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Pell Grants and Community Colleges

Community College Insights
February 9, 2024

Community colleges serve as an access point to higher education for many low-income students, many who use Pell Grants to offset costs. The federal government's need-based grant provides money to students to help cover tuition and other costs related to their education. While there are some limitations, Pell Grants make community colleges even more accessible for low-income students. Students enrolled in non-credit programs are ineligible to receive Pell Grants. However, legislation that is currently moving forward in Congress increases the possibility that Pell Grants will be expanded to include some these programs.

What Is the Pell Grant?

Title IV of the Higher Education Act of 1965 created the Pell Grant program along with other federal student aid programs. This program provides aid to low-income undergraduate students and, according to a report from the Congressional Research Service, is the largest source of grant aid for postsecondary education funded by the federal government. Depending on need determined by the Free Application for Federal Student Aid, or FAFSA, students, as of the 2023-2024 academic year, can receive up to $7,395 annually. These funds can be used to cover direct costs at the institution, such as tuition and fees, and the remainder is refunded to the student to cover any education-related expenses (i.e., transportation, living expenses, etc.). Students can receive Pell Grants for a maximum of 12 full-time (12 credit hours or more) semesters. If the student attends an institution part-time, then they receive a prorated Pell Grant award.

Pell Grants at Community Colleges

Community college students tend to rely on Pell Grants more than students at four-year institutions. Using data from the Integrated Postsecondary Education Data System, or IPEDS, we see nationally that 46.4 percent of first-time full-time degree-seeking students at community colleges receive Pell Grants, compared to four-year public and private universities where these figures are 35.5 percent and 31.9 percent, respectively. The Pell Grant significantly reduces the cost that students must pay to attend community colleges. On average, according to a report from the Education Data Initiative, a Pell Grant can cover 57.4 percent of tuition to attend a public two-year institution. In some cases, it can cover up to 100 percent of tuition. For example, at Caldwell Community College and Technical Institute in North Carolina, the cost to attend full time with 15 credit hours of coursework plus fees for two semesters for a Caldwell County resident is $2,362 for the 2023-2024 academic year, assuming the student does not qualify for scholarships or institutional grants. This means if a student qualifies for the full Pell Grant, their tuition/fees would be covered in full and $5,033 would be refunded to them over the course of the academic year.

Pell Grant refund dollars that are spent on books, equipment (i.e., a laptop), and required supplies are considered "qualified education expenses." These dollars are provided to students tax-free. Additional refund dollars may be spent on other expenses, such as transportation, child care, food or housing, but these "unqualified education expenses" must be claimed as income for tax purposes. The refundable aspect of the Pell Grant is important because it gives low-income students support beyond covering tuition to help manage other expenses related to attending college.

Pell Grants represent a significant funding mechanism for community colleges. At Caldwell Community College, 44 percent of credit enrolled students received Pell funds in 2022, representing $7.2 million in revenue for the college. At Danville Community College in Virginia, 62 percent of all credit enrolled students received the Pell Grant, representing total revenue of $3.3 million. There are other community colleges in the Fifth District where over 80 percent of students receive Pell funds, including Roanoke-Chowan in North Carolina and Denmark Technical in South Carolina.

Pell Grant Limitations and Policy Considerations

One of the current limitations of the Pell Grant is that students enrolled in non-credit coursework (i.e., commercial driver's license, phlebotomy, certified nursing assistant, etc.) are not eligible to receive the Pell Grant. Title IV federal financial aid, including both the Pell Grant and federal student loans, is only available to students enrolled in credit-bearing degree and certificate programs with at least 16 credit hours. This may provide students who are Pell-eligible a disincentive to enroll in non-credit programs, many of which, while short term, require intensive coursework that might limit available work hours. Without access to additional funding outside of state workforce grants, which typically only cover tuition, low-income students may not be able to afford the short-term opportunity cost to attend these programs. (To learn more about Pell Grants and non-credit programs, read our policy briefing.)

There have been many attempts to expand Pell Grants to non-credit, workforce programs. Very recently, the Bipartisan Workforce Pell Act, a bill that would expand Pell Grants to approved workforce/non-credit programs that last between eight to 14 weeks, was recently moved forward out of committee in the U.S. House of Representatives. Interestingly, the current proposal funds the bill by making students at wealthy private institutions ineligible for federal financial aid (i.e., student loans and Pell Grants).

The Pell Grant is vital to expanding access to postsecondary education for lower-income students. This is especially true at community colleges where Pell Grants can fully, or close to fully, cover tuition. The movement toward covering more community college students and programs via the Bipartisan Workforce Pell Act, or similar legislation, would be significant both for institutions and the students they serve. While the policy would certainly provide additional funds for students and might increase demand for some programs, there would also be increased administrative requirements for all involved.

Views expressed are those of the author(s) and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.

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