Federal

Panel Proposes Major Overhaul of College-Aid System

Simplicity, Cost Savings Seen as Benefits of Plan
By Scott J. Cech — September 18, 2008 | Corrected: February 22, 2019 3 min read
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Corrected: A previous version of this article incorrectly identified the source of projected savings as a result of a recommendation by the Rethinking Student Aid study group.

A high-profile national panel of experts convened by the New York City-based College Board last week issued a sweeping set of recommendations aimed at dramatically reconfiguring the way the roughly $86 billion in federal financial aid is delivered to U.S. college students every year.

Under one of the panel’s proposals, the repayment of student loans would be based on post-college financial circumstances, and payment amounts would increase over time on the presumption that graduates’ incomes would also rise.

The federal application form for student aid would also be eliminated, in favor of information provided directly by the Internal Revenue Service; federal Pell Grant maximums would be linked to the Consumer Price Index; and federal Stafford loan amounts would be linked to the inflation-sensitive federal poverty level, if the panel’s proposals were implemented.

“We need a student-aid system that is simple and clear and puts the money in the hands of those who need it,” said Rethinking Student Aid study group co-chair Michael S. McPherson, the president of the Chicago-based Spencer Foundation, which helped underwrite the group’s work.

Replace Subsidies

The panel of professors and foundation officials cited cost estimates by the Washington-based Urban-Brookings Tax Policy Center suggesting that one of the proposals—replacing the federal subsidy of Stafford-loan interest payments while students are still in college with post-collegial payment adjustments based on financial circumstances—would save $8 billion per year.

The recommendations also include a federal savings plan for low-income families. Under the plan, the government would calculate how much Pell Grant money a child would be eligible for if he or she were of college age, based on his or her family’s financial circumstances, and begin sending the family regular statements about how much money has been set aside so far for the child.

Patterned after the Social Security system, such accounts would involve no actual transfer of money until the child reached age 18. Rather, they would represent the federal government’s financial commitment to pay the specified amount, which would accumulate tax-free interest, and be spendable only for college expenses.

“We need to make sure we get the message to low- and moderate-income families early that they’re going to be able to pay for college,” said Mr. McPherson. “We wanted to make aid not only simpler, but more predictable.”

The cost of the proposals, group members said, would depend on how policymakers deployed them.

For example, one option would be for policymakers to base eligibility for the savings accounts on students’ financial circumstances at age 12. Under that scenario, according to the group’s projections, starting an annual savings deposit equal to 10 percent of the Pell Grant amount for which the child would be eligible would mean that over 12 million children would be served, at a cost of $2.8 billion per year at current college-participation rates.

David Hawkins, the director of public policy and research for the Alexandria, Va.-based National Association for College Admission Counseling, said such proposals have historically made little headway, but this time, the proposals’ timing might be right.

Prospects Uncertain

“In light of the estimated $6 billion shortfall in the Pell Grant program, a student-loan market suffering from many of the same over-aggressive lending strategies as the mortgage market, and an economy that appears to be headed for rock bottom, it is possible that policymakers may be interested in ensuring that federal funds are spent efficiently and effectively to allow students the opportunity to attend college without incurring untenable debt,” Mr. Hawkins said.

Robert M. Shireman, the president of the Berkeley, Calif.-based Institute for College Access and Success, said in an e-mail, “Too often these types of commissions produce unrealistic wish lists and vague exhortations. In contrast, this group took a more hard-headed, analytical approach. There are enough specifics so that policymakers could actually follow up.”

Representatives of both Rep. George Miller, D-Calif., the House Education and Labor Committee chairman, and Rep. Howard P. “Buck” McKeon, R-Calif., its ranking minority member, said the congressmen welcomed the effort and would study the proposals.

Education Department spokeswoman Samara Yudof said U.S. Secretary of Education Margaret Spellings commended the group’s work, and would continue to work toward simplifying the financial-aid system.

A version of this article appeared in the September 24, 2008 edition of Education Week as Panel Proposes Major Overhaul of College-Aid System

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