Reconfiguring the Federal Pell Grant Program: Effect of Selected Changes on Program Costs and on Students in Different Income Groups

Reconfiguring the Federal Pell Grant Program: Effect of Selected Changes on Program Costs and on Students in Different Income Groups

Order Code RL34084
Reconfiguring the Federal Pell Grant Program:
Effect of Selected Changes on Program Costs
and on Students in Different Income Groups
July 9, 2007
Charmaine Mercer
Analyst in Social Legislation
Domestic Social Policy Division

Reconfiguring the Federal Pell Grant Program:
Effect of Selected Changes on Program Costs and on
Students in Different Income Groups
Summary
Every year Congress, institutions of higher education (IHEs), and relevant
higher education associations debate what changes, if any, should be made to the Pell
Grant program to increase its purchasing power and make college more affordable,
especially for low-income students. The most commonly discussed option —
increasing the maximum appropriated award per student — is also the most
expensive option. It is estimated that a $100 increase in the maximum appropriated
grant award would increase program costs by approximately $400 million. In light
of this, it is unusual for Congress to act to increase the maximum appropriated grant
award.
This report models selected changes in the Pell Grant program’s award rules and
the need analysis formula to examine what impact, if any, the changes would have
on program costs as well as on the recipient population. Specifically, the report
examines the effect of the following changes: increasing the maximum appropriated
award; increasing the amount of the minimum award and dropping “the bump;”
eliminating the tuition sensitivity provision; and increasing the income eligibility
threshold for the automatic-zero expected family contribution provision. In addition
to analyzing each of these provisions separately, a final analysis combines some of
the provisions to examine the combined effect of changing groups of award rules
simultaneously.
This report will be updated as warranted by major legislation or other relevant
developments.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Federal Need Analysis Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Expected Family Contribution (EFC) and Dependency Status . . . . . . . 3
EFC and Cost of Attendance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Special EFC Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Pell Grant Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Authorized Maximums and Appropriated Maximums . . . . . . . . . . . . . . . . . 5
Award Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Data and Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Analysis of Selected Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Increasing the Maximum Appropriated Pell Grant Award . . . . . . . . . . . . . . 9
Recipients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Program Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Increasing the Pell Grant’s Coverage of Tuition and Fees . . . . . . . . . . . . . . 13
Four-Year Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Two-Year Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Increasing the Minimum Pell Grant Award . . . . . . . . . . . . . . . . . . . . . . . . . 15
Recipients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Program Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Tuition Sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Recipients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Program Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Increasing the Auto-Zero EFC Income Threshold . . . . . . . . . . . . . . . . . . . . 20
Recipients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Program Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Estimated Impact of Selected Combined Changes . . . . . . . . . . . . . . . . . . . . . . . 21
Package One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Package Two . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Appendix: Pell Grant Estimation Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

List of Tables
Table 1. Estimated Impact of Selected Increases in the Maximum
Pell Grant Award on Pell Grant Recipients by Family Income:
Award Year 2008-2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Table 2. Estimated Amount of Pell Grant Aid to Recipients by Family
Income and Selected Increases in the Maximum Appropriated
Pell Award: Award Year 2008-2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Table 3. Estimated Coverage of In-State Tuition and Fees, and Tuition,
Fees, Room, and Board Covered by Selected Maximum Appropriated
Pell Grant Awards: Award Year 2008-2009 . . . . . . . . . . . . . . . . . . . . . . . . 14
Table 4. Percentage Distribution of Pell Grant Recipients by Family
Income, Under Selected Increases in the Minimum Grant Award:
Award Year 2008-2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Table 5. Estimated Change in Pell Grant Program Costs Under Selected
Changes in the Minimum Grant Award: Award Year 2008-2009 . . . . . . . . 18
Table 6. Estimated Impact of Program and Award Rule Changes in
Package One on Pell Grant Recipients and the Amount of Aid Available:
Award Year 2008-2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Table 7. Estimated Impact of Program and Award Rule Changes in
Package Two on Pell Grant Recipients and the Amount of Aid Available:
Award Year 2008-2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Reconfiguring the Federal Pell Grant
Program: Effect of Selected Changes on
Program Costs and on Students in
Different Income Groups
Introduction
Every year Congress, institutions of higher education (IHEs), and relevant
higher education associations debate what changes, if any, should be made to the Pell
Grant program to increase its purchasing power and make college more affordable,
especially for low-income students. The most commonly discussed option —
increasing the maximum appropriated award per student1 — is also the most
expensive option. It is estimated that a $100 increase in the maximum appropriated
grant award would increase program costs by approximately $400 million.2 In light
of this, it is unusual for Congress to act to increase the maximum appropriated grant
award. While several proposals are introduced each year,3 the passage of the FY2007
appropriations4 marks the first time that an increase in the maximum award has been
made since FY2002, when it was increased from $4,000 to $4,050.
In addition to increasing the maximum award, alternate ways of using the Pell
Grant to help make college more affordable for low-income students have also been
considered. For example, the President’s FY2008 budget request and H.R. 990 both
propose that the tuition sensitivity provision be eliminated. This provision, as
implemented by the U.S. Department of Education (ED), disparately affects low-
income students who also attend low-cost IHEs by capping the amount of their Pell
Grant award (discussed later in this report). Thus, removal of this provision would
1 The maximum appropriated Pell Grant award is specified in the annual appropriations
legislation for the U.S. Department of Education. That legislation appropriates funding for
the Pell Grant program and sets the maximum award that can be made during the award
year.
2 This estimate is limited to increases that occur during the 2008-2009 Pell award year. For
additional information, see Department of Education, Fiscal Year 2008 Justifications of
Appropriation Estimates to the Congress, Volume II, p. O-26.
3 During the 110th Congress, S. 899, S. 7, H.Res. 81, and H.R. 722, among other bills, each
propose to increase the maximum Pell Grant award by various amounts. S. 3528, S. 2573,
H.R. 2960, and H.R. 168, among others, were introduced during the 109th Congress to
increase the maximum grant award.
4 The maximum appropriated award was increased to $4,310 from $4,050 by the House
Revised Continuing Appropriations Resolution, 2007, H.J.Res. 20 (P.L. 110-5). The
increase becomes effective July 1, 2007.

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provide these students with an increased Pell Grant award. Further, congressional
interest has been expressed in expanding eligibility for the automatic-zero expected
family contribution (hereinafter “auto-zero EFC”). Auto-zero EFC sets the expected
family contribution (EFC) — the amount that a family is expected to contribute to
his or her education — to $0 for individuals with an adjusted gross income (AGI) at
or below a specified income level, currently set at $20,000. If the income threshold
were raised, additional low-income students would potentially qualify for the
maximum Pell Grant award (discussed later in this report). Although elimination of
the tuition sensitivity provision would increase the grant’s coverage of college costs,
and expanding eligibility for auto-zero EFC would enable the grant to reach
additional low-income students, both of these changes would increase the program’s
cost. So the question remains: Is it possible to increase the grant’s coverage of
college tuition and fees and extend the grant to more low-income students while also
controlling for significant cost increases and changes in the recipient composition?
It should be noted that any change to the program’s award rules or to the need
analysis formula (discussed later in this report) would affect the program’s cost and
the recipient composition. There are, however, provisions that can be altered that
would reduce program costs and would not increase the number of participants. For
example, increasing the minimum grant award and eliminating “the bump”
(discussed later in this report) both work together to reduce program costs, and
possibly the number of recipients, depending on how much the minimum award is
increased. In addition, if selected program changes are made in tandem, such as
increasing the maximum grant award and eliminating the tuition sensitivity
provision, it is possible to increase the grant’s coverage of tuition and fees, eliminate
provisions that disparately affect needy students, and extend the grant to additional
low-income students without significantly increasing program costs or changing the
number of recipients.
This report models selected changes in the Pell Grant program’s award rules and
the need analysis formula to examine what impact, if any, the changes would have
on program costs as well as the recipient population. Specifically, the report
examines the effect of the following changes:
! increasing the maximum appropriated award;
! increasing the amount of the minimum award and dropping “the
bump;”
! eliminating the tuition sensitivity provision; and
! increasing the income eligibility threshold for the automatic-zero
expected family contribution provision.

