Leaving aside how laughably wastefully the universities spend that money, disconnecting the borrower from the spender of funds is a massive anti-pattern.
Awareness of and discretion over spending is an extraordinary effective forcing function.
Pell grants are for education, it makes at least some sense they go universities. I’m not sure if you’re implying they should go to 2 year or vocational schools? Private, for-profit non-university schools are a large problem in the U.S. in that they have much lower financial returns for the students who attend them, and much lower quality educations. There’s an entertaining piece by John Oliver about this, among other sources.