Reimagining Aid Design and Delivery: Improving Federal Financial Aid for Students
The Brown Center on Education Policy at the Brookings Institution recently released a new paper, The Next Steps: Building a Reimagined System of Student Aid. The author, Beth Akers, a fellow with the Brown Center, presented her findings and headed a panel on Thursday, October 3, to explore how a redesigned federal financial aid system could help more students afford and succeed in college.
The panel consisted of Rory O’Sullivan, Policy Director at Young Invincibles; Michael Tanner, Vice President and Chief Academic Officer at the Association of Public and Land-Grant Universities; and Richard Vedder, Adjunct Scholar at the American Enterprise Institute. The panel was moderated by Grover J. “Russ” Whitehurst, the Director of the Brown Center on Education Policy at Brookings.
The cost of higher education in the United States continues to rise at a rapid pace, with the average tuition at a public four-year college increasing more than 250 percent over the last thirty years. Rising prices, coupled with declining state funding, has placed a larger proportion of college costs on students, who are borrowing more than ever before in order to afford their education. Approximately two-thirds of college students graduate with loan debt averaging more than $26,000. The current system is in need of revision to place fewer burdens on students, particularly those within families in the low- and middle-income brackets.
“We’re seeing worrisome trends in student loan debt and also in tuition, and yet we don’t exactly know what is driving these trends,” said Akers. “Students are borrowing more than ever and debt levels are increasing. Maybe it’s a good thing; maybe it’s a bad thing. Debt is increasing not only among the students who graduate from college, but among those students who attempt college and never finish their degrees. This is particularly worrisome.”
Akers mentioned several problems that need solving in the U.S. higher education system, including limited access for students from low-income households, disappointing graduation rates, student loan defaults, and rapid tuition inflation. “Reauthorization of the Higher Education Act is on the horizon, so the Senate has begun the process of holding hearings to learn about the ways in which we can reform the system to better serve students,” she said. “And recent action by the Obama administration and Congress make me optimistic that both camps are really prepared to engage in a discussion about financial aid reform and potentially create some big changes in the next year.”
The Bill and Melinda Gates Foundation funded a group of organizations that represented a diverse set of viewpoints to draft reports of implementable policy recommendations for reimagining the design and delivery of student financial aid. Akers indicated points of consensus emerged among the various reports. While the implementation strategies differed, many core objectives aligned among the different viewpoints.
Several policy recommendations received widespread support:
Simplification of every step of the system of student financial aid, such as the application process, aid delivery mechanisms, and loan repayment after graduation.
Increase the information available to students, including their eligibility for aid and the information on institutions that is necessary to make decisions regarding enrollment.
Develop a system of institutional accountability that will both protect students and ensure tax dollars are being spent effectively.
Reform the system to meet the needs of non-traditional students by transforming the schedule of aid delivery and collecting relevant data for enrollment decisions.
In addition, three common areas of disagreement were noted by the participating organizations:
Student accountability. Few agreed on how to implement a system of student accountability, or how much to emphasize and reward institutional focus on career readiness.
Emphasis on career readiness. Evaluating schools based on the financial returns they provide in order to align coursework with job opportunities is found to be an offensive policy by many because it doesn’t necessarily recognize some of the benefits of education that are not measureable.
The role of financial aid. Many organizations see loans as a tool for providing access for low-income students to a secondary education; others recognize that the number of students facing bad outcomes is a result of poor borrowing decisions, costs that outweigh the benefits provided by access.
“There’s a lot of concern about college affordability,” said O’Sullivan. “That’s how the American public sees this issue and does not get into things like completion rates or repayment plans. They’re concerned about being able to afford college and concerned about debt.” He indicated that the focus shouldn’t be entirely on federal financial aid but to include other access points to a college education in the solution. O’Sullivan pointed out that state tuition costs appear to have risen because these institutions receive less federal assistance and as such, the cost of education shifted more to students and their families.
“There may be some things that we can do to adjust that at the federal level, but there are a lot of different ways that we can address the issue and, in particular, some of our limitations at the federal level where we all agree on things like information,” said O’Sullivan. “Information simplicity may or may not be able to help that affordability challenge.” He mentioned that there was a lot of information tossed out into the public, most of which is not relevant to students. “What we really need to be thinking about is what the important pieces of information that students understand and can actually help them address this market failure of a lack of information, and get them into the institution that best works for them?”
Tanner discussed introducing completion as a goal for institutions and linking that metric to financial aid. “If you use standard measures of success—graduation rates, employment rates, earnings after—these will say to an institution, ‘go for the students who will help you meet that measure.’” He specified that to improve the ability of the overall system, the selectivity factor needed to be neutralized in some fashion. “The question is, can you get information that’s meaningful to you? I think there’s lots of ways in which the loan system could be simplified and made as effective for the taxpayers and the students to understand.”
Vedder said that federal student financial aid programs have grown almost 5 percent a year (when accounting for inflation) since 1971. The proportion of individuals from lower income backgrounds among recent graduates is lower today than when such programs were in their infancy. “When the Feds expand aid programs, two things happen,” said Vedder. “State governments reduce college appropriations and universities raise tuition fees. Both work to reduce intended benefits to students.” According to Vedder, these programs have contributed to high dropout rates, mediocre levels of student work effort and academic performance, and underemployment among college graduates. “I think we are probably overinvested, not underinvested, in higher education in the United States, creating a credential inflation arising from using degrees as an obscenely expensive screening device, involving mass waste of potentially highly productive human resources.”
Akers concluded by emphasizing what the focus of a system reform should be. “Policy makers need to focus on the issues for which the policy community has found consensus,” she said. “This will minimize the chance that legislation containing important reforms will fail to pass due to arguments over underdeveloped or unresolved areas of policy.” Additionally, Akers reviewed the two important questions from her report that need resolved. A clearer definition of college affordability is needed, as the two current understandings are somewhat contrary: either college is affordable because a household can afford to pay for college out of personal savings and earnings, so a student would not need to incur debt to go to college, or affordability comes from where a degree provides a positive financial return in the long run, making student loan debt acceptable.
Somewhat connected to the first question is the second issue, that of the role of student loans. “We need to think deeply about how loans can be used in ways to enhance the opportunities available to young people,” said Akers. “Mechanisms should be developed for ensuring they do not worsen the financial hardship faced by borrowers after graduation.” A developing dialogue on these issues will provide a foundation for the next steps in reforming the system of federal student aid and overcome the challenges currently present in the system.