Panel Discusses Federal Financial Aid Solutions

Washington – In order to make college more accessible and affordable for students of lesser economic means, the federal student aid system must undergo a radical redesign.

That was one of the key points made Tuesday during a policy briefing on Capitol Hill meant to highlight areas of student financial aid that are considered ripe for reform as Congress prepares to hammer out a budget for the next fiscal year.

Michael Dannenberg, Director of Higher Education and Education Finance Policy at The Education Trust, said policymakers cannot “tinker” or make “small changes” to achieve the dramatic reforms that are needed in student financial aid.

“We believe that there needs to be a comprehensive solution that’s multifaceted and deals with the interloping set of problems,” Dannenberg said during the briefing, hosted by the National College Access Network, or NCAN, as part of a Bill & Melinda Gates Foundation project called RADD, an acronym for Reimagining Aid Design and Delivery.

The Education Trust, like NCAN, is one of several grantees in the RADD project.

Dannenberg said one of the most urgently needed changes is the need to redirect the “billions of dollars” in student financial aid that he said currently go to students and families that do not need the money. As an example, he cited the American Opportunity Tax Credit, which he said is ill targeted because it can benefit families earning up to $180,000.

Dannenberg said a more efficient targeting of federal funds can be achieved by taking federal money that is already being spent on higher education and focusing it to cut costs for families with incomes below $115,000 or those in an income bracket he described as the “bottom 80 percent.”

This would involve providing a debt-free education to students from families who make $50,000 or less—or the bottom 40 percent—and no-interest loans to the other 40 percent.

It would also involve a state-federal partnership funded by a new “state education grant” that would be paid for with $20 billion a year from existing federal resources for higher education outside the Pell Grant program, according to “Doing Away With Debt,” a paper that Dannenberg authored and that he cited in his talk.

Money would flow to states that commit to a series of policy principles, including providing a “college- and career-ready” course of study for all students nS smaller tuition growth.

Students who benefit from the no-debt or interest-free debt should commit to work or serve their communities 10 hours per week, Dannenberg said, citing research that shows students who work or serve between 5 and 15 hours per week do better in school than those who don’t, while 15 hours is a “tipping point and has a negative effect on academic performance.”

“But a little work is good policy and I would argue good politics as well,” Dannenberg said.

Dannenberg was joined by panelists Jason Delisle, Director of the Federal Education Budget Project at the New America Foundation; Wendell Hall, Deputy Director of the Institute for Higher Education Policy, or IHEP; and Carrier Warick, Director of Partnerships and Policy at NCAN. All of the represented organizations were fellow RADD grantees.

Delisle argued for a series of gradual increases in the maximum Pell Grant for students; a simpler, universal income-based repayment plan; and scrapping “arbitrary” interest rates on student loans, a reform that he calls a “budget-neutral” way to restructure the student aid system.

Hall spoke of the need to be clear on what the tradeoffs are for implementing new policies. For instance, he said that, if income-based repayment, or IBR, were to become the automatic mode of repayment for student loans, default rates on student loans would cease to exist.

“Although it’s a flawed metric, we know that two-year and three-year cohort default rates are one measure of how institutions are doing in terms of students getting employment,” Hall said. “With IBR, there’s no more default and you lose that metric.”

Warick said that, despite recent simplifications of the FASFA, more needs to be done to make the process of obtaining federal student aid more timely and efficient.

“There are still barriers, and students get information far too late to find out how much they have to pay,” Warick said, adding that prior-year tax data should be used in lieu of the FASFA to determine how much aid a student can get.

Spiros Protopsaltis, Senior Education Policy Advisor for the Democratic-controlled Senate HELP (Health, Education, Labor & Pensions) Committee, said the committee plans to tackle issues of affordability in the coming months.

A top priority will be working to reverse state disinvestment in higher education, which he said has caused students and families to shoulder an increasing amount of the cost of higher education.

“This is a cycle that needs to be stopped,” he said.

Other priorities include using incentives to get institutions to create a more “student-centric campus culture” instead of “chasing rankings,” and “getting good information in the hands of consumers.”

“Unfortunately in higher education, we do not have that,” Protopsaltis said of consumer information. He said the recently created College Scorecard and Shopping Sheet produced by the Obama administration are “good steps in the right direction when it comes to giving consumers information they need to make smart choices.”

Kevin James, legislative assistant for U.S. Rep Tom Petri (R-Wis.), spoke of the benefits of moving toward an income-based repayment system that utilizes employer withholdings.

“The essential goal of all of this is that we have a system that is so complicated right now, so many options that people may not avail themselves of the options,” James said. “It’s completely unnecessary.”