Federal student-aid programs should be pared down to one grant, one loan, and one tax benefit, according to a report released on Friday by HCM Strategists, a consulting firm. The report, “Doing Better for More Students,” is based on the ideas of a technical panel that HCM convened as part of its work for the Bill & Melinda Gates Foundation’s Reimagining Aid Design and Delivery project.
Many of the project’s 16 grant recipients have already released reports laying out options for revamping the federal aid system to promote completion as well as access. As part of its contribution to the project, HCM previously released a problem statement agreed to by a coalition of higher-education experts and advocates. The consulting firm also released public-opinion research it had commissioned.
The technical panel did not set out to focus on streamlining the aid programs, said Kristin Conklin, a partner at HCM Strategists and the panel’s chair. But after considering the system’s increasing complexity and how that has affected students, simplification became an important priority.
The report advocates a simplified aid-application process for students, especially those in low-income families. For many students, aid eligibility would depend solely on their families’ size and adjusted gross income, under the report’s plan. Students whose families qualified for a means-tested benefit, like Temporary Assistance for Needy Families, would automatically qualify for a maximum Pell Grant. And at the end of the application, students would see the amount of grant aid they qualified for rather than their expected family contribution.
The report also suggests greatly reducing complexity in the federal loan programs, by offering only one loan with a market-based rate. Similarly, there would be a single repayment plan, through which all borrowers would pay a share of their income each month for a set number of years. Unlike the current income-based repayment program, there would be no cap on the minimum monthly payment expected of higher earners.
Ineffective Tax Breaks
The report also suggests eliminating the different treatment of dependent and independent undergraduate borrowers, and having one set of loan limits for undergraduates and one for graduate students. PLUS loans, which allow graduate students and the parents of dependent undergraduates to borrow up to the cost of attendance minus other aid, would be discontinued, restricting the total amount of federal loan debt students and their families could take on.
The current education tax benefits are too complicated, the report argues, and there is little evidence they help more students to graduate. A key question the panel considered, Ms. Conklin said, was “how do you target the investment as well as you can?”
Reducing the tax benefits, the panel decided, could be used to bolster grant aid that would help students graduate on time. Still, the report suggests keeping one tax benefit—the Lifetime Learning Credit—and making it available for those continuing their education through emerging education models, like MOOCs.
The report also advocates promoting shared responsibility for college completion. It suggests using grant aid to encourage students to graduate on time. That could be accomplished by offering students more aid, such as by raising the maximum grant to $7,000 for those enrolled in enough classes to graduate on time. The government could use savings from the panel’s other recommendations to pay for that, the report says. Alternatively, the number of credits required to qualify for a maximum grant could be raised to reflect what is needed for on-time graduation, without increasing the maximum award.
As for colleges, a new “Institutional Effectiveness Index"—measuring access, loan repayment, and input-adjusted completion rates—would be used to determine their eligibility for federal aid.
Finally, the report suggests setting aside a portion of the government’s financial-aid budget to support pilot programs trying out new models of awarding aid.