Student Perspective on Federal Financial Aid Reform

8/20/2019 Student Perspective on Federal Financial Aid Reform

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November 2012

November 2012

Jen Mishory, JD & Rory O’Sullivan, JD, MPP

The Student Perspective on

Federal Financial Aid Reform

a white paper by


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The Student Perspective

About Young InvinciblesYoung Invincibles is a non-partisan, non-prot or-

ganization that seeks to amplify the voices of youngAmericans and expand opportunity for our genera-tion. Young Invincibles engages in education, policy

analysis, and advocacy around the issues that mattermost to this demographic, focusing primarily on health

care, education and economic opportunity for youngadults, and working to ensure that the perspectives

of young people are heard wherever decisions aboutour collective future are being made.

AcknowledgementsWe would like to thank the Bill and Melinda Gates Foundation for theirgenerous support of this important research. We would also like tothank Healey Whitsett and NERA Economic Consulting for their invalu-able partnership in developing and analyzing surveys, and the dozensof national and state partners who helped us reach so many students.

A number of members of the Young Invincibles team contributed tothe research and drafting of the report over several months, and weare grateful for their efforts. Thanks to Brian Burrell, Erin Hemlin,Jasmine Hicks, Karen Hu, Nick Kelly, Amy Lin, Adaku Onyeka, Chris-

tina Postolowski, Katherine Schaller, Reid Setzer, Aaron Smith, DustinSummers, Tsion Tesfaye, Samuel Wappel, and Ashley Young.


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Financial Aid Reform

together, invincible

Table of Contents

Acknowledgements ... 2

Table of Contents ... 3

Executive Summary ... 4, 5

Introduction ... 6 - 8

Surveying the Student Voice ... 9-25

Surveying Students ... 10-16

The Student Voice ... 17-25

Reimagining Federal

Financial Aid ... 26-57

Grants ... 26-30

Loans ... 30-48

Taxes ... 48-57

Conclusion ... 57

Appendix ... 58

End Notes ... 59-70


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Executive Summary

The coming months and year could be a turn-ing point for students, their families and for thefuture of higher education in this country. The

long-term trends of state disinvestment and in-creased student enrollment have brought stu-dent debt to unprecedented levels, and with it,public agreement that something must be done.At the same time, the federal government is fac-ing enormous nancial decisions in the near-term, with Washington debating choices aroundexpiring tax cuts, automatic discretionary cutsknown as sequestration, a Pell grant fundingshortfall, and the fast-approaching reauthoriza-

tion of the Higher Education Act. It is an under-statement to say that large-scale decisions as tothe future of investment in higher education inthis country could be right around the corner.Now is the time for reform.

Unfortunately, the perspectives of students andyoung people have traditionally been an after-thought in these key debates in Washington. Asa result, improvements to the federal aid systemtake years to accomplish, and never go quite farenough. Cuts, on the other hand, come quicklyand hit hundreds of thousands of students atonce. This project seeks to put an end to that.With the impending decisions in mind, Young In-vincibles set out to capture the experiences andperspectives of a variety of students. We rstanalyzed existing polling, engaged in our ownsurvey data collection, interviewed and held

roundtables with hundreds of students and non-students from all backgrounds, and took noteof the unique role and ideas of student leaders.We found that:

Key Research Findings

Young people, and particularly students,broadly support investments in federal -

nancial aid, even in the face of federal de-cits. Nationally, three-quarters opposecutting Pell grants for decit reduction. Ina survey of high debt borrowers, a largemajority supported ending tax breaks foruniversities in order to sustain funding forPell grants.

Students overwhelmingly lack informa-tion and strong counseling about federal

loans, federal grants, and private loans.About 40 percent of high debt borrowersresponding to a survey reported never re-ceiving federally mandated loan counsel-ing.

Students and student leaders value theconnection between their school and jobs, and support measures that would in-crease that connection.

When it comes to school accountabil-ity, students prefer incentives for driv-ing improved outcomes to more punitivealternatives, likely worrying that othermechanisms will unfairly punish individu-als. Student leaders in particular sup-port strong accountability measures for

schools, but seem to hold similar concerns.

