NEW YORK — A new report, “Fulfilling the Commitment: Recommendations for Reforming Federal Student Aid,” issued by the Rethinking Student Aid study group — an independent team of policy experts, researchers and higher education professionals convened by the College Board — calls for a set of policies that would generate unprecedented breakthroughs in how students and their families think about and prepare for futures made brighter through college.
With adoption of the report’s comprehensive proposals, students’ paths to college would be obvious much earlier in life and would be much simpler to navigate. Students’ choices in pursuing fields of study would no longer be limited by concerns about repaying outsized loans, and colleges and universities would be rewarded for supporting student success in earning a college degree, not just for enrollment.
Study group co-chairs Sandy Baum, an economics professor at Skidmore College and senior policy analyst for the College Board, and Michael McPherson, Spencer Foundation president, declared that the time is right for a fundamental rethinking of the nation’s broken student aid system.
“More tinkering with a system built piecemeal in the last century is no longer an option,” Baum said. “The report’s package of proposals is poised to capitalize on historic opportunities on both ends of Pennsylvania Avenue and in state capitols across the nation to enact transformative financial aid reform.” The Rethinking Student Aid study group spent two years challenging conventional wisdom and scouring the best available data to generate breakthrough ideas for achieving dramatically better results for the more than $86 billion in federal grants, loans, work aid and tax benefits available to students each year. If enacted as a package, the proposals have the potential not only to close persistent gaps in access to college but to accelerate the achievement of college degrees among low- and moderate-income students, which stubbornly have been flat while the economy’s need for postsecondary education grows rapidly.
“Too many low- and middle-income students with high potential face barriers to earning a college degree,” McPherson said. “These barriers are born of inertia in political will and a piecemeal, rickety financial aid system that no longer serves student or work force needs. A more predictable, simpler and better targeted aid system can help meet the national challenge of regaining our top position in the world for degree attainment.”
College tuition continues to escalate. Among the two-thirds who borrow, the typical debt of four-year college graduates is about $20,000, but too many students end up with much higher debt burdens. Large numbers of academically qualified students will miss out on college because they believe they cannot afford it or didn’t fill out a financial aid application. A complex snarl of grants, loans, tax benefits and confusing criteria leaves too many students unaware of the financial aid available to them.
“Over the years, many, many higher education professionals have worked hard to increase student access and funding,” said Don Saleh, vice president of enrollment management at Syracuse University, who spoke to reporters about the report. “But because the current financial aid system was developed incrementally, conceived in the 1950s as a need-based structure and augmented throughout the years by piecemeal legislative efforts, what we now have is a structure that was not so much strategically designed as stitched together into a patchwork.”
Examples of innovative state practices show the enormous dividends that accrue by making payment for college more predictable and simpler to navigate. Simple state-based financial aid programs like those in California and Georgia are associated with large and significant increases in college enrollment — as much as 4 percentage points a year. If effectively targeted to the students with the most financial need, a simpler financial aid system can be more cost effective for taxpayers. Independent cost estimates by the Urban-Brookings Institute Tax Policy Center suggest that Pell Grant benefits will be more effectively targeted and $8 billion can be saved and redirected for college affordability with enactment of the study group’s loan recommendations.
SUMMARY OF RECOMMENDATIONS
I. Simplify the federal student aid system
- Eliminate the current application form for federal student aid. Obtain all needed financial information from the IRS.
- Families receiving means-tested public benefits would be eligible for maximum Pell Grants without using IRS data.
- Base Pell Grant awards on family size and adjusted gross income and link the maximum Pell Grant annually to increases in the Consumer Price Index.
- Use this information to create a lookup table and tell parents every year what Pell Grant amount their children could expect based on current circumstances if they were enrolled in college.
- Combine all education tax credits and deductions into a single tax credit and allow the credit to be applied to non-tuition expenses as well as tuition and fees.
II. Improve the federal loan process
- Eliminate the distinction between subsidized and unsubsidized loans and redirect loan subsidies toward assisting students in repayment. Financial information will no longer be necessary to determine eligibility for federal student loans.
- Expand and strengthen the income-based repayment program for student loans, basing the distribution of loan subsidy dollars primarily on post-schooling financial circumstances.
- Make the loan award system more flexible and better oriented to student needs and economic realities.
- Link the maximum amount students can borrow through the Stafford Loan program to the federal poverty level for individuals, allowing it to rise with inflation. Part-time students would face a prorated loan maximum.
- Replace the 10-year-mortgage-style repayment plan with a graduated repayment plan as the standard option, so payments will rise over time along with the incomes of most borrowers.
- Maintain a strong parent loan program with interest rates low enough to discourage families from resorting to private student loans.
III. Develop a federal savings program for low-income families
- Create accounts for the children of tax filers and participants in federal means-tested income support programs whose children would be eligible for Pell Grants if they were of college age.
- Make account deposits proportional to the Pell Grants for which children would be eligible.
- Permit funds to earn tax-free interest analogous to the tax treatment of existing federal 529 programs that provide savings incentives to higher income families.
- Allow use of these funds only for postsecondary education and not for any other purpose.
- Permit access to these funds for individuals even if they postpone their education well into adulthood.
IV. Reward states and institutions that support student success
- Create incentives for institutions through the development of campus-based funds that encourage retention and completion for low- and moderate-income students.
- Allow institutions wide discretion in how best to use these funds to encourage student success, so that they may provide mentoring, academic support, emergency funds or other services in addition to need-based aid. Require a portion of the funds to support student employment.
- Begin by introducing pilot programs based on this framework in a few states or institutions to test the program’s effectiveness and improve its operational efficiency.
- Complement this program with a strengthened program of matching grants for state grant aid, with the match declining as the recipient’s family income increases.
- States should be rewarded for awarding aid solely on the basis of financial information made available through the IRS, rather than requiring students to complete additional forms.
The Rethinking Student Aid study group was brought together by the College Board with support from Lumina Foundation for Education and the Spencer and Andrew W. Mellon foundations. We have reviewed evidence from the research literature, consulted with a wide range of knowledgeable people in Washington and around the country, and deliberated together in a series of meetings to fashion our proposals. We obtained cost estimates for our proposals from the Urban-Brookings Institute Tax Policy Center. In arriving at conclusions, we faced difficult trade-offs and continually searched for balance among sometimes conflicting goals. While compromising at times on details, we wound up sharing a common vision for the future of federal student aid; a vision that we believe deserves widespread attention and support among those who care about higher education and about our nation’s future. Our report represents the best judgment of the study group members, and neither the College Board nor any of the supporting organizations is responsible for its content.
The College Board: Connecting Students to College Success
The College Board is a not-for-profit membership association whose mission is to connect students to college success and opportunity. Founded in 1900, the association is composed of more than 5,400 schools, colleges, universities, and other educational organizations. Each year, the College Board serves seven million students and their parents, 23,000 high schools, and 3,500 colleges through major programs and services in college admissions, guidance, assessment, financial aid, enrollment, and teaching and learning. Among its best-known programs are the SAT®, the PSAT/NMSQT®, and the Advanced Placement Program® (AP®). The College Board is committed to the principles of excellence and equity, and that commitment is embodied in all of its programs, services, activities, and concerns.
CONTACT
Jennifer Topiel, The College Board, (212) 713-8052, communications@collegeboard.org