In addition to analyzing each of these provisions separately, a final analysis combines
some of the provisions to examine the combined effect of changing groups of award
rules simultaneously.
The report begins with a brief description of the federal need analysis system to
illustrate how the formula interacts with the Pell Grant award. This is followed by
a review of the Pell Grant program’s structure, including a brief discussion of the
eligibility criteria, funding process, and program award rules for determining an

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individual’s grants. Finally, the report concludes with a discussion of the results for
each of the aforementioned analyses.
This report is designed to complement a detailed discussion of the Pell Grant
program and the federal student aid need analysis formula included in CRS Report
RL31668, Federal Pell Grant Program of the Higher Education Act: Background
and Reauthorization, and CRS Report RL33266, Federal Student Aid Need Analysis
System: Background, Description and Legislative Action, both by Charmaine
Mercer. These two reports collectively provide greater context about the Pell Grant
program and the need analysis formula than what is provided in this report.
Overview
This section provides an overview of the federal student aid need analysis
formula, including the different dependency classifications for applicants, and its
relationship to the Pell Grant program. It also describes the eligibility criteria, the
authorized and appropriated maximum awards, and the award rules for the Pell Grant
program.
Federal Need Analysis Formula
The federal student aid need analysis formula (Title IV, Part F of the Higher
Education Act (HEA), as amended) is a complex system used to allocate billions of
dollars (approximately $80 billion in FY2007) of federal student aid through an array
of student aid programs authorized by Title IV of the HEA. The need analysis
formula entails the collection of financial data, which are provided by students via
the Free Application for Federal Student Aid (FAFSA). These data are then used to
calculate an individual student’s expected family contribution (EFC).
The EFC is the amount the need analysis formula determines that the student,
and his or her parents, when applicable, has available to contribute toward
postsecondary education expenses. In calculating the EFC, total income (a
combination of taxable and untaxed income and benefits), is considered, and, for
some families, assets are also considered. In addition, allowances such as living
expenses, retirement needs, and federal and state tax liability are considered. The
income contribution is calculated by subtracting a series of allowances, such as those
previously mentioned, from total income, and then considering a percentage of that
available income as an income contribution toward postsecondary education costs.
A contribution from assets is similarly calculated. The combination of the available
income and asset contribution, divided by the number of individuals in the family
enrolled in college, constitutes the EFC.
Expected Family Contribution (EFC) and Dependency Status. The
calculation of the EFC varies depending upon the applicant’s dependency status.
There are three separate dependency classifications for individual applicants:
dependent student, independent student with dependents, and independent student
without dependents. These distinctions are important because parental financial
information is not considered if the applicant meets the statutory definition of an

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independent student. To be classified as an independent student (Title IV, Section
480(d)), an applicant must meet at least one of the following conditions:
! be 24 years of age or older;
! be married;
! be enrolled in a graduate or professional program;
! have a dependent other than a spouse;
! be an orphan or ward of the court (or have been one until age 18); or
! be a military veteran or active duty service member.
Students who do not meet any of the aforementioned conditions are considered to be
dependent for the purposes of Title IV federal student aid.
EFC and Cost of Attendance. The financial aid administrator determines
the student’s need for federal aid and other sources of aid, based primarily upon the
EFC and cost of attendance (COA).5 This is true for all federal student aid programs
except for the Pell Grant program (to be discussed). The final outcome is the
financial aid award or package, which consists of the specific sources and amounts
of student aid each applicant will receive to help pay for his or her education-related
expenses.6
Special EFC Conditions. In calculating the EFC, special consideration is
given to individuals with family incomes at or below a specified threshold. There are
two special EFC conditions, a simplified needs test (SNT) and auto-zero EFC. Under
the SNT, the EFC calculation does not consider assets for applicants if their AGI is
less than $50,000.7 The automatic-zero EFC sets the EFC to $0 for individuals who
have an AGI that is not greater than $20,000.8 In addition to having the EFC
calculated exclusively based on their income, recipients who qualify for SNT and
auto-zero EFC are entitled to provide less income and asset data on the FAFSA.
5 According to HEA, Title IV, Section 472, cost of attendance (COA) is determined by each
IHE. COA is a measure of student’s educational expenses at a specific IHE. In general, it
is the sum of tuition and fees; an allowance for books, supplies, transportation, and
miscellaneous personal expenses; and a room and board allowance. COA can also include
an allowance for dependent care expenses (for students with dependents); costs associated
with study abroad programs for students engaged in such programs; expenses associated
with a disability for students with disabilities; and the costs associated with employment
under a cooperative education program.
6 For a more detailed description of the federal student aid need analysis system, see CRS
Report RL33266, Federal Student Aid Need Analysis System: Background, Description and
Legislative Action, by Charmaine Mercer.
7 Additionally, to be eligible for SNT, the student and his/her parents must not have to file
an income tax return, or must file or be eligible to file federal tax form 1040A or 1040EZ.
Individuals who complete federal tax form 1040 solely to claim the Hope or Lifetime
Learning tax credit are eligible as well. Further, eligibility for SNT can be satisfied if any
family member, including the applicant, received a federal means-tested benefit.
8 The same income tax filing requirements and receipt of a federal means-tested benefit that
apply to SNT applicants also apply to auto-zero applicants. Auto-zero EFC is not provided
to independent students without dependents.

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Pell Grant Program
Pell Grants (Pell) are the largest single source of federal grant aid to
postsecondary students. Pell Grants are need-based, portable aid, and are primarily
received by low-income, undergraduate students. Pell Grants are considered to be
the foundation of student aid because all other federal aid (e.g., federal work study,
student loans) is calculated after the amount of the Pell award has been determined.
The FY2007 appropriation for the Pell Grant program is $13.6 billion; it is projected
to provide grants to 5.3 million undergraduate students.9
Eligibility
In addition to the general eligibility criteria for all federal student aid
programs,10 for a recipient to receive a Pell Grant award, the individual must be
enrolled at an eligible IHE for the purpose of earning a degree or certificate.11
Generally, the recipient must also be enrolled in an undergraduate program.12
Recipients who attend less than full-time are eligible for a Pell Grant; however, the
grant amount is adjusted in accordance with the recipient’s enrollment status.
Authorized Maximums and Appropriated Maximums
Although the authorizing statute (HEA, Title IV, Section 401(b)(2)) sets the
authorized maximum Pell award for each year, this authorized maximum is
overridden by the appropriations process, which sets the appropriated maximum
award. This latter amount is the one applied in awarding funds to recipients. The
FY2003 authorized maximum grant is $5,800 (most recent authorized amount), but
the FY2007 appropriated maximum grant is $4,310. The appropriated maximum
award is often used as a gauge of the program’s support for low-income students
because this is the amount that the neediest students (those with an EFC of $0) are
likely to receive.
9 For additional information about these criteria, see CRS Report RL31668, Federal Pell
Grant Program of the Higher Education Act: Background and Reauthorization, by
Charmaine Mercer.
10 For information about the basic federal student aid eligibility criteria and the specific
criteria for the Pell program, see CRS Report RL31668.
11 For additional information about institutional eligibility, see CRS Report RL33909,
Institutional Eligibility for Participation in Title IV Student Aid Programs Under the Higher
Education Act: Background and Reauthorization Issues, by Rebecca R. Skinner.
12 Students enrolled on at least a half-time basis in a postbaccalaureate program required by
a state for K-12 teacher certification or licensure are also eligible. Such a program cannot
lead to a graduate degree, and the enrolling IHE must not offer baccalaureate degrees in
education.

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Award Rules
The primary Pell Grant award rule is that a recipient’s award amount is the
lowest of three amounts:
! the maximum appropriated Pell Grant award minus the EFC;
! the COA minus EFC; or
! the tuition sensitivity amount.13
For nearly all Pell recipients, the Pell Grant award is calculated by subtracting the
EFC from the maximum appropriated Pell Grant for the year (i.e., without regard to
COA). This is because the maximum Pell Grant minus the recipient’s EFC is almost
always lower than the COA minus the EFC.
In addition, by statute, the tuition sensitivity provision can apply only when the
appropriated maximum Pell Grant exceeds $2,700. It should be noted that the tuition
sensitivity provision affects a very small group of low-income students. The tuition
sensitivity award amount is calculated as follows:
! $2,700 + one-half of the difference between the appropriated
maximum and $2,700 + the lesser of (a) the remaining one-half
difference or (b) tuition.14
For example, at a $4,310 Pell Grant maximum and a tuition level of $500, the tuition
sensitivity amount of $4,005 is determined as follows:
! $2,700 + $805 (one-half of the difference between $4,310
(maximum award) and $2,700) + $500 (tuition amount) (the lesser
of $805 and tuition of $500) = $4,005.
Further, by law, a Pell Grant award cannot be less than $400 (HEA, Title IV, Section
401(B)(5)). For those recipients whose Pell Grant award would be between $200 and
$399, the law provides a $400 grant, otherwise known as “the bump.” A student who
qualifies for less than a $200 grant will not receive a Pell Grant.
13 As implemented by ED, tuition sensitivity reduces the Pell Grant received by a small
number of very low-income students attending institutions with very low tuition charges. For
FY2007, the only students whose Pell Grant may possibly be reduced under tuition
sensitivity are those students whose tuition charges (and any allowances for dependent care
or disability-related expenses) are less than $805; whose EFCs are $800 or less; and whose
total COA is $3,500 or higher. These conditions are delineated in the 2007-2008 Pell Grant
payment and disbursement tables, which are available on the Web at [http://www.ifap.
ed.gov/dpcletters/attachments/2007paysched.pdf].
14 Specific allowances are added to tuition for students with dependent care expenses or
expenses related to a disability.