Clearly, major reforms are needed to ensurethat low- and middle-income students have access to school, that students graduate with agood job and minimal debt, and that all stake-holders – including students and schools – areheld accountable for these goals. With the re


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Key Policy Solutions

Fully fund and invest in Pell grants as acenterpiece of our nancial aid system,protecting a critical tool for giving low-in-come students access to college. Invest in2 new Pell programs, PellWorks and PellP-lus, by reforming existing funding streams.1) Pell Works: Use the Pell formula to re-target federal work study, sending workstudy dollars to schools that best con-nect school to work. 2) PellPlus: Insteadof sending FSEOG dollars to schools thathave been in the program longest, senddollars to the lowest-income students andto schools doing a better job of helpingthe lowest-income students graduate.

Overhaul our student loan system with asingle, simple federal loan. Provide auto-matic enrollment into the Income-Based

Repayment as a form of insurance againsttough economic times. Increase transpar-ency with an online hub incorporating newand existing data, improve existing onlinecounseling tools, and increase access tocounselors for students in desperate needof guidance.

Rethink and simplify tax incentives forhigher education. Contemplate consoli-

dation of credits like the American Oppor-tunity Tax Credit and Lifetime LearningCredit, and consider redirecting expendi-tures for tax-exempt bonds that help pri-vate institutions and high-income inves-tors to ll the Pell grant shortfall and fundexpansions like PellWorks during reau-

thorization of the Higher Education Act.

These reforms take bold action on the part ofall actors: President Obama, Congress, the De-

partment of Education, schools, and important-ly, students. But such action is necessary if weare to provide the same economic opportunitiesto this generation as we have to every previousone.

President Obama meeting with Young Invincibles and

other student leaders.

sults of our research in mind, we next turned to look at what those nancial aid reforms might looklike. We provide the following recommendations for changes to the federal nancial aid system:


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Introduction

Paying for college is a radically different propo-sition than it was even a generation ago, as anyparent or student thinking about college knowswell. A college degree was once so affordablethat a student could work for a summer and payfor their next year’s tuition. No longer. Today,getting a degree is becoming increasingly es-sential to growing our economy and providingindividual economic stability – yet getting thatdegree is dramatically more expensive. More-over our country has fallen from 1st to 12 th inthe world in educational attainment.1 If we fail

to address college access and completion, theeconomic consequences will be signicant. In-deed, experts estimate that our country will be3 million degrees short by 20182, and discussionabout the skills gap facing employers is perva-sive.3

This generation understands that the economyhas changed: about four in ve young adults be-lieve that getting an education is more important to

their generation than it was to their parent’s genera-tion.4 As a result, about 80 percent of high schoolstudents who graduated in 2004 enrolled incollege within two years after high school.5 En-couragingly, students from communities of coloralso go to college more than they did previously- though still not as often as Caucasians.6

But despite the increasing importance of educa-tion and the economic returns on public invest-

ment in higher education,7 state appropriationshave fallen. Between 2000 and 2010, enroll-ment increased 37 percent, from 15 million to21 million,8 but state and local funding per pupilfor public higher education fell by 21 percent.9 This plummet followed several decades of de-clining investment and has fueled tuition hikes.

To view this drastic change through the lens of astudent trying to pay for school:

In 1980, at the average four-year school, astudent who worked full-time over the sum

mer at a minimum wage job could cover tuition the next year and have the 2012 equivalent of $1,923 leftover.

In 2012, a student who works full-time overthe summer at a minimum wage job covers42% of tuition at an average 4-year schoolleaving them $4,764 short.10

Most students simply cannot afford this cos

without taking on signicant debt.11 And whileeconomists agree that a degree is still worth itthe economic gain is not always so clear to students. Although young adults believe that getting an education is important to their success,1

when life circumstances catch up, student aidcannot keep up, students drop out. In a recensurvey by Young Invincibles, about one-third o

high-debt borrowers said that federal aid did no

cover tuition, and about 55 percent said that it did

not cover additional costs beyond tuition.13 As a result, those who do make it through school oftenface a slow crawl through monthly debt bills, collection calls, and postponed life choices.

Young Invincibles will continue to work with itsstate partners to ght for state prioritization ohigher education. But with a dramatic reversain state appropriations unlikely in the next several years, today’s students will continue to facehigher costs than prior generations. Federal aidthen, becomes increasingly important in lling the gap for students and ensuring that theygraduate with economic opportunity and manageable debt.


