A new report by the Gates Foundation recommends that the federal government block grant Pell Grants, which provide federal assistance for low-income students to go to college, directly to the states, rather than issue them to individual students.
The paper proposes that,
…The federal Pell grant and other campus-based programs [should] be consolidated into a single program focused exclusively on portable aid for low-income students. This aid would be provided as a lump sum each year to states, with provisions requiring that: the aid be awarded to students on the basis of need; the aid be portable across institutional and state lines; states “match” the federal investment with one dollar of state aid for every four dollars of federal aid; and the state’s public institutions do not raise tuition more than the rate of increase in median family income in the state.
The idea is that under a block grant policy states will have an incentive to keep tuition low at state universities. Under the current program Pell grants are one of the few vehicles the federal government has to encourage the poor to attend college, yet because Pell is simply tied to students, college have no incentive to reduce cost, students just get a discount.
The report also recommends eliminating tax credits for education and putting all Americans with student debt in automatic income-based repayment plans.
The federal government provided $35.2 billion in grant funding to American college students in the 2011-12 academic year.