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Data and Methodology
This analysis uses estimates derived by CRS from the Pell Grant estimation
model, which was developed and is maintained by the U.S. Department of
Education’s Budget Service. The Department of Education’s annual budget requests
for Pell Grant appropriations are based on the results from the Pell estimation model.
The model’s latest version (U2008) was utilized for this analysis. All estimates
presented in this report are for the 2008-2009 Pell award year.15 For additional
information about the Pell Grant estimation model see the Appendix.
It is important to note that CRS does not make official congressional cost
estimates of federal programs or legislative proposals. That is the responsibility of
the Congressional Budget Office. Any estimates of costs and the number and
characteristics of recipients included in this report are provided to suggest the relative
magnitude and nature of the impact of possible changes in the Pell Grant program.
Most of the results from the analyses are presented by family income. It is
important to note that “family income” for the purpose of these analyses is identical
to “total income,” which is produced by the need analysis formula and defined in
Section 480(c) of Title IV of the HEA. Total income consists of the following: AGI,
income earned from employment, untaxed income and benefits (e.g., welfare and
child support payments), other sources of income such as federal education income
tax credits (e.g., Hope and Lifetime credits), and certain student grant and scholarship
aid (e.g., AmeriCorps benefits). However, AGI, not total income, is the data element
that is used to determine an individual’s eligibility for auto-zero EFC and SNT. AGI
generally equals the amount of income earned from work, dividends, and taxable
income and pensions, minus specified deductions such as IRA contribution or student
loan interest, among other things.16 In most cases, AGI is either less than or equal to
family income.
For the analysis of the Pell Grant’s coverage of college costs, only two measures
were used: (1) the average amount of tuition and fees at public IHEs, and (2) tuition,
fees, room, and board (TFRB) at public IHEs. These two measures were inflated to
produce a projected estimated amount for the 2008-2009 academic year. To generate
these estimates, a 10-year average (academic years 1994-1995 through 2004-2005)
percentage increase was produced for both four-year and two-year public IHEs. The
estimated 10-year average percentage increases for public, four-year IHEs are 6.6%
for tuition and fees only and 5.6% for TFRB. For two-year, public IHEs, the
15 Data for the 2008-2009 award year were utilized because it is the earliest possible award
year that any changes Congress might make to the Pell Grant program could be
implemented. The 2008-2009 Pell Grant award year begins July 1, 2008, and runs through
June 30, 2009.
16 For the 2006 tax year, AGI can be located on the specified line for the following tax
forms: line 37 of form 1040; line 21 of form 1040A; and line 4 of form 1040EZ. For
additional information about how AGI is calculated, see CRS Report, CRS Report RL30110,
Federal Individual Income Tax Terms: An Explanation, by Pamela Jackson.

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estimated 10-year average percentages are 4.6% for tuition and fees only, and 4.4%
for TFRB.17
It should be noted that this analysis does not address the Pell Grant’s coverage
of tuition and fees and TFRB at private IHEs. In general, the average tuition and fees
and TFRB at private IHEs are substantially higher than at public IHEs. In the last
two decades, the Pell Grant has never covered more than 30% of the average tuition
and fees at private, four-year IHEs. Moreover, at its peak (1975), the most the grant
covered was about 62% of the average tuition and fees at a four-year, private IHE.
Finally, it is important to note that there has been a considerable amount of
research conducted regarding increases in the amount of federal grant aid,18 and
institutions’ response to these increases, particularly with respect to increases in
tuition and fees. The research and findings on this subject are both limited and
inconclusive, with some researchers concluding that no relationship exists between
the increase in federal student aid and increases in tuition and fees, while others have
found a correlation may exist, but, the relationship depends on the type of institution.
For example, Judith Li’s research, entitled, Estimating the Effect of Federal
Financial Aid on College Tuitions: A Study of Pell Grants (1999), concludes that
public and private four-year IHEs increased tuition by more than the increase in the
amount of the Pell Grant, whereas, two-year public IHEs decreased tuition for every
$1 increase in the Pell Grant award.19 Conversely, in a report commissioned by the
Department of Education, National Center for Education Statistics, entitled, Study of
College Costs and Prices, 1988-89 to 1997-98: Volume I (2001), by Alisa
Cunningham, et al., they note that other researchers, such as McPherson and Schapiro
(1998) and Coopers and Lybrand (1997) maintain that the relationship between
increases in federal grant aid and tuition increases, particularly at four-year public
and private IHEs, is either weak, or no longer holds.20 Although this report does not
address the relationship between federal grant aid, or the Pell Grant specifically, and
increases in tuition and fees, it is important to note that in the last decade the
maximum Pell Grant award has never increased by more than $450 in a given award
year, thereby making it unlikely that the increased amount would serve as an
17 The analysis uses data from the U.S. Department of Education’s, Digest of Education
Statistics, 2005 (Digest), Table 312.
18 Other research has examined the relationship between tax credits and tuition and fee
increases and state student aid and tuition and fee increases. For additional information see,
The Impact of Federal Tax Credits on Higher Education Expenses, by Bridgete Terry Long,
and Do State Financial Aid Programs Cause Colleges to Raise Prices? Who Should We
Help? (2002), by Heller, Donald and Patricia Marin, eds. Both articles are available
at:[http://gseacademic.harvard.edu/~longbr/publications_page.htm].
19 Li’s article is available online at [http://www.nber.org/~confer/99/higeds99/li.pdf]). ED’s
commissioned study is available at [http://nces.ed.gov/pubs2002/2002157.pdf].
20 In earlier research by McPherson and Schapiro, Keeping College Affordable: Government
and Educational Opportunity (1991), they found that only public institutions, particularly
four-year IHEs, would have tuition levels that were sufficiently low enough for the
institution to have an incentive to increase tuition to capture additional student aid.

CRS-9
incentive for IHEs to respond by raising their tuition and fees.21 It is beyond the
scope of this report to consider how, if at all, IHEs would change tuition and fees in
response to changes in the Pell Grant award. However, some analyses presented in
this report examine the percentage of tuition and fees covered by the Pell Grant under
changed award rules. These analyses assume tuition and fees levels for 2008-2009
would increase in a manner that is consistent with recent annual increases, and that
there would be no extra increase in tuition and fees as a result of the increased Pell
Grant award.
Analysis of Selected Changes
This section provides a discussion and analysis of selected changes in the
program award rules and the need analysis formula, and how these changes might
affect recipients and costs.22 The changes examined are those which have received
considerable legislative attention during the last few Congresses. The section is
organized according to the following proposed changes:
! increase the amount of the maximum appropriated Pell Grant award,
including examining its coverage of tuition and fees;
! increase the minimum Pell Grant award amount and eliminate “the
bump”;
! eliminate the tuition sensitivity provision and increase the maximum
award amount; and
! increase the auto-zero EFC income threshold.
The section concludes with an analysis that combines some of the provisions
according to their ability to increase the Pell Grant’s coverage of tuition and fees and
TFRB, eliminate provisions that disparately affect low-income students, extend the
grant to more low-income students, and control for significant recipient changes and
cost increases. All of the results are presented by family income status.23
Increasing the Maximum Appropriated Pell Grant Award
As previously mentioned, increasing the maximum appropriated Pell Grant
award would provide low-income students with additional aid and strengthen the
grant’s coverage of tuition and fees and TFRB, but would also increase the program’s
21 For additional information regarding this subject, see For Whom the Pell Tolls: Market
Power, Tuition Discrimination, and the Bennet Hypothesis (2003), by Singell, Larry and Joe
Stone. Available at:[http://darkwing.uoregon.edu/~lsingell/Pell_Bennett.pdf]; The Student
Aid Game: Meeting Need and Rewarding Talent in American Higher Education (1998), by
McPherson, Michael and Morton Owen Schapiro. and, The Impact of Federal Student
Assistance on College Tuition Levels (1997), by Coopers and Lybrand, L.L.P.
22 All of the cost estimates included in this report also include the $5 administrative fee that
participating IHEs receive for each enrolled Pell Grant recipient.
23 The format of the family income groups generated by the Pell model are pre-established,
and as a result constrain the possible income groupings.

