Study: U.S. financial aid fails students who need it most
The $86 billion system is so complex and piecemeal that experts call for an overhaul.
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There have long been calls for simplifying FAFSA, but they've been met with resistance, partly because of the fear that some families would hide assets and get aid they don't deserve. But to Mr. Parker, that risk is "overwhelmed by the good it would do the vast majority of families."Skip to next paragraph
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The group also wants to ease loan burdens. About two-thirds of students at four-year colleges take out loans, and on average they graduate nearly $20,000 in debt, according to the Project on Student Debt in Berkeley, Calif.
Rather than a 10-year mortgage style repayment plan for loans, payments should gradually increase, the report notes, since most people's income grows over time. It would also defer payments for people making less than 150 percent of the poverty rate. And it would cap payments in any given year at 15 percent of the graduate's income above that amount. This would strengthen an income-based repayment option recently enacted by Congress.
Currently most federal loan subsidies allow students to defer interest and payments until after college, but they have to qualify up front based on income level. By eliminating those subsidies, applying for a loan would be simplified and the government would save an estimated $8 billion, which could be directed to the new repayment subsidies and larger need-based grants, Ms. Baum, the economics professor says.
Some of the proposals require certain trade-offs that will spark debate – including the loss in assets reporting, the loss of loan subsidies during the years people are in school, and tying Pell Grants to inflation, which would basically make them an entitlement, says Terry Hartle, a senior vice president of the American Council on Education, a higher education research and advocacy group in Washington. "The challenges of implementing these ideas are much more substantial than the report lets on, but … this is a very good time to talk in broad terms about federal student aid,… how effectively it works, and how it can be improved."
To give low-income families the incentive to start planning early for college, the group also calls for creating savings accounts for families that would qualify for Pell Grants. This would be a counterpart to the tax benefits that higher-income families enjoy through popular 529 college savings plans. Costs would depend on various factors, but if the accounts started at age 12, for instance, and the government put in 10 percent of the Pell Grant the family would qualify for each year, the estimated cost would be about $3 billion a year.
To encourage schools to help low- and moderate-income students reach graduation, the group recommends incentive grants for colleges. While 40 percent of low-income students start college, only 12 percent earn a bachelor's degree by age 24, compared with 73 percent of their higher-income peers, according to The Pell Institute for the Study of Opportunity in Higher Education in Washington.