“[W]hen it comes to higher education reform, war is Pell.” That’s how Bellwether Education co-founder and Eduwonk writer Andrew Rotherham described his experience advising on reform a decade ago.

The federal Pell Grant Program provides need-based grants to low-income college and some graduate students, who may use their grants at any one of approximately 5,400 participating postsecondary institutions. The maximum Pell grant through June 30, 2012, is $5,550.

According to the U.S. Department of Education, during the 2009-10 academic year (the latest available) 8.1 million college students used Pell Grants worth a combined $30 billion. A decade ago there were 3.9 million recipients who received a total of nearly $10 billion in Pell Grant award (in constant 2010 dollars). (See Table 22 here.) This means that the cost to taxpayers of Pell Grants has increased almost twice as much as the number of recipients over the past 10 years (the number of recipients increased 108 percent compared to a 207 percent increase in the total Pell Grant amounts awarded). Rotherham explains:

Pell grants are being scrutinized because taxpayers now spend more money on them — $36 billion this year, up from $14 billion in 2007 — than on entire federal agencies. Almost half of all college students currently receive some Pell grant assistance, ranging from $555 to $5,550, based on their financial need. In July, Congress is tightening the purse strings by reducing the number of semesters a student can receive a Pell grant (to 12, down from 18) and, most controversially, lowering the household income level that determines which students’ families are not required to contribute any money for their college education. That threshold is dropping from $32,000 to $23,000. …There aren’t many families poor enough to qualify for the zero-contribution plan; the recent changes will bump about 12,000 students  out of that category and will lower the grants for an additional 274,000. But much broader changes to the Pell program are necessary to make it more beneficial and effective.

Rotherham offers five reforms worth considering, especially focusing Pell Grant awards on the neediest students and incentivizing institutions to ensure Pell Grant students graduate. But as the Cato Institute’s Neal McCluskey has argued:

Pell Grants are, at best, of limited value. Yes, they are needed by some people to go to college, but that’s because they are largely built into college prices. Basically, give me a dollar more to pay for school and my college will charge me another buck. Of course it’s not just Pell that influences prices — there are lots of other sources of aid, and colleges confront numerous variables that affect their costs — but subsidize something and prices will go up. And boy, do they go up in higher education!

McCluskey’s right. A recent analysis indicates that over a fifteen-year period postsecondary administration grew more than twice as much as instructional staff. This is significant since dozens of mid-level and senior-level administrative positions command six-figure salaries, compared to the relative handful of faculty positions that do. Increased federal subsidies did little—if anything—to keep college affordable.

Government is an ineffective—and expensive—pass-through vehicle. Better to let taxpayers keep their hard-earned income, save it for their own or their children’s education, or make donations to private scholarship organizations. That way, colleges and universities would have to keep their costs down to compete effectively for students and their cold, hard cash instead of lump-sum government appropriations, which have nothing to do with cost-effectiveness or productivity. After all, it would be harder to compete for tens of millions of undergraduates than it is to compete for politicians’ appropriations votes.