CRS-10
costs. However, raising the maximum award is one of the few ways to enhance the
grant’s coverage of tuition and fees and TFRB.
To demonstrate the impact of increasing the maximum award, this section
provides an analysis of the estimated impact of raising the maximum award from
$4,310 to $4,600, $5,100, and $5,800.24 In addition to providing estimates for the
changes in costs and recipients by family income, changes to the grant’s coverage of
tuition and fees and TFRB are also considered.
Recipients. As previously noted, the Pell Grant award is generally determined
by subtracting a recipient’s EFC from the appropriated maximum award. As the
amount of the maximum award increases, recipients with larger EFCs (those with
more available income and assets) become newly eligible for the program. For
example, under current law, if a recipient has an EFC of $4,400, he or she would not
be eligible for a Pell Grant award ($4,310-$4,400=-$90). However, if the maximum
award were increased to $4,600, this same recipient would qualify for the minimum
grant award of $400 ($4,600-$4,400=$200, bumped up to $400).
The change in the recipient composition under selected award increases is
illustrated in Table 1. The table shows that as the maximum award increases, the
percentage of recipients with higher family incomes would also slightly increase over
current law estimates. Conversely, the percentage of recipients with lower family
incomes would slightly decrease under each increase in the maximum award.
Specifically, under each of the selected increases in the maximum Pell Grant award,
the percentage of recipients with family incomes of $40,000 or less would likely
decrease by a small percentage, whereas, recipients with family incomes over
$40,000 would experience a slight increase.
However, as also shown in Table 1, the actual change in the number of
recipients in each of the income groups would be relatively small. This is
particularly true for recipients with family incomes of less than $30,000. The change
in the composition that is illustrated in Table 1 for this group, is primarily due to the
fact that more individuals with larger incomes are brought into the program, thereby
changing the overall composition of the recipient population. As the maximum
award increases, more recipients with higher family incomes would likely become
newly eligible, and assume a greater percentage of the recipient population than they
would have under current law. Although, under each increase in the maximum
award, recipients with family incomes above $40,000 would not comprise more than
15% of the total Pell Grant recipient population. It should be noted that generally,
increasing the maximum award does not significantly expand the number of eligible
recipients in the lowest income groups. However, it usually provides these recipients
with larger Pell Grant awards, which increases the grant’s coverage of tuition and
fees and TFRB for recipients in these groups.
24 These amounts were selected in light of recent legislative proposals to increase the
maximum award to the specified amounts. Specifically, the President’s FY2008 Budget
requests that the maximum award be increased to $4,600, and H.Res. 81, proposes $5,100.
The third amount, $5,800, was selected because it is the most recent authorized maximum
grant award.

CRS-11
Table 1. Estimated Impact of Selected Increases in
the Maximum Pell Grant Award on Pell Grant Recipients
by Family Income: Award Year 2008-2009
(numbers in thousands)
Increased Maximum Award
$4,310
$4,600
$5,100
$5,800
Family
Recip-
% of All
Recip-
% of All
Recip-
% of All
Recip-
% of All
Income
ients
Recipients
ients
Recipients
ients
Recipients
ients
Recipients
10,000
1,520
28.2%
1,521
27.8%
1,523
27.5%
1,523
27.4%
or less
10,001 to
1,255
23.3%
1,272
23.2%
1,281
23.2%
1,282
23.1%
20,000
20,001 to
1,046
19.4%
1,052
19.2%
1,057
19.1%
1,059
19.1%
30,000
30,001 to
850
15.8%
859
15.7%
865
15.6%
866
15.6%
40,000
40,001 to
465
8.6%
484
8.8%
496
8.9%
499
9.0%
50,000
50,001 to
183
3.4%
199
3.6%
214
3.9%
218
3.9%
60,000
60,001 to
59
1.1%
68
1.2%
75
1.4%
78
1.4%
70,000
over
16
0.3%
19
0.4%
23
0.4%
23
0.4%
70,000
Total
5,394
100%
5,474
100%
5,534
100%
5,548
100%
Source: CRS estimates using the Pell Grant estimation model from the U.S. Department of
Education’s Budget Service.
Program Costs. It should be noted that increasing the maximum Pell Grant
award by various amounts would produce minimal change in the total recipient
composition. Although increasing the maximum award would increase program
costs, which could be substantial, depending upon the amount of the maximum
award. For example, increasing the maximum award by $290 to $4,600, would
increase program costs for award year 2008-2009 by an estimated $1.17 billion over
the current law estimates. Moreover, if the maximum award were increased to the
most recent authorized maximum of $5,800, the program costs would increase to an
estimated $20.0 billion, a $6.0 billion increase over current law. As previously
mentioned, a $100 increase in the maximum appropriated Pell Grant award, in
general, would increase program costs by approximately $400 million.
Similar to what would occur for the recipient composition under selected
increases in the maximum award, the percentage share of aid for recipients with
lower family incomes would slightly decline under each increase in the maximum
award. For example, as illustrated in Table 2, the percentage of aid available for
recipients with a family income of $10,000 or less would decline from a little more
than 33% under current law (33.4%) to just above 31% (31.3%) if the maximum

CRS-12
award were increased to $5,800. Similar patterns are illustrated for recipients with
family incomes between $10,001 and $30,000. However, the percentage share of aid
for individuals with family incomes above $30,000 would slightly increase under
each change in the maximum award. As illustrated by Table 2, recipients with
family incomes between $40,001 and $50,000 would experience the largest
percentage change in the amount of aid available under each individual increase and
between current law and a maximum award of $5,800. It is important to note that
although the percentage of aid available to recipients with family incomes above
$30,000 would increase rather than decrease as it would for individuals with a family
income of less than $30,000, individuals with lower family incomes would continue
to receive the largest amount of aid awarded under each increase in the maximum
award.
The percentage growth in the amount of aid available for individuals with higher
family incomes versus the decline for individuals with lower family incomes is
directly related to increasing the maximum award without changing other provisions
of the program, such as increasing the minimum award. As previously noted, if the
maximum award were increased, individuals with higher family incomes would
either become newly eligible for the program or they would receive an increased
award, both of which increase the amount of aid available for higher income groups.
Whereas if the maximum award were increased, the number of recipients with lower
incomes would not substantially change, they would generally receive larger amounts
of aid.
Table 2 demonstrates that increasing the maximum grant would provide
additional aid for recipients across all income groups, however, recipients with
family incomes above $30,000 would experience a small increase in the percentage
of total aid available under each increase.

CRS-13
Table 2. Estimated Amount of Pell Grant Aid to Recipients
by Family Income and Selected Increases in the
Maximum Appropriated Pell Award: Award Year 2008-2009
(dollars in thousands)
Increased Maximum Award
$4,310
$4,600
$5,100
$5,800
Family
% of Aid
% of Aid
% of Aid
% of Aid
Costs
Costs
Costs
Costs
Income
Available
Available
Available
Available
10,000 or
4,676,000
33.4%
4,991,000
32.8%
5,529,000
32.1%
6,269,000
31.3%
less
10,001 to
3,406,000
24.3%
3,674,000
24.2%
4,135,000
24.0%
4,771,000
23.8%
20,000
20,001 to
2,994,000
21.4%
3,220,000
21.2%
3,608,000
20.9%
4,145,000
20.7%
30,000
30,001 to
1,901,000
13.6%
2,091,000
13.8%
2,419,000
14.0%
2,874,000
14.3%
40,000
40,001 to
727,000
5.2%
838,000
5.5%
1,031,000
6.0%
1,300,000
6.5%
50,000
50,001 to
233,000
1.7%
281,000
1.8%
366,000
2.1%
488,000
2.4%
60,000
60,001 to
63,000
0.5%
80,000
0.5%
110,000
0.6%
155,000
0.8%
70,000
over 70,000
18,000
0.1%
23,000
0.1%
32,000
0.2%
46,000
0.2%
Total
14,018,000
100.0%
15,198,000
100.0%
17,230,000
100.0%
20,048,000
100.0%
Source: CRS estimates using the Pell Grant estimation model from the U.S. Department of Education’s Budget
Service.
Increasing the Pell Grant’s Coverage of Tuition and Fees
The purchasing power of the Pell Grant at public IHEs has diminished over the
last few decades, with a notable decline at four-year institutions during the last 15
years. Combining the rapid increase in college prices with the intermittent and
relatively low increases in the amount of the maximum Pell Grant award, the
percentage of tuition and fees and TFRB covered by the Pell Grant has eroded from
a high of 244% at four-year public IHEs and 507% two-year public IHEs in FY1979,
to a low of 69% and 178%, respectively, in FY2006. However, as previously
mentioned, increasing the amount of the maximum Pell Grant award is the best way
to increase Pell’s coverage of tuition and fees and TFRB. This section analyzes
Pell’s coverage of college costs using only the estimated average tuition and fees and
the estimated average tuition, fees, room and board,25 with the current maximum
25 For information regarding how the tuition and fees and TFRB estimates were produced
for award year 2008-2009, refer to the Data and Methodology section.

