The gap in college attainment between children of high- and low-income families casts a shadow over both our national economy and the American dream. Improving the financial-aid system won't close that gap, but could certainly narrow it. Those are the premises of a white paper released on Tuesday by the Institute for College Access & Success.
The paper, "Aligning the Means and the Ends: How to Improve Federal Student Aid and Increase College Access and Success," is the group's contribution to the Reimagining Aid Design and Delivery project, sponsored by the Bill & Melinda Gates Foundation. Ideas from the project's 16 grant recipients have been trickling out since late last year, offering up a host of options for fixing a system most everyone says is broken.
The report from the Institute for Access & Success, or Ticas, is relatively long and detailed, taking more than 80 pages to provide context on the existing system and explain its roughly two dozen proposals. Those include some familiar suggestions: simplifying the application process for financial aid; making the federal Pell Grant program a mandatory budget item, no longer at the mercy of annual appropriations; and promoting clearer information on college costs.
Ticas also argues that colleges and universities should be held more accountable for whether their graduates have high-quality degrees and manageable debt. "Taxpayer dollars should not subsidize schools that routinely do more harm than good," the paper says.
The group would like to use different measures than the government does to determine which colleges those might be. Colleges are now held accountable for their cohort default rates, which are widely believed to capture students' risk of defaulting at a particular college, said Lauren J. Asher, the institute's president. But the rates don't really reflect that, she said, because they don't tell how many students at any given college have borrowed. In other words, a college could have a very high default rate based on a tiny number of borrowers.
Instead, Ticas proposes a Student Default Risk Index that would incorporate the share of students with loans. Colleges that score below a certain threshold would lose access to federal aid, as under the cohort-default-rate system. And if they barely meet the cutoff, and depend heavily on federal aid, they should share some of the risk that taxpayers bear in lending to their students, Ticas says. Lower-risk colleges should get more federal money, based on how much their students receive in Pell Grants.
The paper also calls for a big investment in the Pell program: doubling the maximum award, to about $11,000 a year, and increasing the number of years students can remain eligible, to seven and a half instead of six. And instead, the grants should be called "Pell Scholarships," the paper says, to show that all students are expected to succeed.
A Simpler System
Calls to simplify the financial-aid system have become common, and to that end Ticas recommends creating a single federal student loan with no fees and a fixed interest rate. That rate should be low while students are enrolled, reflecting what it costs the government to borrow the money, the paper says. When the loan comes due, the rate should rise, but by a fixed amount, with a cap. A form of insurance, the group suggests, could keep the interest rate linked to what currently enrolled students are charged. And if Pell recipients struggle with repayment, they could take advantage of interest-free deferments.
Also for the sake of simplicity, Ticas proposes streamlining repayment plans, replacing multiple options for income-based plans with only one. Delinquent borrowers would automatically be placed in the income-based plan. Meanwhile, a non-income-based option would allow borrowers to make one monthly payment, based on their total debt level, for all of their outstanding federal loans.
While some groups have suggested that income-based repayment should be set up as an opt-out program, or even the only option, Ticas wants to leave borrowers with a choice, since each comes with trade-offs. An income-based plan allows borrowers to make smaller payments but can increase the total amount they must repay. If borrowers can pay down their balance more quickly, they might want to.
That decision should be based on "what the borrower needs and values," Ms. Asher said. And to help them decide, borrowers will need better guidance than what some colleges now provide to fulfill federal requirements.
"Counseling needs to be counseling," Ms. Asher said, "and not just disclosure."
As for how the government will pay for all those proposals, Ticas's paper contains an appendix laying out various ways. Among them are limiting the benefit of itemized tax deductions, taxing private equity and hedge-fund income like other income, and removing or reforming tax-exempt bonds for private nonprofit colleges.