Report: Fund Pell, end subsidized loans

End college tax credits for affluent families and subsidized loans. Put the savings into Pell Grants for low-income students. Enroll all borrowers in income-based repayment. Increasing Return on Investment from Federal Student Aid by the National College Access Network recommends prioritizing need-based aid over merit aid. The network, which includes groups trying to help low-income and first-generation college students, calls for restoring year-round Pell Grants and meeting the estimated $5 billion funding shortfall for the 2014 fiscal year with no new eligibility restrictions.

The proposals would help community colleges, which enroll many Pell-eligible students and relatively few borrowers. Restoring the year-round Pell Grant would encourage summer enrollment, making it easier for students to complete a credential.

Expect more ideas on how to change student aid, predicts Libby Nelson on Inside Higher Ed. The Gates Foundation has given grants to 16 groups to develop proposals. Pell faces a funding “cliff” at the start of the next fiscal year in October. Congress will face tough financial aid decisions.

Congress has chipped away at subsidized loans when looking for budget cuts to sustain other financial aid programs, eliminating subsidized graduate loans and then the interest-free grace period for undergraduates. As income-based repayment has grown, subsidized loans have come under increasing criticism from policy researchers as an inefficient use of federal spending, although the loans still have staunch defenders among private colleges because they reduce the long-term cost of student loans.

NCAN also called for eliminating another politically popular program: some of the tax credits for higher education. The credits have strong support from both parties and from the public — President Obama called for making one, the American Opportunity Tax Credit, permanent as part of his re-election campaign — but are sometimes criticized for providing help to middle-class and wealthy students who would go to college without government help.

The white paper calls for the elimination of the tax credit for individuals with incomes over $50,000 or families with incomes over $100,000 per year. Tax credits for high-income families, it said, are “inefficient at best and morally questionable at worst.”

The report also suggests distributing “campus-based aid, such as the Perkins student loan or Supplemental Educational Opportunity Grants, based on a competitive formula” that rewards colleges that enroll and graduate more low-income students than comparable institutions. Enrolling students who never graduate would not be rewarded.