CRS-14
award of $4,310 and the selected maximum award amounts used in the preceding
analysis for award year 2008-2009.26
Four-Year Institutions. The analysis shown in Table 3 examines the
relationship of the maximum appropriated Pell Grant award to in-state tuition and
fees, and TFRB for students at public IHEs. As illustrated, the current appropriated
maximum award would cover approximately 66% of the estimated average tuition
and fees at public four-year institutions, and slightly more than 30% of TFRB for
award year 2008-2009. Increasing the maximum award to $4,600 would increase its
coverage to nearly 71% of tuition and fees and 32% of TFRB. If the amount of the
maximum award were increased by approximately $800, to $5,100, the maximum
award’s coverage of the average tuition and fees would increase to nearly 79%, and
its coverage of TFRB would increase to about 36%. Table 3 also illustrates that the
grant would need to be increased to the amount of the most recent authorized grant
award of $5,800 in order for it to cover 40% of TFRB. For the grant to cover 50%
of TFRB, the maximum award would need to be increased to approximately $7,100.
Two-Year Institutions. The Pell Grant’s coverage at two-year public
institutions is considerably more substantial than at four-year public institutions. As
shown in Table 3, the current appropriated maximum award would cover nearly
200% of the estimated average tuition and fees at two-year IHEs during award year
2008-2009. Furthermore, as illustrated, that same maximum award would cover
nearly 60% of the average TFRB at two-year IHEs. If the maximum award were
increased to $5,100, it would cover more than 230% of the average tuition and fees
and nearly 70% of TFRB.
Table 3. Estimated Coverage of In-State Tuition and Fees, and
Tuition, Fees, Room, and Board Covered by Selected Maximum
Appropriated Pell Grant Awards: Award Year 2008-2009
Four-Year Public
Two-Year Public
% of
% of
Tuition,
% of
Tuition,
% of
Maximum
Tuition
Tuition
Fees,
TFRB
Fees,
TFRB
Pell Grant
Tuition
and Fees
Tuition
and Fees
Room,
Covered
Room,
Covered
Award
and
Covered
and
Covered
and
by Max.
and
by Max.
Fees
by Max.
Fees
by Max.
Board
Pell Grant
Board
Pell Grant
Pell Grant
Pell Grant
(TFRB)
Award
(TFRB)
Award
Award
Award
4,310
6,494
66.4%
14,203
30.3%
2,207
195.3%
7,518
57.3%
4,600
6,494
70.8%
14,203
32.4%
2,207
208.4%
7,518
61.2%
5,100
6,494
78.5%
14,203
35.9%
2,207
231.1%
7,518
67.8%
5,800
6,494
89.3%
14,203
40.8%
2,207
262.8%
7,518
77.1%
Source: CRS calculation based on data from the U.S. Department of Education, National Center for Education
Statistics (NCES), Digest of Education Statistics, 2005, Table 312.
26 This analysis holds tuition and fees and TFRB at a constant, only adjusting for the
average inflation in each amount. The estimated amount of coverage presented would be
lower if IHEs raised their tuition and fees (or TFRB) to capture increases in grant aid, see
earlier section titled “Data and Methodology,” for more information.

CRS-15
Increasing the Minimum Pell Grant Award
As mentioned previously, current statute specifies that the minimum Pell Grant
award a person can receive is $400, even if the individual qualifies for an award
between $200 and $399; also known as “the bump.” Currently, the bump enables
individuals who have EFCs between $3,911 and $4,110 to receive the same award
as a recipient with an EFC of $3,910, which increases the number of award recipients
and adds to the program costs. If the $400 minimum Pell Grant award were set as
a “true” minimum award, meaning a recipient had to qualify for a $400 Pell Grant
award to receive this amount, the number of recipients would be reduced, which in
turn would reduce program costs. Furthermore, if the amount of the minimum award
were increased to a higher amount, and the bump were eliminated, this would also
serve to further reduce program costs and the number of Pell Grant recipients because
those recipients whose current Pell Grant award falls below the new minimum would
lose eligibility. This section of the report analyzes the impact of eliminating the
bump and increasing the minimum award to $500, $750, and $1,850.27
Recipients. Table 4 illustrates that a change in the minimum Pell Grant
award would likely alter the distribution of recipients by family income. Unlike the
outcome when the maximum award is increased, individuals in the lowest income
groups would comprise a greater share, rather than a smaller share of all recipients
when the amount of the minimum award is increased. For example, as demonstrated
in Table 4, recipients in the lowest income group ($10,000 or less) represent just
over 28% of all recipients under current law, but they would comprise approximately
30% if the minimum award were increased to $750, and exactly 1/3rd of all
recipients if the minimum were increased to $1,850. However, a reverse pattern
would result for recipients with higher family incomes. Recipients in the highest-
income group (over $70,000) would decrease from approximately 0.3% of all
recipients under current law to 0.1% if the minimum award were increased to $1,850.
It should be noted that in addition to changing the distribution of Pell Grant
recipients by family income, the overall number of recipients would be reduced as
well. For example, if the $400 minimum Pell Grant award were set as a “true”
minimum award, approximately 76,000 students would lose eligibility for a Pell
Grant award. If the amount of the minimum grant award were increased to $500,
approximately 2%, or 122,500 of those recipients who are eligible under current law
would lose eligibility. Furthermore, if the minimum award were increased to $1,850,
the amount of the average in-state tuition and fees at a two-year, public IHE, the
27 Both $750 and $1,850 were selected for this analysis because these amounts are closest
to the lowest in-state tuition and fees and the average in-state tuition and fees for two-year,
public IHEs reported in the Digest of Education Statistics, 2005 (Table 313) (most recent
data available). Specifically, $750 represents the amount closest to the lowest in-state
tuition and fee amount reported ($721; California), and $1,850 is closest to the amount of
the average tuition and fees ($1,847) at all two-year public IHEs for the 2004-2005 academic
year, reported in the Digest. The amount of $500 was chosen because it is a $100 increase
over the current minimum. It should be noted that the in-state tuition and fee data are for
2004-2005. Unlike the other tuition and fee data used in this report, these data were not
inflated to provide a projected estimate for 2008-2009.

CRS-16
number of recipients would be reduced by nearly 17%, for an estimated total loss of
895,000 recipients.
Generally, any increase in the minimum Pell Grant award will reduce the
number of recipients. However, as mentioned, an increase in the minimum award
would only affect those current recipients with the smallest grants — those recipients
whose current Pell Grant award falls below the new minimum lose eligibility, while
those with larger grants are unaffected. Further, as shown in Table 4, raising the
minimum grant by more substantial amounts would lead to greater reductions in the
number of recipients. Again, it should be noted that the loss of eligibility would
disproportionately affect higher-income recipients rather than recipients in the lowest
income group.
Finally, it is important to note that the number of recipients in the lower income
groups would also not increase, but they would comprise a larger share of all
recipients as a result of the attrition of recipients in higher income groups. This
approach, combined with an increase in the maximum award, enables more Pell
Grant aid to be targeted to low-income recipients without significantly increasing the
program costs.
Table 4. Percentage Distribution of Pell Grant Recipients by Family Income,
Under Selected Increases in the Minimum Grant Award:
Award Year 2008-2009
(numbers in thousands)
Increased Minimum Award
$400 Minimum,
$400
$500
$750
$1,850
with Bump
and No Bump
and No Bump
and No Bump
and No Bump
# of
# of
# of
# of
# of
% of All
Family
% of All
% of All
% of All
% of All
Recip-
Recip-
Recip-
Recip-
Recip- Recipients
Income
Recipients
Recipients
Recipients
Recipients
ients
ients
ients
ients
ients
10,000 or
1,520
28.2%
1,520
28.6%
1,520
28.8%
1,520
29.5%
1,496
33.3%
less
10,001 to
1,255
23.3%
1,238
23.3%
1,228
23.3%
1,203
23.3%
1,073
23.8%
20,000
20,001 to
1,046
19.4%
1,040
19.6%
1,037
19.7%
1,028
19.9%
961
21.4%
30,000
30,001 to
850
15.8%
842
15.8%
837
15.9%
819
15.9%
674
15.0%
40,000
40,001 to
465
8.6%
444
8.3%
430
8.2%
396
7.7%
222
4.9%
50,000
50,001 to
183
3.4%
168
3.2%
159
3.0%
138
2.7%
59
1.3%
60,000
60,001 to
59
1.1%
52
1.0%
48
0.9%
39
0.8%
11
0.2%
70,000
over
16
0.3%
13
0.2%
12
0.2%
9
0.2%
3
0.1%
70,000
Total
5,394
100.0%
5,317
100.0%
5,271
100.0%
5,152
100.0%
4,499
100.0%
Source: CRS estimates using the Pell Grant estimation model from the U.S. Department of Education’s Budget Service.

