What’s up with Financial Aid for 2013?

Numerous questions have arisen over the effectiveness of the current financial aid system. The goal of the system is to increase the number of students who can afford and attend college and complete with a manageable amount of debt.

In a paper released January 7 by the Institute for Higher Education Policy (IHEP) as part of the Bill and Melinda Gates Foundation’s Reimaging Aid Design and Delivery initiative, proposed changes to the system are identified.

The report authors explore the evolving makeup of the country’s undergraduate population – more nontraditional, minority, and first-generation students – and how the current financial aid system may be ineffective for them.

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According to the paper, the federal government provides the most student aid, with 60% given in loans and 28% in grants. Even with an increase in federal aid by 140% over the past decade, rising tuition and declining family income have absorbed much of the increase in aid. Additionally, much of the increased federal aid comes from increases in federal loans that must be repaid with interest after a student leaves a school, regardless of whether or not a degree was obtained.

IHEP’s proposed changes include the following 13 policy recommendations:

  • Create a system of early financial aid “accounts” that can leverage family savings and public/private resources.
  • Match family college savings for low-income households through public or employer dollars.
  • Make the American Opportunity Tax Credit (AOTC) fully refundable so it may be utilized by low-income households, and create a pilot program for early delivery of the credit.
  • Communicate potential financial aid awards in a statement based on Internal Revenue Service (IRS) information that allows families to plan for the cost of college.
  • Maintain the Pell Grant program as the centerpiece of need-based aid, and make it an entitlement.
  • Provide block grants to states to coordinate institutional student services and public benefits to financial aid.
  • Reform the Supplemental Education Opportunity Grant (SEOG) to provide institutions with money for “emergency” aid to students.
  • Institute a system of loan forgiveness for on-time completion for Pell-eligible students.
  • Tie campus-based aid to student debt repayment levels and degrees awarded, in addition to cohort default rates.
  • Create incentives for performance-based grants.
  • Incentivize that spending be maintained on need-based aid for students.
  • Make Income-Based Repayment (IBR) the default option for student loan repayment.
  • Incentivize pre-tax employer matching for student debt repayment for the first five years after a student has completed college.

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