Curtailing Need-Based Scholarships for College in the Land of Opportunity
What the proposed cutbacks to Pell Grants would mean
In the One Big Beautiful Bill Act, the House of Representatives voted to cut college scholarships for students from lower-income families. Other provisions in the bill would scale back health insurance benefits and food assistance for many of those same households. The fact that these reductions would pay for tax cuts for the wealthy has not been lost on Americans with opinions on the bill, who oppose it 2 to 1.
America, the land of opportunity, gained its reputation due in part to its excellence in higher education. The chance for a college degree has vaulted millions of Americans into the middle class and granted them lives of relative security and comfort. Meanwhile, our system of post-secondary education system has made the American economy the envy of the world.
But for access to education to mean anything, it requires society’s commitment to underwrite the cost of college for students who cannot afford it. The GI Bill allowed my father, who was raised backstage as the son of two vaudevillians, to earn his Ph.D. and become a university historian. Unfortunately, Congress is not feeling generous anymore. In the One Big Beautiful Bill Act, the House of Representatives voted in May to cut federal scholarship grants—known as Pell Grants—for students from poor and near-poor backgrounds. These provisions, if enacted, will prevent numerous talented, disadvantaged students from attending college. Other provisions in the bill will drive another nail into the coffin of their families, who stand to lose all or part of their health insurance benefits and food assistance if the bill becomes law.
There are important reasons to make post-secondary education available to everyone who wants it. A bachelor’s degree pays dividends in spades, not only to the student who earns it, but also to society. College graduates have higher median lifetime earnings than adults who only finished high school. This directly benefits society, with the average college-educated adult paying more in taxes and generating more consumer spending over a lifetime than the average adult who never went to college.
Beyond that, students’ investment in college fuels our vibrant, thriving economy. U.S. investment in research universities offering graduate degrees made the United States the world’s leader in technology and innovation. We can’t take that for granted, though, because the current Administration’s actions to defund university research seriously jeopardize the U.S. position.
From the standpoint of most ordinary households, financing college is a difficult and daunting venture. Families have to cover not only tuition, but the student’s living expenses while the student is in school.
This was less of a challenge through the 1980s because states generously subsidized public colleges and universities. Back then, tuition was free or nearly free for in-state students. Starting in 1989, however, states phased out those subsidies and colleges jacked up tuition in response.
This is one of the many ways in which government and institutions took financial burdens that they used to bear and shifted them to individual families. In the process, students and their families had to find other ways to pay for college, or skip college altogether.
Some families paid for college out of income, either because they made high salaries or their children worked their way through school. Other parents who wanted to send their kids to college had three financing options: savings, scholarship grants, or student loans.
Savings
Financial planners frequently advise parents to save for college. Often, they tout the tax benefits from doing so through 529 plans. These plans allow each parent to contribute up to $19,000 a year per child for college without triggering the federal gift tax. Gains in these plans go untaxed and so do withdrawals used to pay for college education.
But most households do not have 529 plans; instead, primarily they are used as tax shelters by the top 10 percent. That’s because the tax benefits from 529 plans go primarily to the rich. For one thing, usually only affluent people anticipate owing any federal gift tax. In addition, they enjoy the biggest income tax savings from 529 plans because they are in the highest tax brackets. In contrast, most families who are less well-off gain little or no tax savings from these plans.
There’s another reason why so few families use 529 plans, apart from the affluent. As I discuss in my new book Sharing Risk: The Path to Economic Well-being for All, about half of U.S. families do not make enough to even pay their basic bills. For these households, saving tens of thousands of dollars for college is out of the question.
Scholarship Grants
While a full college scholarship may be every parent’s dream, the dream does not match reality today. Grant funding makes up such a small part of most student aid packages that the average first-time, full-time, in-state student at a public university in 2022-2023 was short $19,250 of the money needed to attend school, even after taking scholarship grants into account.
Part of this shortfall lies with deficiencies in the federal Pell Grant program. These grants form the largest federal scholarship program for undergraduates. Pell Grants are based on need and are only available to students from lower-income households. For 2024-2025, Pell Grants ranged from $740 to $7,395 per student, with the majority receiving smaller grants. Typically, the lower the family’s income, the bigger the grant.
The need for Pell Grants is so great that about 30 percent of undergraduates receive them (almost 7 million students as of last count). Roughly two-thirds of Pell Grant families survive on $30,000 or less a year. And 3 out of 4 Pell Grant families have zero net assets, meaning that they owe more than they own.
Despite the financial strains on those households, the Pell Grant program has become stingier over time. Since 2010, total federal outlays for Pell Grants fell, the number of students awarded Pell Grants fell too, and the average Pell Grant dropped by about $500, after adjusting for inflation.
What this means is that the buying power of Pell Grants has not kept up with the cost of attending college. The maximum $7,395 Pell Grant did not come close to paying the $29,910 all-in cost of attending college as an in-state student at a public four-year university last year.