CRS-17
Program Costs. In addition to reducing the number of recipients, increasing
the minimum award amount and eliminating the bump would also reduce program
costs. Specifically, as shown in Table 5, simply setting $400 as the minimum grant
amount would reduce program costs by approximately $25.2 million annually, to
$14.0 billion. However, as also illustrated by Table 5, the minimum award would
need to be increased to either $750 or $1,850 to produce a substantial reduction in
program costs. Increasing the minimum award to $750 or $1,850 would decrease
program costs by approximately $104 million and $797 million, respectively.
As demonstrated, selected increases in the minimum Pell Grant award have a
greater impact in percentage terms on the number of recipients than on the total costs
of the program. This general pattern is not surprising, because increasing the
minimum award eliminates all of the students who currently receive the minimum
award. For example, establishing a true $400 minimum (no bump) decreases
program costs by at most $400 per recipient losing eligibility. However, raising the
minimum grant by more substantial amounts would lead to proportionately greater
reductions in program costs because more recipients’ whose awards fall below the
raised minimum would lose eligibility, although more recipients would be affected
and would lose larger grants.

CRS-18
Table 5. Estimated Change in Pell Grant Program Costs
Under Selected Changes in the Minimum Grant Award:
Award Year 2008-2009
(dollars in thousands)
Minimum Pell Grant Award
Current Law
$400
$500
$750
$1,850
% Change
% Change
% Change
% Change
Family
Program
Program
Between
Program
Between
Program
Between
Program
Between
Income
Costs
Costs
Current
Costs
Current
Costs
Current
Costs
Current Law
Law
Law
Law
10,000 or less
4,676,000
4,676,000
0.0%
4,676,000
0.0%
4,676,000
0.0%
4,652,000
-0.5%
10,001 to 20,000
3,406,000
3,401,000
-0.1%
3,397,000
-0.3%
3,385,000
-0.6%
3,258,000
-4.4%
20,001 to 30,000
2,994,000
2,992,000
-0.1%
2,991,000
-0.1%
2,986,000
-0.3%
2,916,000
-2.6%
30,001 to 40,000
1,901,000
1,898,000
-0.2%
1,896,000
-0.2%
1,887,000
-0.7%
1,722,000
-9.4%
40,001 to 50,000
727,000
720,000
-1.0%
715,000
-1.7%
697,000
-4.2%
512,000
-29.6%
50,001 to 60,000
234,000
229,000
-2.1%
225,000
-3.7%
214,000
-8.3%
129,000
-44.6%
60,001 to 70,000
63,000
61,000
-3.2%
59,000
-6.3%
55,000
-13.5%
25,000
-59.6%
over 70,000
18,000
17,000
-5.6%
16,000
-8.5%
15,000
-16.3%
8,000
-54.1%
Total
14,019,000
13,994,000
-0.2%
13,975,000
-0.3%
13,915,000
-0.7%
13,222,000
-5.7%
Source: CRS estimates using the Pell Grant estimation model from the U.S. Department of Education’s Budget Service.

CRS-19
Tuition Sensitivity
This section analyzes the estimated impact of eliminating the tuition sensitivity
provision from the program award rules and increasing the maximum award to
$4,600, $5,100 and $5,800. Tuition sensitivity reduces the amount of the Pell Grant
award for low-income students who also attend low-cost IHEs. The tuition
sensitivity rule was intended to protect a base amount of the Pell Grant maximum
award and make a portion of increases above that base ($2,700) sensitive to tuition.
As implemented by ED, tuition sensitivity reduces the Pell Grant award received by
a small number of low-income students attending institutions with very low tuition
and fee charges.
Recipients. If the tuition sensitivity provision were eliminated there would
be no change in the number of recipients over the estimated number of recipients
eligible for the current appropriated maximum award. Eliminating this provision
simply removes one of the ways awards are calculated; it would not affect a
recipient’s eligibility for a Pell Grant award. That is, the number of recipients would
not be affected by the elimination of the tuition sensitivity provision, even if the
amount of the maximum appropriated grant award were increased.28
Program Costs. Eliminating the tuition sensitivity provision would slightly
increase the program’s costs because the students who attend low-cost IHEs would
no longer have their award capped as a result of their expected family contribution
(EFC) and the cost of attendance (COA) of the institution they attend. Removing the
tuition sensitivity provision would enable these students to receive higher grant
amounts that could be used for other qualified education expenses such as room and
board or books and supplies. If the tuition sensitivity provision were eliminated and
the maximum award were increased, program costs would increase by a small
amount over the cost of increasing the maximum award alone, regardless of the
amount of the maximum award. For example, under current law, if the provision
were dropped, it would add an additional $10.3 million to the program costs, for a
total program cost of $14.02 billion. Increasing the maximum grant award by $290,
to $4,600, and dropping the tuition sensitivity provision would add an additional
$1.19 billion to the current law estimates, for a total program costs of $15.2 billion.
The estimated costs associated with eliminating the tuition sensitivity provision and
increasing the maximum award to $5,100 are $17.2 million. If the maximum award
were increased to $5,800 and the tuition sensitivity provision were eliminated,
program costs would be approximately $20.1 billion, approximately $94 million
more than solely increasing the maximum award to $5,800. It is important to note
that in each of these scenarios the increase in program costs are primarily attributable
to also increasing the maximum Pell Grant award.
The impact of the tuition sensitivity rule in FY2007 may be felt by an estimated
96,000 students, whose Pell Grant awards are estimated to be reduced by an
28 See Table 1 for the estimated number of grant recipients at each maximum grant award
level.

CRS-20
aggregate amount of slightly more than $10.4 million. The estimated average loss
per student in Pell assistance may be about $108.29
Increasing the Auto-Zero EFC Income Threshold
As previously mentioned, the automatic-zero expected family contribution
(auto-zero EFC) provision automatically sets a recipient’s EFC to $0, which
generally means that an individual would qualify for the maximum Pell Grant
award.30 To qualify for auto-zero EFC, a recipient must have an adjusted gross
income of $20,000 or less, and satisfy other conditions previously discussed. This
section analyzes the estimated impact on the recipients and program costs if the
income eligibility threshold for auto-zero EFC were increased to $25,000 and
$30,000,31, thereby allowing additional low-income recipients to possibly qualify for
a larger Pell Grant award automatically.32
Recipients. The analysis suggests that if the auto-zero EFC income threshold
were raised from $20,000 to $25,000, and the maximum appropriated Pell Grant
award remained at $4,310, the overall number of recipients would increase slightly
by approximately 3,400 recipients, for an estimated total of 5.4 million recipients.
The analysis indicates that more than 60% (2,100 out of 3,400) of the overall
recipient growth would occur for individuals with family incomes between $20,001
to $30,000. The results would be similar if the income threshold were increased to
$30,000. However, the estimated number of recipients would increase by
approximately 7,400 over the current law estimates. In addition, an estimated 3,200
of these recipients would have family incomes between $20,001 and $30,000
(43.2%).
Overall, increasing the income eligibility threshold for auto-zero EFC from
$20,000 to either $25,000 or $30,000 would have a minimal effect on the estimated
number of new Pell Grant recipients. However, it is important to note that in both
cases, if the income threshold were increased to $25,000 or $30,000, all eligible
29 For additional information about the tuition sensitivity provision see CRS Report
RL31668, Federal Pell Grant Program of the Higher Education Act: Background and
Reauthorization, by Charmaine Mercer.
30 A student would also have to be enrolled full-time in an eligible program to receive the
maximum Pell Grant award, otherwise, the amount of the award is reduced according to the
recipient’s attendance status (i.e., half-time, less than half-time, etc.).
31 These amounts were selected because they represent, approximately, 125% and 150% of
the Federal Poverty Guidelines for a family of four ($20,650) for 2007. For additional
information about the Federal Poverty Guidelines, see [http://aspe.hhs.gov/poverty/
07poverty.shtml].
32 It should be noted that there are numerous changes that could be made to the need analysis
formula, including increasing the income eligibility threshold for auto-zero EFC, that could
alter a recipient’s EFC, and possibly his/her Pell Grant award as well. This particular
adjustment is examined because it is commonly proposed. For additional information about
the other elements of the need analysis formula, see CRS Report RL33266, Federal Student
Aid Need Analysis System: Background, Description and Legislative Action, by Charmaine
Mercer.

