Commission recommends innovative approaches to student financial aid

By Laurie Fenlason
Office of Federal Relations

Offering all students, regardless of income, a single, fixed amount of federal aid for college is one of a number of innovative college financing recommendations announced Feb. 3 in Washington, D.C., by a bi-partisan national commission charged with finding long-term ways to keep higher education affordable and accessible.

Thomas A. Butts, associate vice president for government relations and one of nine educators, legislators and business leaders appointed to the panel by Congress and the federal administration, explained the rationale for the new aid plan.

“There are so many individual aid programs out there, each with its own rules and complex eligibility standards, that students and families are often confused and intimidated—and badly served,” he said.

Commenting on the commission’s recommendations, President James J. Duderstadt noted that “our colleges and universities are regarded as the best in the world. But having institutions of this caliber means little if our own people cannot access them or if the quality of life that a college education promises remains unattainable.

“This report provides a framework in which we can reaffirm our commitment to the next generation,” Duderstadt said. Under the Commission’s proposed federal aid concept, known as the Students Total Education Package (STEP), all undergraduates would be eligible to receive the same amount of annual federal aid. However, the type of aid they receive would vary depending on the cost of the college they attend and their family’s financial situation.

Students from low-income families, for example, would receive a federal aid package composed mostly of grants, work-study and subsidized loans on which the government would pay interest until graduation. A student from a middle-income background would receive a mix of subsidized and unsubsidized loans, work-study and grants. Students from affluent families would not be eligible for subsidized aid, but could receive an unsubsidized loan.

The dollar value of STEP would be set by the federal government each year, based on the average instructional costs at four-year colleges. Currently, the STEP value would be about $14,000.

The Commission also recommended:

—Funding the Pell Grant program to the full amount authorized by law and linking the maximum Pell award to the annual average cost of a college education.

If this recommendation were implemented in the current fiscal year, the commission estimates the cost to the federal government at $6.5 billion—the same amount, Butts notes, that would have been allocated for Pell grants had the program been updated for inflation since 1979.

—Replacing commercial banks and private lenders in the student loan market with a single system whereby the federal government would make loans directly to students. The loans could be repaid via payroll deduction at a rate determined by the borrower’s income. Several independent studies have predicted an annual savings of $1.4 billion if such a system were in place.

—Creating a community service program that would allow borrowers to repay student loans through service work.

Students could participate in this program for up to three years, with 20 percent of loan principal forgiven for every year of service or complete loan forgiveness for five years of service in areas of critical need.

At the current rate of 25,000 to 30,000 people engaged in community service, the commission estimates that forgiveness of loans under this proposal would cost approximately $20 million annually.

—Creating new tax incentives—including free withdrawals from IRAs for college expenses—to encourage people to save for college.

Other tax recommendations would allow students and parents to deduct interest on educational loans; allow employers to deduct the cost of educational assistance to their employees; remove the tax on scholarships and grants; and encourage the donation of gifts of appreciated property, such as securities and real estate, to colleges and universities. Tax-related recommendations in the report are estimated to cost $620 million annually.

A number of higher education groups issued statements in support of the commission’s recommendations, including the American Association of State Colleges and Universities, the American Council on Education, the National Association of State Universities and Land Grant Colleges and the United States Student Association.

Copies of the report are available from the National Commission on Responsibility for Financing Postsecondary Education, 1850 M St., N.W., Suite 1030, Washington, DC 20036.


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