(Further) Rethinking Student Aid

The stakes in the debate unfolding here over remaking the student loan programs may seem monumental, given that the Obama administration’s proposal would eliminate one of the federal government’s two competing student loan programs and use the savings to ensure a permanent, annually growing source of money for the bedrock Pell Grant Program. Those would be major changes to two of the biggest elements of the student aid system, with as much as $94 billion at play, according to government estimates.

But that would look like mere tinkering compared to the massive overhaul of the entire student financial aid system that would flow from a proposal made Wednesday by the National Association of Student Financial Aid Administrators, growing out of a "national conversation" launched last year as an effort to make the aid officials’ group more relevant in public policy discussions.

The recommendations, which NASFAA officials describe as preliminary, would touch virtually every aspect of the framework for helping students pay for college: more than doubling spending on Pell Grants and creating a single loan program, in a variation of the Obama plan, but also eliminating the existing tax breaks for college expenses; ditching the recently established Academic Competitiveness and SMART Grant programs and consolidating the existing "campus based" aid programs into one fund; significantly altering how students repay their loans; basing students’ eligibility for financial aid not on a complicated "needs analysis" but on their families’ income and size; and creating $500 savings accounts for every American child, to name just some of the dozens of suggestions.

"NASFAA shares the Obama administration’s goal to dramatically increase the number of college graduates and we agree that bold changes are needed to realize this goal," Philip R. Day Jr., NASFAA’s president, said of the report. "If we continue business as usual, we risk falling behind in the future global economy and widening gaps between the haves and the have-nots. Adopting NASFAA’s recommendations would create a more robust and effective financial aid system that will motivate more Americans to set, pursue and accomplish higher education goals."

The NASFAA recommendations in many ways reinforce, and in some ways expand on, the "Rethinking Student Aid" report issued last fall by a panel of student aid researchers and experts convened by the College Board (a table comparing the two reports’ recommendations is at the bottom of this article).

Both plans would dramatically simplify the process by which students apply for federal aid, in part by drawing information about applicants’ financial situations directly from the Internal Revenue Service, an idea that the Obama administration is exploring, too. Both also would end the federal government’s practice of paying the interest on students’ loans while they are in school, and instead focus on expanding options that make it easier for students to repay loans based on their income or to have their loans forgiven. The in-school interest subsidy does little to expand access to college, most aid experts agree, and helping students who need it afford repayment is widely seen as more equitable.

"It’s lovely to see how similar [NASFAA’s] basic principles and their proposals are to ours," said Sandy Baum, an economist at Skidmore College and College Board consultant who co-led the Rethinking Student Aid panel with Michael McPherson, president of the Spencer Foundation. "It’s a real statement that the thinking is moving in the same basic direction on a lot of things, like simplification, relying on the IRS for information, a Pell Grant linked to income and family size."

Significant differences exist between the two, though. While the College Board-sponsored panel made clear that it sought a politically viable set of proposals, and specifically made some tough choices about what to include and omit with budgetary and other realities in mind, the NASFAA plan would, its creators acknowledge, radically increase spending on student financial aid. NASFAA officials have asked the Brookings Institution to assess the proposals’ costs; these figures will be available within a few weeks.

But as just one example, the report, echoing the 2006 report of Margaret Spellings’ Commission on the Future of Higher Education, calls for increasing the maximum Pell Grant over five years to 70 percent of the average cost of attending a public four-year college, which is now $12,900. With the current Pell Grant at $5,350, that change would cost more than $40 billion — and while that is probably the most expensive piece of the plan, there are plenty of others.

"We don’t make excuses for saying out loud, and as loud as we can, that we need to focus more on federal student aid, and there has to be more investment," Justin Draeger, NASFAA’s vice president of development, said in an interview Wednesday. The report adds: "While the costs of enacting these changes may appear significant, the costs of not implementing them will be devastating for our national economy, our citizens, and the millions of families who are desperately trying to escape the bonds of poverty."

The NASFAA recommendations also part ways with the Rethinking Student Aid report by proposing continuing to link federal aid levels, for Pell Grants and loans, to increases in the price of college. Some critics of higher education complain that increases in federal aid have encouraged colleges to raise tuition to take advantage of students’ increased ability to pay, and while virtually all researchers find no evidence of such a link, Baum said the College Board sought instead to link aid increases to the rate of inflation "because it’s really better to avoid that association and not to open that door to that criticism."

NASFAA officials said that they believed enough other forces were in play — Congressional pressure on colleges to control costs and on states to maintain support for higher education — to keep tuitions in check, and that tying aid to college prices makes sense because, simply, that’s what students have to pay.

One other significant difference between the two aid restructuring proposals is that while both suggest ending the separate federal work study, Supplemental Educational Opportunity Grant, and Perkins Loan Programs, NASFAA would consolidate the programs and redistribute the money to colleges, over time, based largely on the number of low-income students they serve. The College Board-sponsored panel, in turn, would distribute the funds based in part on how successful colleges are in getting low-income students to return to college for a second year, designed, Baum said, "so schools would have incentive to get students through to completion."

NASFAA officials said they would seek broad comment on their proposal, refine it over the next several months, and aim to "roll out a draft of some legislation that gets this across the finish line" by next January, said Day, the group’s president. "We think this could be a very good roadmap for the Obama administration to achieve its 2020 goal."

INSIDE HIGHER ED

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