CRS-21
recipients with an AGI at or below the specified auto-zero income threshold would
receive the maximum appropriated Pell Grant award.33
Program Costs. If the income threshold for auto-zero EFC were increased,
thereby allowing more students to receive the maximum appropriated award, it
follows that the program costs would increase as well. Specifically, if the income
threshold were changed to $25,000 and the maximum award remained at $4,310, it
would add approximately $142 million to the program costs, for an estimated total
program cost of $14.1 billion. If the income threshold were changed to $25,000 and
the maximum award were increased to $4,600, the program costs would grow to an
estimated $15.3 billion, a 9.4% increase over the current law estimates. Furthermore,
if the income threshold were increased to $25,000 and the maximum award were
increased to $5,100, program costs would increase by nearly 24%, to $17.3 billion.
Increasing the income eligibility threshold to $30,000 would further increase
program costs. Specifically, if the income threshold were increased to $30,000 and
the maximum award remained $4,310, program costs would increase by $349
million, for a total of $14.4 billion. If the maximum award were increased to $4,600
and the auto-zero income threshold were increased to $30,000, program costs would
increase by nearly 11%, to an estimated $15.5 billion. Program costs would increase
by an estimated $3.5 billion, or a 25% increase over the estimated current law
program costs, if the auto-zero EFC income threshold were raised to $30,000 and the
maximum award were increased to $5,100.
Thus, increasing the income threshold for auto-zero EFC to $25,000 or $30,000
would increase the amount of the Pell Grant award for a small group of lower income
recipients and, the cost of changing the eligibility threshold would be relatively
minimal as well. If Congress were to increase the maximum Pell Grant award
simultaneously, a significant amount of the cost increase would be due to increasing
the amount of the maximum Pell Grant award.
Estimated Impact of Selected Combined Changes
This section combines selected provisions from each of the previously discussed
analyses to determine if it is possible to increase the Pell Grant’s coverage of tuition
and fees and TFRB; increase the minimum award amount and eliminate the bump;
remove the tuition sensitivity provision, which disparately affects low-income
students; and increase the auto-zero EFC income threshold to extend the maximum
award to more low-income students, while also not significantly changing the
recipient composition or program costs.34 Two packages have been constructed to
33 As previously discussed, the results are presented by family income, not AGI, — which
is usually less than or equal to family income. Thus, it is possible for recipients with higher
family incomes to also have an AGI of $25,000 or less, and as a result, benefit from auto-
zero EFC.
34 The analysis does not include the estimated effects of a $5,800 maximum Pell Grant
award because the estimated program costs for solely increasing the maximum award
(continued...)

CRS-22
produce different estimates for recipients and costs based on changes to selected
provisions, and increases in the maximum award.
The packages are provided to illustrate the estimated effects of combining
selected provisions and in light of recent legislative proposals such as H.R. 2669, the
College Cost Reduction Act of 2007, and S. 1642, Higher Education Amendments
of 2007, both of which combine several award rule and need analysis changes. It is
important to note that the estimated recipient and program cost increases for each
option presented are largely driven by the increase in the maximum appropriated Pell
Grant award. As demonstrated in the analysis shown earlier, increasing the
maximum award significantly increases program costs and slightly alters the recipient
composition, depending on the amount of the increase. The other changes
(eliminating the tuition sensitivity provision and increasing income eligibility for
auto-zero EFC) are a lot more limited in their scope, meaning they would affect
relatively few recipients and, would not substantially increase the program costs.
Increasing the minimum grant award and eliminating the bump would actually reduce
the number of recipients and program costs. The elements of each of the two
packages are described in the following sections.
Package One. Package One maintains the current appropriated maximum of
$4,310, and changes other less costly provisions. Specifically, Package One presents
two options; Option A, which is most similar to current law, increases the income
eligibility threshold for auto-zero EFC from $20,000 to $30,000 and eliminates the
tuition sensitivity provision; Option B includes these two changes as well but, also
increases the minimum award amount from $400 to $500 and removes the bump. As
demonstrated earlier, implementing these changes would have a minimal impact
upon program costs and the recipient composition. More specifically, increasing the
income eligibility for auto-zero EFC and removing the tuition sensitivity provision
would add fewer than 10,000 new recipients and increase program cost by
approximately $360 million, less than the amount to increase the maximum award
by $100 (approximately $400 million for award year 2008-2009). Furthermore,
increasing the minimum award to $500 and eliminating the bump would reduce the
number of recipients by approximately 122,000 recipients and, reduce program costs
by $42 million, thereby offsetting some of the cost associated with the other two
provisions.
As illustrated in Table 6, the changes included in Option A and Option B would
have a minimal impact upon the recipient composition or program costs.
Specifically, Option A would add an estimated 7,000 new recipients to the program
and increase program costs by slightly less than $350 million over the current law
estimates. Further, Option B would reduce the number of recipients by
approximately 110,000, and increase program costs by about $309 million over
current law estimates. The results shown in Table 6 also illustrate that under both
scenarios, the distribution of recipients by family income would not substantially
change from current law. In fact, recipients in the lowest family income groups (less
34 (...continued)
(approximately $6.1 billion) do not permit the other provisions to be changed, while also not
significantly increasing the number of recipients or the program costs.

CRS-23
than $50,000) would either retain the same percentage share as they do under current
law or, experience a slight increase. The changes in the percentage of aid available
under both Option A and B, would slightly differ from current law, although the
amount of aid available for each income group would remain about the same. As
previously mentioned, these results are largely attributable to the fact that the selected
changes — increasing income eligibility for auto-zero EFC, eliminating tuition
sensitivity, and increasing the minimum grant award and eliminating the bump — are
relatively inexpensive to implement and are primarily targeted to individuals with the
greatest need.

CRS-24
Table 6. Estimated Impact of Program and Award Rule Changes in Package One
on Pell Grant Recipients and the Amount of Aid Available: Award Year 2008-2009
(numbers and dollars in thousands)
Current Law
Option A
Option B
$4,310 Max.,
$4,310 Max.,
$4,310 Max.,
% of All
No Tuition Sensitivity,
% of All
No Tuition Sensitivity,
% of All
Family Income
$400 Min.,
Recipients
$30,000 Auto-Zero, and
Recipients
$30,000 Auto-Zero, and
Recipients
with Bump
$400 Min. With Bump
$500 Min. with No Bump
Recipients
10,000 or less
1,520
28.2%
1,520
28.1%
1,520
28.8%
10,001 to 20,000
1,255
23.3%
1,255
23.2%
1,228
23.2%
20,001 to 30,000
1,046
19.4%
1,049
19.4%
1,043
19.7%
30,001 to 40,000
850
15.8%
851
15.8%
840
15.9%
40,001 to 50,000
465
8.6%
467
8.6%
434
8.2%
50,001 to 60,000
183
3.4%
183
3.4%
159
3.0%
60,001 to 70,000
59
1.1%
59
1.1%
48
0.9%
over 70,000
16
0.3%
16
0.3%
12
0.2%
Total
5,394
100.0%
5,401
100.0%
5,284
100.0%
Program Costs
10,000 or less
4,676,000
33.4%
4,675,000
32.5%
4,676,000
32.6%
10,001 to 20,000
3,406,000
24.3%
3,406,000
23.7%
3,397,000
23.7%
20,001 to 30,000
2,994,000
21.4%
3,169,000
22.1%
3,167,000
22.1%
30,001 to 40,000
1,901,000
13.6%
2,043,000
14.2%
2,039,000
14.2%
40,001 to 50,000
727,000
5.2%
755,200
5.3%
743,000
5.2%
50,001 to 60,000
233,000
1.7%
237,000
1.6%
229,000
1.6%
60,001 to 70,000
63,000
0.4%
63,000
0.4%
60,000
0.4%
over 70,000
18,000
0.1%
18,000
0.1%
16,000
0.1%
Total
14,019,000
100.0%
14,368,000
100.0%
14,328,000
100.0%
Source: CRS estimates using the Pell Grant estimation model from the U.S. Department of Education’s Budget Service.