Instead, lower-income undergraduates usually have to bridge the gap in scholarship monies with other funds. Too often, their choice comes down to 3 unsatisfactory options: drop out, work their way through school, or incur student loans. Many pick student debt as the path of least resistance, because the average financial aid package offers less in scholarship grants and more in student loans.
Student Loans
For almost everyone except the wealthy, student loans have become the default option for paying for college. That’s because savings and scholarships are generally not enough to cover tuition, room, and board. The higher education system—schools, plus state and federal governments—aided and abetted this problem by getting punch drunk on student debt to finance college.
In the process, the United States has ended up in a place where too many college-educated adults are unable to pay their student loans. Fully half of college students who received bachelor’s degrees in 2022-2023 graduated with student loans, and that percentage was even higher for undergraduates from low-income households. That year, the average student loan balance was $29,300 for bachelor’s degree recipients on the day they received their diplomas.
While college graduates have higher median lifetime earnings than those without a college degree, not everyone enjoys the same big wage premium from college education. College graduates from low-income backgrounds see slower earnings growth than their wealthier classmates. The same is true for college-educated Blacks with student loans, compared to their White and Hispanic counterparts.
As a result, when undergraduates take out student loans to pay for college and those loans do not pay off, that debt can undermine them financially. Statistics about the lifetime earnings of the median student borrower do not mean that college is worth the cost for everyone.
In fact, there is mounting evidence that alarmingly large numbers of student borrowers are experiencing trouble repaying their loans. Consider this sobering fact: In early 2020, right before the federal government temporarily suspended federal student loan payment obligations and interest charges due to the Covid-19 pandemic, only half (50.6%) of all federal student borrowers were current on their student loan payments. The other half were delinquent, still enrolled in school, in $0 repayment plans, or in deferment, forbearance, or default. Now that payments have resumed, the rate of borrowers who are current has gone up, but so has the percentage who are delinquent. Borrowers from families making less than $50,000 a year have particular difficulty repaying student loans and so do Black and Hispanic borrowers.
Many student borrowers have trouble paying their bills because their student loan payments do not leave them enough to live on. Too often, heavy student debt ruins their creditworthiness and delays them from reaching milestones such as homeownership and having children.
In sum, the system forces underprivileged students to pay for college with student loans, even though student debt is a destructive proposition for Black and Hispanic borrowers and lower-income students of any race.
The Way Out
If equal access to college is to be more than lip service, then we must find better ways of supporting disadvantaged students through college. For undergraduates from lower-income backgrounds, the United States needs to ditch student debt in favor of free college education. There are several moving parts to this solution. Some states—including my own, Massachusetts—have started offering free tuition again at public universities and community colleges. In addition, Congress should expand Pell Grant support to cover the rest of the full cost of college for students from lower-income households.
Although this would increase federal spending, the positive spillover effects of expanded student grants are so high that the fiscal costs are likely to be recouped in full. A leading study concluded, for instance, that higher Pell Grant aid to first-time college students increased their graduation rate, earnings, and tax payments so much that it likely paid “for itself several times over.”
Headed in the Wrong Direction
The One Big Beautiful Bill Act is a mixed bag when it comes to Pell Grants. On the positive side, Congress would provide a new type of “Workforce Pell Grants,” designed to assist students who are training to enter the skilled trades or technical fields. The bill also sets aside money to help fill the current funding shortfall in the Pell Grant program.
But two other provisions in the bill would cut Pell Grant funding to numerous students from lower-income families. One of those provisions would expect students to complete 30 semester credit hours a year—up from the current 24—to qualify for “full-time” status and thus for the largest Pell Grants. The effect would be to cut the size of Pell Grants for students enrolled in fewer than 30 credits a year. The Congressional Budget Office (CBO) estimates that more than half of students currently enrolled would receive lower Pell Grants under this provision. Meanwhile, only one-fifth of expected Pell Grant students would enroll in more credits to qualify for higher grant amounts, according to CBO.
Under the other proposal, students enrolled for less than half-time would be cut off from Pell Grants altogether. Informed observers estimate that 700,000 students would lose Pell Grant funding annually, including many enrolled in community colleges.
These provisions are frankly punitive to the lower-income students whom Pell Grants serve. Often, these students have to juggle work, family caregiving, and school, making full-time or half-time enrollment impossible. If these provisions become law, some of those students would borrow more to make up for lost Pell Grant dollars. Others would drop out altogether.
Our nation has to make a choice. Do we want to go backwards as a country and deny good health, sufficient food, and a college education to those who cannot afford them? And do we want to do that just to finance tax cuts for the rich? There is a growing divide between House Republicans, who voted to do just that, and people with an opinion on the One Big Beautiful Bill Act, who oppose it 2 to 1, according to the latest poll. If Americans do not want the type of country that is envisioned in the bill, as these results suggest, House Republicans can continue to dodge town halls with their constituents, but they cannot escape the reaction of their voters at the polls.