How to fix financial aid in 2013

Does the federal financial aid system reflect today's student?
Does the federal financial aid system reflect today's student?
The federal financial aid system as it is currently structured is struggling to adapt to a changed educational landscape – even as a degree becomes more and more necessary to the jobs of the future.

But some new thinking is taking hold, thanks to a grant program from the Bill and Melinda Gates Foundation called Reimagining Aid Design and Delivery (RADD). It's given grants to organizations to study how the federal financial aid system needs to change and how best to accomplish it. 
One big challenge: How to keep aid focused on low-income, first-generation, and nontraditional students. When the financial aid system was created, the typical college student was freshly graduated from high school, could count on some parent support, and was not likely to be a parent themselves. Today, that describes only about a quarter of college students. The rest are an incredibly diverse group: veterans, older students, returning students, parents, career changers, and so on. But most aid is still focused on that 18-23 year-old group. 
"(One) overarching thing we were trying to do is think about support for students while they are in college, especially low-income students. We know financial aid is really key for them to access college and succeed in college – having that complementary support can help them succeed as well," says Alisa Cunningham, senior associate for the Institute for Higher Education Policy and one of the authors of an IHEP white paper on financial aid for 21st-century students, funded by RADD. One policy it suggests for making the financial aid system better address the needs of non-traditional college students is creating on-campus supports that complement the financial aid these students receive and that recognize the diversity among non-traditional students.
The current aid picture better reflects the traditional 18 to 24-year-old college student when the Pell Grant was enacted in 1965, not the diverse population attending college today, says Kim Cook, executive director for the National College Access Network (NCAN). NCAN has also developed a white paper under the RADD grant.

So learning from the efforts of colleges that have high degree attainment rates for today's diversity of students is key.
"We have some colleges that have made a commitment to first generation students or to working students or to veterans," she says. "Our challenge is to learn from what they are doing right and the results they are getting, because right now there are too few – when you look at completion rates they are only about 54 percent across the board." 
Maintaining the Pell Grant for low-income students is key. Congressional budget battles have led to a tightening of eligibility of the Pell Grant program; at the same time, educational tax credits are increasingly popular across the political spectrum. According to the IHEP report, however, tax credits are not as effective as grants in helping low-income students pay for college. 
"We are frustrated that Pell Grants are seen as a way to balance the budget," says NCAN's Cook. "I think the ways decisions have been made are not always in the interest of low-income students." NCAN's report recommends that the American Opportunity Tax Credit program be brought more in line with low-income students and that it is capped at a certain amount; those savings could then be used to enhance the Pell Grant program.
IHEP's Cunningham says that targeting aid to low-income students is important because they need the most help. Middle income students may struggle to meet college costs as well, she says, which brings up an important discussion about college affordability. But middle-income students are still likely to find a way to go to college, while low-income students may not go at all if aid is not targeted to them.
One major problem both middle and low-income students face is graduating with a crushing debt load. Both organizations call for income-based repayment to become the default for all federal student loans, which set loan payments at 10 percent of discretionary income and can be forgiven after 20 years.
At the state level, funding for student financial aid has been cut, as has funding to higher education, which means that more of the burden is shifted to students in the form of tuition increases at the same time financial aid to meet those higher costs is also being cut. Both reports call for states to take more of a role in helping low-income students complete college. More concerning to NCAN's Cook is that increasingly states are moving their aid to merit-based programs versus need-based programs, which tend to go to middle-income students.
Any big policy changes will likely not come until the end of the year, when Congress may take up reauthorizing the Higher Education Act, Cunningham says. While some temporary fixes have been made through budget negotiations, changing policy through the Higher Education Act makes changes more transparent and gives them more weight.
"For any big fixes, we're hopeful those will happen through reauthorizing the Higher Education Act rather than as a budget," says Cunningham. "A lot of things have been changed during the budget cycle, but doing it as part of reauthorization is really supporting the policy change, and it becomes obvious what changes the government is proposing for the federal aid system."
To that end, gathering as much relevant information as possible – and showing how a change in one area can affect others --nwas the overarching idea behind IHEP's report. 
"We wanted to come up with a framework so you have all you need to know about the kind of impact a change in a program would have on institutions, students, etc.," she says. "Decision-makers can sift through the ideas and see what makes the most sense."

The IHEP white paper, "Making Sense of the System: Financial Aid for the 21st-Century Student," is available here.

Amy Kuras is a Detroit-based freelance writer. 
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