CRS-25
Package Two. Package Two includes four options, Options A, B, C, and D.
Options A and B of Package 2 are identical to Option A of Package 1 except that the
maximum award amounts are $4,600 and $5,100 respectively. Similarly, Options C
and D are the same as Option B of Package 1, except that the maximum award
amounts are $4,600 and $5,100 respectively. As previously mentioned, increasing
the amount of the maximum award significantly increases program cost, thus the
changes presented in Package 2 will be largely driven by the change in the maximum
award.
As illustrated in Table 7, the selected provisions of Options A, B, and D would
each add new recipients to the estimated number of recipients under current law.
Options B and D would both increase the number of Pell Grant recipients to
approximately 5.5 million recipients. Conversely, Option C would slightly reduce
the number of Pell Grant recipients from the estimated number under current law.
Overall, under each of the options, the distribution of recipients by family income
would not substantially change from current law. Recipients with higher family
incomes would experience a small percentage increase under most of the options.
Program costs would increase over current law estimates under each option as well.
Options B and D are the most expensive of all of the options, both would cost an
estimated $17.6 billion, which is primarily due to the large increase in the maximum
Pell Grant award, which also increases the number of new recipients. Option C is the
least expensive of the four options, with a price tag of $15.5 billion, it would increase
program costs by nearly $1.5 billion over current law, however, because of the
increased minimum award and elimination of the bump, it would also eliminate an
estimated 6,000 recipients from the program. Similarly, Option A would also
increase program costs by approximately $1.5 billion, but it would add 84,000 new
recipients to the program.

CRS-26
Table 7. Estimated Impact of Program and Award Rule Changes in Package Two
on Pell Grant Recipients and the Amount of Aid Available: Award Year 2008-2009
(numbers and dollars in thousands)
Current Law
Option A
Option B
Option C
Option D
$4,600 Max., No
$5,100 Max., No
$4,600 Max., No
$5,100 Max., No
$4,310 Max.,
Tuition Sensitivity,
Tuition Sensitivity,
Tuition Sensitivity,
Tuition Sensitivity,
Family
% of All
% of All
% of All
% of All
% of All
$400 Min.,
$30,000 Auto-Zero,
$30,000 Auto-Zero,
$30,000 Auto-Zero,
$30,000 Auto-Zero,
Income
Recipients
Recipients
Recipients
Recipients
Recipients
With Bump
and $400 Min.
and $400 Min.
and $500 Min.
and $500 Min.
With Bump
With Bump
And No Bump
And No Bump
Recipients
10,000 or less
1,520
28.2%
1,521
27.8%
1,520
27.5%
1,521
28.2%
1,520
27.6%
10,001 to 20,000
1,255
23.3%
1,272
23.2%
1,279
23.1%
1,252
23.2%
1,275
23.2%
20,001 to 30,000
1,046
19.4%
1,054
19.2%
1,056
19.1%
1,049
19.5%
1,055
19.2%
30,001 to 40,000
850
15.8%
859
15.7%
864
15.6%
850
15.8%
862
15.7%
40,001 to 50,000
465
8.6%
485
8.9%
496
9.0%
462
8.6%
490
8.9%
50,001 to 60,000
183
3.4%
199
3.6%
214
3.9%
180
3.3%
206
3.7%
60,001 to 70,000
59
1.1%
68
1.2%
75
1.4%
58
1.1%
71
1.3%
over 70,000
16
0.3%
19
0.3%
23
0.4%
16
0.3%
21
0.4%
Total
5,394
100.0%
5,478
100.0%
5,526
100.0%
5,388
100.0%
5,499
100.0%
Program Costs
10,000 or less
4,676,000
33.4%
4,999,000
32.1%
5,543,000
31.5%
4,999,000
32.2%
5,543,000
31.5%
10,001 to 20,000
3,406,000
24.3%
3,680,000
23.6%
4,144,000
23.5%
3,674,000
23.6%
4,142,000
23.5%
20,001 to 30,000
2,994,000
21.4%
3,400,000
21.8%
3,791,000
21.5%
3,399,000
21.9%
3,790,000
21.5%
30,001 to 40,000
1,901,000
13.6%
2,236,000
14.4%
2,563,000
14.6%
2,232,000
14.4%
2,562,000
14.6%
40,001 to 50,000
727,000
5.2%
866,000
5.6%
1,059,000
6.0%
858,000
5.5%
1,056,000
6.0%
50,001 to 60,000
233,000
1.7%
284,000
1.8%
370,000
2.1%
278,000
1.8%
367,000
2.1%
60,001 to 70,000
63,000
0.4%
80,000
0.5%
111,000
0.6%
77,000
0.5%
110,000
0.6%
over 70,000
18,000
0.1%
23,000
0.1%
32,000
0.2%
21,000
0.1%
32,000
0.2%
Total
14,019,000
100.0%
15,570,000
100.0%
17,613,000
100.0%
15,539,000
100.0%
17,603,000
100.0%
Source: CRS estimates using the Pell Grant estimation model from the U.S. Department of Education’s Budget Service.

CRS-27
Conclusion
There are several basic tenets that are relevant to consideration of changes to the
Pell Grant program’s award rules and/or the need analysis formula.
Maximum Grant Award. Increasing the maximum Pell Grant award is the
primary way to increase the amount of aid received by all recipients. Increases in the
maximum award provide additional aid for existing recipients and, brings in newly
eligible recipients with higher family incomes; thus providing increased aid amounts
for everyone. However, increases in the maximum award are also generally very
costly. Every $100 increase in the maximum grant award would increase the
program costs by approximately $400 million.
Minimum Grant Award. Increasing the minimum award (and eliminating
the bump) allows for greater targeting of Pell Grants to lower income recipients. As
mentioned, raising the minimum grant amount and eliminating the bump, generally
reduces the number of recipients who have less need (more available income and
assets). An increase of the minimum award can also serve to reduce program costs,
or if combined with an increase in the maximum award it can help offset the costs
associated with the increase in the maximum. However, the minimum award would
need to be increased to at least $750, and eliminate the bump, to realize a substantive
savings.
Tuition Sensitivity. Eliminating the tuition sensitivity provision is a very
inexpensive provision to implement and would affect a small number of very
low-income recipients. As mentioned, less than 100,000 recipients would be affected
by the removal of this provision, and they would have their awards increased by
approximately $100.
Auto-Zero EFC. Increasing the income eligibility threshold for auto-zero EFC
to either $25,000 or $30,000 would only affect a small group of low-income
recipients. As the analyses demonstrated, increasing the income threshold to $25,000
would add 3,400 new recipients and increasing it to $30,000 would add
approximately 7,400 new recipients. More importantly, increasing the income
threshold would enable these recipients to receive the maximum Pell Grant award of
$4,310, depending upon their enrollment status.
In addition to these basic tenets, the findings presented in this report suggest it
is possible to increase the Pell Grant’s coverage to at least 70% of the average tuition
and fees at a four-year, public institution of higher education; eliminate the tuition
sensitivity provision; and extend the maximum Pell Grant award to additional low-
income students by increasing the auto-zero income threshold, while also not
significantly shifting the recipient composition or increasing program costs.
However, as demonstrated, to achieve these outcomes, some changes would need to
be made to the program award rules and/or the need analysis formula. Under some
scenarios, current recipients could lose eligibility, while in others, new recipients
would be ushered into the program, and in all cases, program costs would increase.
As the Congress prepares to reauthorize the Higher Education Act, including the Pell

CRS-28
Grant program, it is likely that questions pertaining to the possible trade-offs that
accompany selected changes will be discussed. Among some of the trade-offs:
! To what extent should federal grant aid be primarily, if not
exclusively, provided to help make college affordable for low-
income students?
! Should the Pell Grant award, both the maximum and the minimum
awards, be of a sufficient size to cover the average tuition and fee
amount at a two-year or four-year public IHE? What about private
IHEs?
! Should the grant award be expected to cover tuition, fees, room and
board or even the cost of attendance?
! Would it be better to provide smaller grants to a greater number of
students, or provide fewer students with larger awards?

CRS-29
Appendix: Pell Grant Estimation Model
This analysis uses estimates derived by CRS from the Pell Grant estimation
model, which was developed and maintained by the U.S. Department of Education’s
Budget Service. The Department of Education’s annual budget requests for Pell
Grant appropriations are based on the results from the Pell estimation model. The
model’s latest version (U2008, December 2006) was utilized for this analysis. All
estimates presented in this report are for the 2008-2009 Pell award year.
The Pell model is a SAS-based model that is capable of simulating changes in
the Pell Grant program’s rules and producing estimated changes in recipients,
program costs, and average awards among other things. In addition, the model
provides the distribution of student awards by income level and dependency status.
The model produces simulated Pell Grant awards based on enacted or proposed
policies. To produce these estimates, a sample of applicants and recipients from a
recent award year are used; sample data for award year 2005-2006 were used for the
U2008 version of the model. Economic variables, such as personal income levels
and CPI-U inflators, which are provided by the Office of Management and Budget,
are used to specify simulated changes to students’ financial situations and other
facets of the need analysis formula. Further, the sample is “aged” to project future
behavior and current FAFSA applicant and Pell Grant recipient data are used to
calibrate the model. The model is generally updated twice per year (December and
June).
The model contains sample data for approximately 500,000 applicants. These
data are representative of the overall Pell Grant population and are weighted by
income and dependency status.