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That colleges have little incentive to enroll low-income students is increasingly reflected in their student aid policies. Under —p���������ٱ�
consultants who advise institutions on admissions and financial aid
policies—many public and private colleges are using their limited
institutional aid budgets to attract the students they most desire: the
“best and brightest,” and the wealthiest. They are, in other words,
providing merit aid both to high-achieving students who can help them
rise in the U.S. News & World Report rankings and to affluent students who can help them increase their revenues.

Congress
could begin to reverse these trends by creating a new program to reward
colleges for enrolling and graduating students with , federal aid that typically goes to students with annual family incomes below $50,000. Under such a program,
colleges that enroll a substantial share of Pell Grant recipients (20
to 25 percent) and graduate at least half of their students school-wide
would receive an institutional grant from the federal government.
Colleges could use this money to increase their need-based institutional
aid budget and therefore reduce the net price—the average amount of
money that students and their families pay after all aid is deducted
from the list price—charged to the neediest students. They could also
use the money for academic tutoring and student support services to help
these students adjust to and succeed in college.

This
“Pell-Bonus” proposal would not only aim to change admissions practices;
it would also provide much-needed funds to the colleges that low-income
students tend to enroll in: community colleges and non-selective public
and private four-year colleges that have small endowments. Financially
strapped, these colleges have a hard time providing adequate support to
students with the greatest need. As a result, students at these
institutions often take on significant amounts of debt, or engage in
activities that lessen their likelihood of completing degrees, such as
working full-time while attending college or dropping out until they can
afford to return.

The lawmakers who created the federal
financial aid programs four decades ago understood that colleges
enrolling large numbers of low-income students need additional support.
When Congress created the Pell Grant program in 1972, it also
established a separate program to provide supplemental funds to colleges
that enrolled Pell Grant recipients. The program, known as the “cost of
education allowances,” recognized that it’s more expensive for schools
to help low-income students, who tend to come with many educational
disadvantages, to and through college than it is to do so for wealthier
students. Though Congress authorized this program, it went unfunded and
was eventually eliminated.

,
the president and chancellor of Louisiana State University, has been
perhaps the most impassioned champion of reviving the “cost of education
allowances” program. “Imagine for a moment what might have resulted
from the creation of an institutional funding stream that would reward
colleges and universities for enrolling and educating more low-income or
Pell students,” Alexander said in
at the American Association of State Colleges and Universities’ annual
meeting last October. “Currently, there are no incentives to do so, only
disincentives, since they cost more to educate, have lower graduation
rates, and have an overall negative impact on the current private
magazine rating systems.”

The idea of creating a Pell Bonus for
colleges that enroll and graduate a substantial number of Pell Grant
recipients has begun to catch the attention of policymakers.

For the last two years, President Barack Obama has called on Congress to spend $7 billion over 10 years to create a “”
program. Under the proposal, “colleges that successfully enroll and
graduate a significant number of low- and moderate-income students on
time” would receive grants “based on their number of on-time graduates
that receive .” Schools that substantially increase the graduation rate of students with
would receive an even larger award. Colleges would also be required to
have acceptable graduation and student loan default rates to participate
in the program.

Under ,
colleges could use the funds “for expanding need-based financial aid,
enhancing student instruction and support strategies, and adopting other
best practices to increase college access and success for low-income
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In November, former Sen. Tom Harkin, the Iowa Democrat
who led the Senate committee in charge of overseeing higher education,
included a “Pell Bonus Demonstration Project” as part of a , the law governing federal student aid programs.

Under
the legislation, the U.S. Department of Education would provide grants
to colleges in up to five states that have “a strong record of
supporting, reforming, and improving the performance of the state’s
public higher education system.” States would be eligible if they have
invested significantly in their public colleges and universities, helped
smooth the student transfer process among public colleges, and devoted
their financial aid dollars primarily to need-based aid.

In
exchange, colleges in these states would receive additional funds
depending on the proportion of Pell Grant recipients they have in their
graduating class, the school’s graduation rate, and its average net
price. Funds could be used to increase spending on need-based financial
aid; strengthen support programs for low-income students; improve
student learning while reducing costs; use technology to scale and
enhance improvements; and establish or expand accelerated learning
opportunities.

It is encouraging that the “Pell Bonus” proposal
has received such high-level attention. However, the Republican
Congressional leadership has yet to express much interest in the idea.

That’s too bad. As King Alexander and , former chancellor of the California State University system, wrote in a 2009
on this topic, “Creating financial incentives for institutions to
remain committed or to recommit themselves to the public needs of
society should be among the federal government’s highest priorities.”

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