NASFAA submitted recommendations last week for how to improve the federal financial aid system in response to an inquiry from a group of democratic senators regarding how to assist students of color, emphasizing the need for policy changes that would touch every step of the process—from filing the FAFSA to entering into loan repayment.
Sens. Doug Jones (D-AL), Elizabeth Warren (D-MA), Kamala Harris (D-CA), and Catherine Cortez-Masto (D-NV) wrote to higher education stakeholders last month to gather information and ideas on how to “address racial disparities in student debt and the broader challenges faced by students of color in college and career training,” citing a host of recent reports that found that students of color borrow more to finance their higher education and struggle more than students of other races to repay those loans. Just last week, the American Council on Education (ACE) published a report that revealed that black borrowers face more challenges when it come to student loan debt due to limited financial resources, poorer academic preparedness, and lower earnings, among other factors.
In its response to the senators’ request, NASFAA offered recommendations for how to improve the financial aid system for students of color during the application and verification, borrowing, and repayment process, arguing that “it becomes important to offer solutions for each stage of the higher education lifecycle, rather than trying to tackle the issue wholesale.”
NASFAA wrote that students of color face a disproportionate number of challenges when attempting to file the FAFSA—their first introduction to the federal student aid system. In the letter, NASFAA detailed its proposal for a simpler alternative to the current form from 2015, which would lead applicants down one of three pathways depending on their predicted “financial strength,” after they answer basic demographic and dependency status questions. For example, students with low predicted financial strengths—based on factors such as their tax-filing statuses—would have to answer very few questions in their applications, as their information can be mostly imported from federal databases. This would in turn streamline the process of applying for aid for these students and reduce the chance for applicant errors, NASFAA wrote. In the letter, NASFAA also expressed its support for a new bill to help students who are unable to provide parent information because of situations such as parental abandonment, abuse, or neglect, to file the FAFSA by allowing them to submit their application after answering a single screening question, as a “provisionally independent” student.
In addition to simplifying the form for the FAFSA, NASFAA also wrote that changes need to be made to the FAFSA verification process, which targets many low-income students with “heightened complexity, additional scrutiny and delayed aid notification.” To help these students, NASFAA wrote that it urges Congress to reintroduce the 2018 Faster Access to Federal Student Aid (FAFSA) act, which, through better integration with the Department of Education (ED) and the Internal Revenue Service (IRS), would reduce this burden for students.
NASFAA also included in the letter recommendations to improve the borrowing process for all students, such as by eliminating origination fees. ED originally instituted the fees to defray the cost of subsidies offered to private lenders that issued federal loans, and has continued to collect the fees from students even after private lenders were removed from the process eight years ago. In fact, NASFAA found that the average undergraduate borrower in a 4-year program will pay an estimated $235 in origination fees and associated interest if enrolled in a standard 10-year repayment plan, while the average graduate student in a two-year program pays about $1,145 in fees and interest on that fee if repaying over 10 years.
NASFAA further proposed that financial aid administrators be given the authority to limit loan amounts in certain scenarios—especially as they are being held more responsible for their students’ ability to manage their debt—and that Congress impose stricter standards for parents to take out loans under the Parent PLUS program. NASFAA wrote that “black families are at a much higher risk for insurmountable intergenerational debt” and argued that this program—which currently allows parents to borrow up to their student’s cost of attendance as long as they maintain no adverse credit history—exacerbates this issue. NASFAA recommended that a parent’s eligibility for this loan should include things such as a debt-to-income measure or FICO credit score.
With regard to the repayment process, NASFAA proposed consolidating the myriad of current repayment options into a simpler system, because “no matter the amount a student borrows, if they cannot navigate the existing complicated student loan repayment system, they will not be successful in repaying their loans.” NASFAA noted that there are several ways to simplify the system, including offering one income-driven plan and one standard plan, such as what was offered in a 2017 bill known as the Help Students Repay Act. NASFAA added that it is also “intrigued and supportive of recent announcements to explore allowing student loan payments through payroll withdrawal and the tax system.”
“Given the overwhelming number of borrowers who are also W-2 wage earners, this could be a more effective way to keep borrowers’ repayment amounts affordable and easy to make, all while keeping them out of delinquency or loan default,” NASFAA wrote.
NASFAA concluded by warning the lawmakers that recent discussions around improving accountability for institutions, through efforts such as risk-sharing systems that would require schools to pay back a portion of defaulted money, could disproportionately harm students of color, as they may target schools serving large numbers of low-income students. An accountability system, NASFAA wrote, would need to take into account different types of schools.
Publication Date: 2/20/2019