putting the Pell Grant program on "autopilot" where "whatever Pell costs, you've got to pay." Reductive spending, he argues, would be "a deterrent effect, a discipline to make people think about what they're doing."

'Double Whammy'

But such a "rationing device" would mean "dangling a carrot and saying 'Here's $4,000,' and then jerking it away and saying 'Nope. $3,600,'" says Ms. Edwards, of Butler County Community College.

Even if the deficit is erased, she adds, Congress needs to put much more money into Pell Grants, which have not kept up with increases in college costs. "Each administration wants to toot to the American public that they're funding [the Pell Grant] at such-and-such level. Each president wants to say, 'Yeah, look how high we've got the funding.' But then it doesn't buy anything," she says.

The scenario at Butler County is typical of the "double whammy" that community colleges are feeling right now, says David S. Baime, director of government relations for the American Association of Community Colleges. With federal and state grant money shrinking and tuition ballooning, community colleges, strapped for cash by huge recession-era enrollment, are in a situation that Mr. Baime likens to "Armageddon." The constant need to do something about the Pell shortfall, he and many other higher-education lobbyists argue, is distracting lawmakers who should be focusing instead on increasing the maximum award.

Most higher-education lobbyists want to see the maximum award increased to $4,500, and are willing to ignore the shortfall in order to get that increase through Congress. Although the reauthorization of the Higher Education Act, in 1998, capped the maximum Pell Grant at $5,400, actual appropriations have never supported a maximum grant larger than $4,000. Ms. Edwards, for example, says that a $6,000 award is necessary.

'Emerging Majorities'

While most Washington officials would say such a large increase is unrealistic, many hope for an increase in the near term of at least a few hundred dollars -- a goal they fear is hurt by all the talk about the deficits.

Having to always pay attention to the shortfall is "like having a car that costs $3,000 and having to put $3,000 of repairs into it every year," says Mr. Baime. "It's paying for something that has already been purchased. It's not purchasing anything new." Mr. Baime opposes giving the Education Department what he calls "arbitrary power" in reductive spending, even though he concedes that it might help the financial situation.

As if this year's problems weren't enough, many student-aid experts expect the demands on the program to grow.

Some education analysts think that this year's explosion of Pell Grant recipients isn't a product of the recession. They argue that higher education is on the cusp of a long-predicted demographic shift where so-called "emerging majorities," such as low-income Latino students, are increasingly college bound. These analysts say decades of federal and state college-preparatory programs are finally paying off.

"The chickens are coming home to roost," says Brian K. Fitzgerald, staff director of the Advisory Committee on Student Financial Assistance, which reports to Congress on student-aid issues. "If we're serious about [education] at the federal level, it's incumbent on the government to ensure that there's more government aid," he says. "We're faced with a fundamental question: will we live up to the commitment that anyone who's qualified can go to college? That translates into tough budget questions."

"There is unequivocally a major seismic demographic shift," says Thomas G. Mortenson, a higher-education researcher who publishes Postsecondary Education Opportunity, a newsletter. "These aren't predictions," he warns. "It's inevitable. These kids have been born. They're coming through the K-12 pipeline." Contrary to what he describes as the "conventional wisdom and cocktail-party chitchat" in Washington, Mr. Mortenson calls for an $8,000 Pell Grant maximum award and says that the September 11 attacks were nothing but "pinpricks" compared with the economic "yoyo" that community colleges perpetually face.

Ms. Smith, from the state-college association, is typical of most higher-education analysts. She says that she is not sure what to make of the Pell Grant's problems -- whether they are the "grotesque" estimates of the Education Department or the political "cannibalism" enmeshed in its lobbying efforts. Whatever the woes, she concedes, "it's messy. But we've learned to live with messy. That's the way it is: ambiguity. You just have to muddle through." Still, she adds, "if you believe in the program and what it does for students, it's worth the ambiguity."

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