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Defending Pell Grants: Higher Education Is Key to Our Nation’s Economic Competitiveness

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America’s supply of human capital and its ability to remain economically competitive with the rest of the world hinges on its ability to develop a highly educated workforce. Reducing the supply of Pell Grants would have a negative effect on this development.

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One of the least publicized achievements of the 111th Congress is the Student Aid and Fiscal Responsibility Act, which passed as part of the health care reform package that was signed into law by President Barack Obama in March. SAFRA cut billions of dollars in senseless subsidies that private companies were receiving to originate federal student loans in favor of originating all federal student loans directly through the Department of Education. The money saved is being used to expand the Pell Grant program, which provides low-income students with grants to finance their higher education.

SAFRA is a key piece of legislation that will pump $100 billion into the economy via the increased earnings of students who will have new access to Pell Grants, according to an analysis by the Center for American Progress Action Fund. But the Pell program is already facing a new challenge—a shortfall in funding due to a combination of the economic stimulus package ending and increased demand. And with the incoming class of conservative lawmakers looking to slash the federal budget, access to higher education for millions of American students is at stake.

For the 2011 fiscal year, the Pell Grant program is facing a roughly $5.7 billion shortfall at a time when demand for grants is increasing due to the lingering effects of the Great Recession. If the shortfall isn’t closed, the maximum grant under the program will be cut by about $845 for the 2011 academic year. In all, about 9 million students will have their awards reduced if additional funding is not approved.

The trouble is that conservatives on Capitol Hill are draping themselves in supposed fiscal responsibility and may refuse to cover the shortfall. In their much-ballyhooed “Pledge to America,” for instance, House Republicans promised to reduce nondefense discretionary spending back to the 2008 level, which would cut about $9 billion from the Pell Grant program. The incoming chairmen of the House Budget and Education committees, Reps. Paul Ryan (R-WI) and John Kline (R-MN), respectively, are reportedly eyeing Pell reductions already. “If John Kline doesn’t fire the first volley, Paul Ryan in the budget committee is going to,” a Republican staffer told Inside Higher Ed.

Cutting Pell Grants, particularly amid a weak economic recovery, would be extremely foolhardy. For one thing, according to the National Center for Education Statistics, Pell recipients largely come from traditionally underserved communities. They are “more likely to be female and first-generation college students, and less likely to be white than those who don’t receive the grants.”

But keeping the Pell Grant program fully funded is about more than ensuring adequate access to higher education for these disadvantaged students (though that, by itself, is a worthy goal). It’s also about the country’s economic competitiveness, which depends on having a highly educated, 21st century workforce. And at the moment, America has a falling level of educational attainment after leading the world for most of the postwar period.

According to the College Board, America is now 12th worldwide in percentage of 25-to-34-year-olds with a college degree, trailing, among others, Russia, New Zealand, South Korea, Ireland, and Israel. Just 35 percent of 18-to-24-year-olds were enrolled in some form of higher education in 2008, according to the National Center on Public Policy and Education, compared to more than 50 percent of South Koreans.

Canada is currently number one in terms of educational attainment. To retake that top spot, the United States would have to add 1 million college degrees per year through 2025, in addition to the 2 million annual degrees that are in the pipeline already. By 2025, according to estimates by the Lumina Foundation, our nation will be short 16 million college-educated workers. This will have real consequences for both the economy as a whole and for individual workers.

“Since 1975, the average earnings of high school dropouts and high school graduates fell in real terms (by 15 percent and 1 percent, respectively) while those of college graduates rose by 19 percent,” the Lumina Foundation found. “In other words, the economic benefits of higher education — both for individuals and society — are growing.” Today, the average annual income of a college-educated person is $43,000 while someone with just a high school diploma averages $27,000.

America’s supply of human capital and its ability to remain economically competitive with the rest of the world hinges on its ability to develop a highly educated workforce. The Student Aid and Fiscal Responsibility Act was an important step in the right direction. Reducing the supply of Pell Grants would have the opposite effect and would be sacrificing America’s long-term economic strength on the altar of short-term deficit reduction. That is not a trade any policymaker should be willing to make.

Pat Garofalo is a Senior Economics Researcher at the Center for American Progress and a Blogger at the Center for American Progress Action Fund.

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