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Principles for Reform

In our surveys and conversations with studentsacross the country, they voice concerns overrising costs, complicated nancial aid systems,

little guidance, and the uncertain job prospectsafter school. Students want change, and theirexperiences should guide these changes. If re-form is done wrong -- without student input, forexample -- it could hurt the very students we aretrying to help. But higher education is too im-portant to settle for the status quo. As Congressfaces vital budgetary decisions, the reauthoriza-tion of the Higher Education Act, and a loomingscal cliff, we offer policymakers a student-cen-

tered guide to reforms in federal nancial aid.

Financial aid must provide meaningful accessto all students and families.

With more students relying on higher educationas a way to achieve nancial stability, federal aidcan and should provide access to that stability.About 84 percent of young adults state thatmaking college more affordable should be a pri-

ority for Congress.14 Ensuring that federal aidworks to make higher education accessible forall students, particularly students coming fromcommunities with historically low enrollmentand completion rates, including low-income stu-dents, should be a guiding tenet of the program.This generation understands that federal aid isa pathway to economic success, regardless ofbackground. Policymakers should too.

Promote a transparent system that allowsstudents and their families to act as well-in-formed consumers.

Academic research consistently shows that ac-cess to grant aid increases enrollment. Yet toofew individuals fully understand the types of

grants available to them. At the same time, whenstudents do apply for aid, they nd the processcomplicated and confusing. There are severasimilar types of loans and repayment optionsbut students often report that they are not

even clear on the differences between loansand grants.15 It is unsurprising, then, that over90 percent of the respondents to a large surveyof high-debt borrowers support the creation ofa model nancial aid award letter with simpleeasy-to-understand terms.16 Literacy gaps andan opaque marketplace lead not only to decisions

not to attend or complete college, but also to more

costly choices. Our federal aid system must betransparent and must prepare students to make

good decisions.

Hold all stakeholders accountable for thegoal of graduating students with jobs, notdebt.

Encouraging students to enroll in higher educa-tion without a clear pathway to graduation andemployment is not enough. About 40 percentof students who enter school do not graduate

within 6 years, and completion rates are particu-larly low at many for-prot and community col-leges.17 In a recent study, about four in ve Pelgrant recipients said that their grants increasedthe likelihood of completing school. Aid shouldhelp students complete their education, andschools beneting from aid must be accountablefor that goal as well.

Yet even for some who do graduate, a fuzzy loan

marketplace and lack of protections mean thatstudents too-often face difculties in managingtheir debt. Attending college is only truly a path-way to economic security if students can leaveschool with a level of debt that they can paydown. All stakeholders must ensure that this aidmoney is going toward achieving that end.


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Make smart, innovative investments to pre-pare this generation for tomorrow’s economy.

This generation needs policymakers to make ro-

bust, smart nancing decisions in higher educa-tion. Congress faces a large decit, and recentlegislation such as the Budget Control Act callsfor across-the-board cuts of discretionary spend-ing. Yet when asked whether Congress should cutPell grants – the quintessential access program infederal aid policy – in order to address the grow-ing national decit, a full three-quarters of youngpeople state that Pell grants should not be cut.18

Indeed, young people understand that invest-ing in higher education is crucial; 88 percent ofyoung people and over 9 in 10 students agree that

increasing nancial aid and making loans more af -

fordable for post-secondary education and training

helps make the economy stronger .19 With limitedresources, this means that policymakers must 1)invest adequate dollars in aid, and 2) efcientlydistribute limited dollars.

Applying Student-Centered Principles

to Reform

Changes to federal nancial aid should system-atically follow policy proposals that stem fromthe principles laid out above, and to best do that,policymakers must incorporate student voices.We have seen too many instances where studentvoices are ignored, and the consequences can be

very harmful. For example, when policymakers inWashington faced a budget hole in Pell grant fund-ing in 2011, they chose a quick x that ultimatelyhurt students. Congress decided to make an im-mediate and retroactive change to the lifetimelimit on Pell grants, from nine years to six years.Instead of a prospective or phased-in lower limit,

the six-year cap was imposed immediately. A Pelgrant recipient who was one semester away fromgraduating was nonetheless cut off if they it thecap. More than 100,000 Pell recipients, includingthose only months from graduation, began los

ing Pell eligibility starting with the 2012-2013academic year. Another quick change came whenpolicymakers removed summer Pell grants rightafter implementing the new program, even be-fore having a chance to determine how successfusummer Pell grants could be in facilitating fastercompletion.

