President Obama is expected to sign the student loan bill any day now. The bipartisan compromise will lower interest rates now but let them rise with the market in the future.
But student loans are only a small part of the aid system. To really impact “access and success,” financial aid expert Mark Kantrowitz recommends five student aid changes in The Chronicle of Higher Education. His first idea would make a big difference for community college students.
1. Double or even triple the average Pell Grant immediately. That step would eliminate most borrowing by low-income students and would increase the number of bachelor’s-degree recipients by hundreds of thousands per year.
As #2, he calls for standardizing financial-aid award letters and teaching financial literacy in high school and college.
Drastically simplifying the Free Application for Federal Student Aid is #3. Questions could be cut from more than 100 to less than a dozen that could be completed in less than five minutes, Kantrowitz writes.
4. Also simplify the federal aid programs. There should be one loan and one grant program. The loan limits should be based on a borrower’s current and projected ability to repay. Subsidized interest should be eliminated, and the savings redirected into the Pell Grant program because subsidized interest has no effect on college access and completion or other strategic public-policy goals. The grants should be sufficient to eliminate most borrowing by low-income students. Federal education tax benefits should be repealed and the savings redirected into the Pell Grant program. There should be one college-savings program, the 529 college-savings plans. Better yet, overhaul the retirement-savings plans at the same time and merge the 529, 401(k), and IRA programs into a single combined program that could be used to pay for major life-cycle events such as college, home purchase, and retirement.
Finally, at #5, stop double-taxing scholarships. “Scholarships are now taxed twice, once as income if used to pay for educational expenses other than tuition and once by the financial-aid formula,’ he writes. Scholarships that cover a needy college student’s room and board shouldn’t be treated as taxable income.