Rethinking Student Aid Group Suggests Overhauling Financial Aid

A group of policy experts charged with the arduous task of rethinking strategies for student financial aid recommends an overhaul of the financial aid process, beginning with simplifying the financial aid application by tying it to a family’s tax return in addition to creating a better college savings program for low-income families.

These recommendations and others emerged from a study conducted by a consortium of policy experts, academic researchers and higher education professionals called the Rethinking Student Aid group. The group’s cochair Dr. Sandy Baum, a professor of economics at Skidmore College and senior policy analyst for the College Board, outlined the recommendations Thursday during an online forum hosted by the Hechinger Institute on Education and the Media and the College Board.

A key proposal called for the elimination of the Free Application for Federal Student Aid (FAFSA) form entirely from the financial aid process, basing federal Pell Grant eligibility on family size and adjusted gross income. The group would also allow automatic annual increases to the Pell Grant by indexing the maximum award to the Consumer Price Index.

The group, also led by Mike McPherson, president of the research grant-making organization Spencer Foundation, was commissioned to design a federal financial aid system that increases enrollment and college completion rates for low- and moderate-income students.

Eliminating the FAFSA form is necessary, Baum said, because the complex nature of applying for financial aid is interfering with the effectiveness of the student aid system. “We want the system to be simpler for students, institutions and the government,” Baum said.

Currently, most institutions rely on the federal computation of an expected family contribution (EFC) as the basis for allocating their student aid, but the study revealed that by diminishing the bureaucratic hurdles of the process, those aspiring to improve their prospects through higher education have a better chance.

Instead of the form, Baum and team suggest institutions retrieve the financial data required for Pell Grant allocation from the Internal Revenue Service. Eligibility criteria for Pell Grants should be based only on Adjusted Gross Income and family size.

“This simple calculation will allow the creation of a look-up table to which students and families can refer far in advance of their application for student aid,” Baum said.

According to the U.S. Census Bureau, enrollment at community colleges and four-year institutions reached 20.5 million in 2006, up 3 million since 2000. More than 17 million undergraduates and 3.4 million graduate and professional students were included among those enrolled.

More students participating in higher education only precipitates the need for student aid reform, Baum said. The New York Times recently reported that 800,000 more students applied for grants this year than during this same period last year.

To underline the significance of early preparation of college financing, the group recommends that tax filers with dependent children between the ages of five and 19 be informed every year of the Pell Grant for which their children would be eligible.

 

The group recommends this information be should be accompanied by facts about the prices of two- and four-year public institutions within the tax filer’s state of residence as well as available state grant programs.

“We need to get the message to low- and moderate-income families early, they are going to be able to go to college,” said McPherson. Data show that students who do not expect to be able to finance higher education are unlikely to have the motivation to prepare academically.

“It is imperative for our economic future and civic future that we invest effectively in more students beginning college and achieving success,” said McPherson, noting that the cumbersome burden of inadequate finances disqualify many from participating in a higher education.

The U.S. completion rate among those who start higher education programs of three years or longer is 54 percent.

Don Saleh, vice president for enrollment management at Syracuse University and a longtime administrator, described the group’s recommendation as “bold” and “revolutionary,” but noted that educational reform was a lengthy process.

“The programs that we have today have become ineffective. This [line up] of programs doesn’t meet the needs of children of the 21st century,” he said.

The average college student graduates with $20,000 in student loan debt. In 2004-05, lenders provided about $14 billion in private loans, a 734 percent increase from a decade earlier, according to the College Board. Private loans typically carry higher interest rates and less flexible payment options than do federal loans.

To prevent students and families from resorting to costly private loan firms, Baum and her team recommend a graduated repayment plan be the standard loan repayment pattern, unless a borrower chooses another option, so that borrowers can repay amounts that increase gradually as their income rises until the debt is repaid.

Other recommendations included:

  • Eliminating supplementary grant programs with complex eligibility requirements, such as Academic Competitive and SMART grants, and using the funds to increase the generosity of Pell Grants.
  • Make tuition tax credit be applicable not only to tuition and fees, but to the total cost of attendance for postsecondary students.
  • Full-time students should be eligible to borrow up to the amount of the federal poverty guideline for a single individual for each year of study.

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