Changing financial aid to promote college completion could limit access, warns Do No Harm, a report by the U.S. Advisory Committee on Student Financial Assistance. Several proposals under discussion could make it harder for low-income students to attend college, the panel advises.
The report lists 10 financial aid “fallacies.”
For example, redirecting need-based grants to higher achievers and colleges with higher graduation rates would not improve completion, the report argues. The loss in access and completion for unfunded students will offset completion gains, it predicts.
To increase completion, financial aid proposals must address barriers for low-income students, the panel recommends. These include: high net prices for low-income students; excessive borrowing; decoupling of federal, state and institutional aid; complex forms and eligibility determination; inadequate early information and intervention, and insufficient in-college support services.
To increase access and completion, the panel proposes: Using federal aid to spur state and institutional aid; doubling the maximum Pell Grant; converting higher education tax credits to Pell Grants, and redesigning income-based loan repayment.
In the State of the Union speech, President Obama promised to control college costs and provide a College Scorecard to help students and parents compare costs, graduation rates and loan repayments for any college or university. Some of the data is old and most has been available from other sources, reports the New York Times.
Further, the information is presented as averages and medians that might have little relevance to individual families. The scorecard does connect to each institution’s net price calculator, which allows individualized cost estimates, but it does not provide side-by-side comparisons of multiple schools, as other government sites do.
Meanwhile the Gates Foundation’s Reimagining Aid Design and Delivery project is generating more ideas.
In Aligning the Means and the Ends, The Institute for College Access & Success calls for doubling the maximum Pell Grant and giving students 7 1/2 years to complete a degree. Colleges should be rewarded for serving low-income students, TICAS urges. In addition, the white paper recommends:
• Use IRS data to simplify financial aid applications
• Combine income-based loan repayment programs into one plan that assures borrowers of manageable payments and forgiveness after 20 years.
• Eliminate higher education tax benefits and use the savings for Pell Grants and incentives for states and colleges to educate low-income students.
“For students who are willing to study, work, or serve their communities, the federal and state governments, along with their institutions, should make sure they can afford to go to college without the fear of crushing student loan debt,” argues the Education Trust in Doing Away With Debt. the Education Trust.
By taking the federal resources we already spend on higher education and focusing them like a laser on reducing college costs for families with incomes below $115,000 a year (the bottom 80 percent) — providing debt-free education to those below $50,000 (the bottom 40 percent) and no-interest loans with income-based repayment to the rest — we can do much to solve this critical problem without adding to the overall cost of federal student aid.
National Association of Student Financial Aid Administrators’ policy brief discusses reforming student loans, improving consumer information, “rethinking entitlement and professional judgment and ensuring that colleges and students have “skin in the game.”
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.”
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.
College affordability was the theme of President Obama’s speech at the University of Michigan yesterday. He called for spending more on Perkins loans and work-study programs — going from $3 billion now to $10 billion — but only at colleges and universities that provide “value.” Students at colleges that raise tuition could lose access to loans and work-study jobs.
In addition, the president’s plan (pdf) includes a $1 billion “Race to the Top for college affordability” and a $55 million “First in the World” competition to encourage productivity innovations, reports the Washington Post.
Higher education — including community colleges and lifelong learning for workers — is “an economic imperative,” Obama said. While he proposed increasing tuition tax credits and keeping interest rates low on student loans, he said that’s not enough. “Look, we can’t just keep on subsidizing skyrocketing tuition.”
So from now on, I’m telling Congress we should steer federal campus-based aid to those colleges that keep tuition affordable, provide good value, serve their students well. (Applause.) . . . If you can’t stop tuition from going up, then the funding you get from taxpayers each year will go down.
If “provide good value” and “serve their students well” means anything, it means the federal government will monitor graduation rates and employment outcomes, as well as tuition, for the entire higher education sector. Currently, “gainful employment” rules, which monitor former students’ earnings and ability to pay back loans, cover only for-profit colleges and community college vocational programs.
Following the speech, Molly Corbett Broad, president of the American Council on Education, issued a statement saying there’s concern that the proposal would “move decision-making in higher education from college campuses to Washington, D.C.”
Sen. Lamar Alexander, R-Tenn., a former education secretary, said the autonomy of U.S. higher education is what makes it the best in the world, and he’s questioned whether Obama can enforce any plan that shifts federal aid away from colleges and universities without hurting students.
“It’s hard to do without hurting students, and it’s not appropriate to do,” Alexander said. “The federal government has no business doing this.”
President Obama also touted college “report cards” showing college costs and how well graduates do in the job market.
The U.S. Education Department and the Consumer Financial Protection Bureau are working on Know Before You Owe, a financial aid shopping sheet that will let future students estimate their debt, monthly payment and likely ability to repay loans. Parents and students also have requested a breakdown of college costs and information on repayment rates for graduates at each college.
Pell Grants must change to remain viable, concluded financial-aid experts at the The State of College Access 2012 Forum in Washington D.C., reports Ed Week‘s College Bound. The National Association of Student Financial Aid Administrators (NASFAA), which hosted the event, released an issue brief on the role of Pell Grants in access, persistence, and completion.
If Pell can improve its efficiency and effectiveness, it will be able to make a stronger argument for funding, said Sandy Baum, a higher education policy analyst.
“We need to think creatively about options for the future, not at the last minute, but in advance,” said Baum. “If the program collapses of its own weight, we have a huge problem.”
Pell expenditures have increased six-fold since 1976 in constant dollars as more undergraduates receive the grants, which are capped at $5,550. Now costing $41 billion, Pell escaped serious cuts this year, but could be back on the chopping block next year.
Baum is working with College Board on a Gates-funded analysis of Pell Grants. Several changes are under discussion:
Complexity – To make dollars more effective, let students know ahead of time what they could get, perhaps with a simple table to see how much they qualify for based on income. .
Tax benefits – In reviewing federal student aid, look also at how much subsidy is going to offset college costs with education tax credits for students at all income levels (25 percent of tax deductions benefit families making more than $100,000) and not just Pell Grants that help low- and moderate-income students.
Structure – Think carefully about whether the same criteria and regulations work well for 18-year-old students just out of high school and 30-year-olds looking for short-term job retraining.
Incentives – Find ways to encourage institutions not to just open the doors to college but to accelerate completion.
Savings accounts – Create a college-savings program for the children of low-income tax filers so families have a stake in college education. Consider linking the amount of Pell Grant available to how long families were considered low income.
While the federal government doesn’t track graduation rates for Pell Grant recipients, it’s believed that success rates are low.
NASFAA’s site has advice on applying for federal financial aid.