Planning & Budgeting

February 14, 2013

TICAS Paper Proposes New Approach to Federal Financial Aid

“Aligning the Means and the Ends: How to Improve Federal Student Aid and Increase College Access and Success” is the Institute for College Access & Success’s (TICAS) white paper for the Reimagining Aid Design and Delivery project, sponsored by the Bill & Melinda Gates Foundation (see our recent post for more information). Some of the report’s suggestions have been echoed in other white papers and publications, such as simplifying the federal financial aid application process, making the Pell program a mandatory federal budget item, and fostering more understandable and comparable reporting of college costs. The paper’s others recommendations include:

  • Holding colleges accountable not only to the percentage of student borrowers who default on loans (represented by the currently-used cohort default rates), but also to the percentage of students who take out loans in the first place. TICAS proposes denying federal aid to colleges that score below a certain threshold on a combined index of the two measures. The group also recommends increasing federal aid to colleges scoring above a certain threshold. The amount of additional aid would be determined by how much Pell funding their students receive.
  • Shoring up the Pell Grant. TICAS proposes doubling the maximum Pell grant award, to about $11,000 a year, and extending the eligibility timeframe from 6 years to 7.5.
  • Creating a single federal student loan with no fees and a fixed interest rate. The rate would be low while students are in school and would rise, by a fixed amount with a cap, when they leave.
  • Streamlining repayment plans, replacing multiple options for income-based plans with only one. Delinquent borrowers would automatically be placed in the income-based plan; but, a non-income-based option would be available to other borrowers. TICAS wants to leave borrowers with a choice, but argues they need real counseling—not just disclosure—to help them decide.
  • Eliminating higher education tax benefits and sending the savings to Pell Grants and monetary incentives for states and colleges.  If tax benefits are preserved, the group recommends restructuring them into an upgraded American Opportunity Tax Credit aimed at helping low- and moderate-income students.

TICAS’ paper outlines a few ways the government could fund these proposals in addition to potentially eliminating higher ed tax benefits.  As The Chronicle nicely summarized, those options include, “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.”