After two years of study, development, and debate, the Rethinking Student Aid Study Group released a list of recommendations yesterday that would make federal student more coherent, fair, and effective in helping Americans pay for college. The group's recommendations cover the application process, grants, loans, savings, and institutional aid. Some of the recommendations, like lowering parent PLUS loan interest rates, would simply tweak existing student aid. Others - like creating an ongoing government funded college savings program for low income families - are more dramatic.
The group relied on several underlying principles when drafting the recommendations. The chief principle is that federal student aid should have as its core purpose helping those who are unlikely to go to college without financial help. While the group admits that lack of money isn't the only issue that matters in increasing college access, money is one of the main factors. Adequate funding, transparency, predictability, a student oriented focus, and efficiency were other principles incorporated into the recommendations.
"One of the mantras that we used was that we were creating a framework, not a blue print," said Michael McPherson, president of the Spencer Foundation and co-chair of the study group during a briefing for higher education leaders. "We didn't want to add more patches, we wanted to dig deeper."
Strengthening the Pell Grant
The group recommends eliminating programs like the ACG and SMART Grants and directing more funds to provide the maximum possible funding in the Federal Pell Grant program. The Pell Grant award should be based solely on a student's (or parents') adjusted gross income and family size, and increases in the maximum award should be linked to the consumer price index rather than congressional appropriations, according to the group. Each year, low-income families with children between the ages of 5 and 19 would be told by the federal government exactly how much they would be eligible for in Pell Grants under their proposal.
The group also advocates for eliminating the FAFSA, which they call a "product of well-meaning attempts to ensure that grants awarded through that system go to those who genuinely need them most." The group contends that society pays a high price for this effort at hyper-accuracy when all of the information need to award Pell Grants is already collected by the IRS.
The IRS should deliver all of the pertinent information to the Department of Education to determine students' need, according to the group's model. Determining Pell Grant eligibility would be based on an average of the applicants' three most recent years of income information. To avoid having to use an additional form to award institutional and state aid, the Department should calculate "an index of financial capacity" for each student to be delivered to states and institutions to help them allocate their own need-based aid.
Cost estimates prepared by the Urban-Brookings Institute Tax Policy Center show that, as proposed, the simplified allocation method would reduce the number of Pell Grant recipients from 5.5 million to 5.2 million, while the average grant amount per recipient would increase from $2,902 to $2,949. The proposed Pell changes would not have a significant budget impact, according to Sandy Baum, senior policy analyst for the College Board and co-chair of the group.
Government-Funded Savings
College savings programs have the potential to change the way low-income families view postsecondary education. With 529 savings plans proving to be popular with middle- and upper-income families, they do little for low-income families who have little incentive or ability to save for college at all. The group proposes a government-created and funded interest-bearing savings account for children whose parents' low income would qualify them to receive Pell Grants. Federal contributions to the savings accounts would be made in proportion to the amount of Pell Grant the students would be eligible to receive. If a family were eligible to receive $5,000 in Pell Grants, the government would deposit a proportion of that into the savings program, for example 10 percent or $500.
The group stresses that no money would actually change hands. Instead, the savings accounts would held by the government, in much the same way as the government handles Social Security. The funds in the college savings accounts would be held for the life of the student until and unless they are used for college.
The group sees these savings accounts as a primary source of funding for low-income students and believes it would be even more successful than the Pell Grant program in increasing college access (although they didn't suggest replacing the Pell Grant program).
"This would help make low-income children understand that they have money to go to college," said Sandy Baum. "Adult learners would also still have these funds and those in lower income families would get more aid."
Since the savings grow over time, this proposal takes into account a family's financial situation over time as well, and automatically adjusts depending on the amount of financial need demonstrated before college. Also, the accumulated funds could be used when the student is older, and could be used as a resource for the growing number of older, nontraditional students.
Assuming a federal contribution that is 10 percent of the Pell Grant, and savings started for kids at the age of 12, this program would help 12.6 million families and cost $2.8 billion per year.
Institutional Aid
The federal government should pay for results rather than mandating processes, according to the group. Accordingly, they recommend government-funded block grants that would be distributed to schools in amounts proportional to the numbers of Pell-eligible students who successfully make it beyond their first year of study. Schools should be allowed to use these funds as they see fit, according to the report.
"The current system is designed for access, but not success," said Baum. "Institutions should have wide discretion to use the funds because the institutions know best how to best serve their students."
FSEOG, Federal Work-Study, and the Perkins Loan programs would be eliminated and institutional grant amounts would at least equal the amount schools currently receive under those existing programs. Institutional grants would be complemented by a federally funded matching state grant program, which would not require students to fill out a separate form.
Other Recommendations
- 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.
- Eliminate the distinction between subsidized and unsubsidized loans and redirect loan subsidies toward assisting students in repayment. Financial information would no longer be necessary to determine eligibility for federal student loans.
- 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 receive 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.
Media Coverage
By Justin Draeger
NASFAA Associate Director for Communications
Posted 09/19/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
