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Edward L. Glaeser

College debts but no degree? Reform the Pell grant program

You may have recently shared a holiday meal with a relative who has a bachelor’s degree, plenty of debt, and not much of a job. You may wonder whether college degrees have become worthless. For dropouts, though, the picture is even worse: The average adult with a bachelor’s degree earns 59 percent more than the average adult who attended college and didn’t finish. And for all the emphasis the United States puts on promoting access to college, especially as a way to improve the prospects of students from poor families, there has been far less of a focus on making sure these students end up with degrees.

The federal government could play a larger role in reducing the dropout risk for poorer students. By tying the payments that colleges receive from Pell grants — a need-based financial-aid program for college students — to graduation and employment, these institutions would have a greater stake in their students’ success.

Last Sunday, The New York Times ran a long, compelling story about three young women who grew up poor but hopeful in Galveston, Texas. They headed to college. But as reporter Jason DeParle writes, “four years later, their story seems less like a tribute to upward mobility than a study of obstacles in an age of soaring economic inequality.” Two dropped out of school. None has a degree; two have crushing debts.


DeParle’s story raised alarms in higher-education circles. More powerfully than statistics, cases like these remind us of America’s agonizing disparities and the challenges that face college-bound children from poor and dysfunctional families. Some of the young women’s problems have no public remedy; we can’t legally ban bad boyfriend choices. But some of their difficulties can be addressed by the financial aid system, where the federal government has a huge footprint.

The Pell grant program spent over $40 billion last year supporting lower-income college students, who are eligible for a maximum annual grant award of $5,550 each. That can’t cover tuition at big-name private colleges, but it makes a big difference at lower-cost institutions, such as the for-profit University of Phoenix, the largest receiver of Pell grant dollars.

Since Pell grants aren’t loans, they don’t turn students into debtors. They work like a small-scale college voucher. Eligible students choose their best option, ideally selecting schools that offer particularly valuable skills. When Pell grant recipients, such as the three women featured in the Times, fail to get their degrees or find good jobs, their travails lend support to the budget cutters now eager to shrink the program.


But cutting education aid is pennywise and pound-foolish. While the unemployment rate among adults with college degrees is 3.8 percent, the rate among adults with only high school is 8.1 percent

The Pell grants program should be made not smaller but smarter — so that it motivates colleges to help their students graduate. Pell payments to schools should be increased, and split between an up-front payment and a later conditional payment based upon a student’s college completion and employment success. If the maximum annual Pell grant is increased to, say, $7,000, the University of Phoenix could get $3,500 now, and $3,500 later, when the student has a degree and when Social Security records confirm that she has held a decent job for three months. After four years, the school will have $14,000 riding on the student’s employment.

We need schools to be passionate about their students’ long-run success. Stronger financial incentives should make schools more aggressive about ensuring that students don’t get lost in the system, and get summer internships. Incoming freshmen may not have the best information about what skills will lead to gainful employment. Schools with stronger incentives can nudge them toward majors more likely to lead to success. Students from poorer families are more likely to benefit from greater guidance and help from their colleges.

Schools will bear some risk, since the student bears the ultimate responsibility for subsequent employment, but schools are large enough to diversify away much of that risk, and the government can provide a little extra help when the entire job market goes sour. Schools will try to attract students who are likely to excel in life. But if schools compete harder for poorer students with good prospects, that is a good result.


Regardless, some kind of experimentation is crucial if America is to remain a place of opportunity for struggling young students in Galveston and elsewhere.

Edward L. Glaeser, an economist at Harvard, is the director of the Rappaport Institute for Greater Boston.