New America: Redesign college aid

A “more understandable effective and fair” student aid system doesn’t need to cost taxpayers more money, concludes a New America Foundation report, Rebalancing Resources and Incentives in Federal Student Aid. The study was funded by the Gates Foundation’s Reimagining Aid Design and Delivery project.

To eliminate any future “funding cliffs,” Pell Grant funding should be guaranteed, turning it into a true entitlement, the report recommends. In addition, the maximum grant should be increased and year-round funding restored to help students complete degrees more quickly. The “ability to benefit” provision would be restored, opening the door to students who lack a high school diploma or GED.

All this would cost more money, but the report also calls for limiting Pell eligibility to 125 percent of program length to encourage students to move along. In addition, eliminating “the outdated Supplemental Educational Opportunity Grant program that disproportionately benefits wealthy private institutions” would save money that could help fund Pell Grants.

The report proposes a Pell bonus for community colleges with a graduation and transfer rate of at least 50 percent. “Eligible schools could either use the additional money to reduce the net price they charge their neediest students or to create support programs to help low income students earn their degrees and transfer to four-year colleges.”

Other recommendations would redesign student loans and tax credits.

• Significantly simplifying the federal student loan system and reducing the dangers of default by requiring all borrowers to repay their debt based on a percentage of their earnings. Encouraging colleges to hold down their costs by eliminating both the Parent PLUS and Grad PLUS programs that currently allow for unlimited borrowing.

• Eliminating poorly targeted higher education tax benefits, such as the American Opportunity Tax Credit, in favor of direct aid for students.

The report also calls for strengthening accountability by “creating a federal student unit record system to provide a clearer picture of how students fare as they proceed through the educational system and into the workforce.”

Eligibility for federal student loans should be limited to 150 percent of program length to discourage prolonged enrollments, the report proposes.

Borrowers who turn to private student loans should be able to declare bankruptcy, if necessary, to clear their debts.

While the report is “wonderful and thought-provoking,” Community College Dean questions whether students can finish a two-year degree in 2 1/2 years. Very few do. Setting a tight time limit would make it hard to offer “stackable” certificates or integrate developmental instruction in mainstream courses, he adds.

Then there’s the political challenge. Capping student loans and eliminating tuition tax deductions to pay for Pell could alienate middle-class voters, he warns. “Once the middle class decides that a program is really just for the poor, that program tends to wither on the vine.”