I have come to believe that we need dramatic changes in our financial aid system.
We have largely eroded the supports that used to be there for low-income students seeking to go to college: In the 2010-2011 school year, the maximum Pell Grant award covered only 36% of the average cost of attendance at a public four-year institution, compared to 77% in 1979-1980.
More students are having to borrow more money to leap the chasm between what they can really afford and how much college costs. Today, the median college debt is about $28,000 per year, even though research reveals the potential for significant negative effects–on college graduation and post-secondary financial outcomes–starting at only about $10,000 in borrowing.
So more students are deterred from enrolling at all, put off by high-dollar debt or uncertain about whether college is really worth it.
To me, this makes financial aid reform more than just an academic exercise (no pun intended); it is a policy imperative.
I’m working now on a report outlining AEDI’s priorities for policy changes, and so I want to use this space–and your generosity with your time–to elicit some input as we outline a way forward. The good news about being at the beginning of a policy reform effort is that there are many options. The hard thing, of course, is trying to, collectively, think differently than we ever have before.
I believe that identifying the right options–some workable, some aspirational, across the levers of potential influence–is key to getting these conversations started. And I am audacious enough to ask for your help with that. Thank you in advance!
- Reinvest in higher education as a collective good, to reduce the growth in college costs and reflect the truth that higher education is a common value, as much as an individual asset
- Minimize the negative effects of student debt, especially as we shift from debt-dependent to asset-based financial aid. This means that policymakers should explore provision of ‘emergency’ aid, to prevent disruptions in academic progress often associated with financial setbacks; incentives for educational attainment, potentially including at least partial loan forgiveness for on-time degree completion for Pell-eligible students; and policies that reduce debt burdens, including income-based repayment and incentives for employer matching for student debt repayment following graduation.
- Support college graduates as they strive to build assets, perhaps through diverting some loan repayments to savings accounts (as we do in the HUD Self-Sufficiency program, with rents), protecting graduates’ credit scores from student loan effects, and directing the financial services industry to aggressively extend savings opportunities to Americans.
- Improve quality of K-12 education, to reduce the need for remediation in college and close the gap between how children need to perform and what they are prepared to do–too many students are failed in high school and then have to pay to catch up in college. Since educational quality is highly inequitable, too, this serves to exacerbate other layers of inequity.
- Eliminate disincentives for college savings in the public assistance and means-tested financial aid systems–today, we have a bifurcated financial aid system, where wealthy students mostly enjoy asset-based financing, while low-income students grapple with the fallout of high-dollar debt. And strict asset limits in financial aid and public assistance determinations enforce this inequity.
- Incorporate savings into current financial aid programs, using the variable of timing to convert them into ‘early commitment’ programs. This might mean incorporating savings into the Pell Grant program and/or diverting some scholarship money from academic merit-based to rewarding savings, at the university or local level.
- Build progressive, lifelong, universal, asset-building child savings structure, paralleling asset incentives through the tax code for wealthy students. To make Child Savings Accounts (CSAs) work for low-income households, some policy features are essential: automatic enrollment (opt-out), ideally at birth; initial deposits that give all children an immediate stake in their futures; program features to ease access, like low initial deposit requirements; concerted outreach and education; and special incentives, such as refundable tax credits and/or direct matches. Accounts should be in students’ names, and at least some of the deposits should be available as they go through school, to help them confront financial obstacles to academic achievement.
What’s missing? What concerns you? What confuses you?
What is your vision for a financial aid policy for tomorrow’s challenges, and how do you think we get there?