During the 2006-2007 academic year, grants accounted for $52 billion, roughly half of the student aid received by undergraduate college students. The largest grant program—the federal Pell program—provided $13 billion in grants, primarily to lower-income students. Although grant programs provide significant support to students, their impacts have been disappointing— substantial inequalities in college-going and completion rates of youth from different income groups remain large and persistent. Despite extensive research, the impact of grants on college-going remains uncertain.
A recent natural experiment (during which net prices of important categories of colleges declined) provides an opportunity to reassess the effect of grant programs on college-going among lower income youth. Between 1996 and 2002, increases in Pell and other grant awards and relatively stable tuition and fees charges at lower-price public colleges combined to create small but steady declines in net-of-grant prices facing these traditionally underserved youth. During these years, the net-of-grant prices declined by roughly $950 to $1,000 for low-income students (those from families with incomes below $30,000 per year in constant 2005 dollars) enrolled in public two- and four-year (non Ph.D. granting) colleges.
These grant-induced reductions in net prices appear to have stimulated small but meaningful increases in college-going among these youth. Because the Pell program accounted for most of the increases in grant support during these years, the results of this natural experiment indicate that Pell awards are an important contributor to the positive impact of grant-induced declines in net prices on college-going.