Pell Grants and Proprietary Schools, Take Two

It’s no secret that the costs of the federal Pell Grant program, which provides tuition grants to college students from low-income families, have exploded over the past few years and that Congress is struggling to fund the program. Costs have risen from about $16 billion in 2008 to over $34 billion 2010. There are three main reasons for the increase: Congress broadened eligibility for the program in recent years and boosted the maximum grant to $5,550 in 2010, up more than $1,000 increase from 2007, while the weak economy has created an unprecedented wave of applicants. But some in the education policy community have wondered if another factor isn’t to blame for the run-up in costs.

Proprietary colleges and universities (i.e. for-profit schools like the University of Phoenix) have come under criticism from Democrats in Congress and the Obama Administration. Our sister blog, Higher Ed Watch, has also taken a critical eye on proprietary schools and their role in federal grant and loan programs. And the Department of Education has proposed new rules that would make programs at these schools ineligible for federal student aid if their students can’t repay their federal loans. We at Ed Money Watch occasionally get calls asking if the growth in Pell Grant costs can be tied to enrollment growth at proprietary colleges, so we ran the numbers and updated our earlier work on this subject.

Back in May of 2010, we used Department of Education data to analyze Pell Grant volume by school sector for each academic semester. We found that students at public colleges and universities received a significantly larger share of total Pell Grant volume than private or proprietary schools and that all three sectors have experienced growth in their loan volume since 2007. Since our earlier post on this topic, an additional semester of Pell Grant volume data has become available. Using this new data, we conclude that Pell Grant volume continues to grow in all three sectors, public, private, and proprietary. And the second semester growth in 2009-10 outpaces the growth for the second semester of 2008-09.

We also find that proprietary schools received a greater percentage increase in grant volume, 80.6 percent, than other school types from the second semester of 2008-09 to the second semester of 2010-09. Private schools received a 43.9 percent increase and public schools received a 69.6 percent increase. In dollar terms, proprietary schools received nearly $1.8 billion more in Pell Grants over that year, while public schools received more than $4.1 billion more.

When we look at the data by total year of Pell Grant volume and break each sector’s volume into the share of total volume, we see that the share of total grant volume going to proprietary schools has been slowly increasing since 2007. Indeed, from 2007 to 2010, the share of the program going to proprietary schools increased from 19.3 percent to 25.3 percent. Additionally, it’s important to note that proprietary schools only enroll about 10 percent of all postsecondary students, far less than the proportion of Pell Grant volume they receive. This can in part be attributed to high tuition prices at these institutions.

Though proprietary schools are by no means capturing all of the new Pell Grant funding that Congress has made available in recent years – public schools continue to receive the highest grant volume and the highest annual increases in dollar terms – their share of the pie is increasing. Nevertheless, it would be a stretch to pin the rapid growth of the program’s costs on proprietary schools given that Pell Grant volume has grown rapidly at all types of institutions. What’s more, the Obama Administrations proposed rules to cut off federal student aid for some proprietary school programs aren’t likely to result in any significant cost savings for the Pell Grant program. Those rules would affect a small number of programs at a limited number of schools – accounting for all but a fraction of total Pell Grant spending.