As one student told us, “I started my second stintof college in 2009, but my rst go-around wasin 1999, when I was forced to quit due to familycircumstances. I’m now thirty-four years old andI’m able to attend school largely thanks to thePell grant … The current changes in the Pell grantregulations penalize those who realize their mis-takes and return to college when their life is morestable.” This student was going to lose her sum-mer Pell grant, and also expressed concern abouthaving enough grant aid available to nish her de

gree in time due to the new cap.

To avoid these consequences, students must beincluded in the conversation from the beginningand changes must follow the clearly articulatedprinciples provided above. This paper lays outYoung Invincibles’ research into what studentsare experiencing on the ground with the federanancial aid system, and what changes they wantto see. We use this perspective as the basis and

guiding force behind key policy recommenda-tions to reform the federal aid system.


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Surveying the Student Voice

Enhancing the voice of students in the nation-wide conversation about nancial aid reform is

critical. Without a clear understanding of thecomplex ways in which policies impact studentson the ground, Washington will never be ableto craft effective reforms. And without studentleaders and activists making calls to Washington,talking to their friends, and becoming an integralpart of the policymaking process, Congress maylack the motivation to overcome the status quoand pass those reforms.

Over the past year, Young Invincibles has per-formed some of the most signicant and com-prehensive research in the country on the stu-dent perspective on nancial aid. We conducteda national telephone poll and two online surveyswith students from a range of backgrounds tounderstand attitudes on nancial aid and op-tions for reform. We launched a national bustour in the spring of 2012, going to 20 states, 42cities, and 43 campuses to host 100 roundtables

on the economic challenges facing this genera-tion. Unsurprisingly, much of the conversationfocused on access to higher education and post-secondary skills. We engaged in a number ofstudent roundtables this fall, talking specicallyabout federal nancial aid issues. We performedone-on-one interviews with students, parentsand counselors of all backgrounds, allowingthem to share their stories and experiences. Wealso led an online survey of student leaders from

across the country – the voices that play an im-portant role in translating policy to their peersand can help to lead the movement for changewith the public and policymakers. This reportsummarizes the ndings from that research, in-cluding the following key points:

Young people strongly support invest-

ments in higher education, even in the faceof broad scal decits. Nationally, three-quarters of those surveyed opposed cut-ting Pell grants for decit reduction. In asurvey of high debt borrowers, large ma- jorities supported ending tax breaks tosustain funding for Pell grants.

Students lack a great deal of informationabout federal loans, federal grants, and

private loans.

Students strongly support simplifying thenancial aid system by reducing the typesof loans and automatically enrolling grad-uates in IBR.

Our processes of explaining nancial aidto students need signicant reform. TheFree Application for Federal Student Aid

(“FAFSA”), nancial aid award letters, andfederal student loan counseling requirechanges to make them simpler and moreeffective.

Student leaders prefer incentives to im-prove school performance to more pu-nitive approaches, likely worrying thatthose harsher mechanisms will unfairly

punish individuals.


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Surveying Students

In order to best understand the challenges in thecurrent federal nancial aid system and optionsfor reform, Young Invincibles has conducted

extensive quantitative and qualitative researchinto the student perspective on nancial aid.Our research includes three major student andyoung adult surveys in the last year alone. In thefall of 2011, we worked with TICAS and Dem-os to commission a broad national telephonepoll of 18 to 34 year-olds with a bipartisan setof pollsters. The poll produced signicant dataon the young adult perspective on nancial aidand levels of support for federal programs likePell grants. Importantly, this poll included largesamples of Latinos and African-Americans, al-lowing us to look at the views of diverse youngadult cohorts both individually and collectively.In the spring of 2012, we administered an on-line survey of 12,000 student loan borrowersto better understand borrowers’ level of aware-ness about their own nancial aid.

This fall, we worked with NERA Economic Con-sulting to administer an online survey with over27,000 largely high-debt respondents to delvemore deeply into the problems and potentialsolutions for nancial aid reform. The high debtstudent and former student population were akey target of our research because these bor-rowers often have the greatest interaction withfederal nancial aid and can speak well to itsproblems. This fall, we also conducted an online

survey of 72 student leaders from around thecountry, and about 35 in-depth phone inter-views with a diverse sample of those interactingwith the nancial aid system, from high schoolstudents to college students to parents. Ourresearch includes the perspectives of studentsin four-year public and private colleges and uni-versities,

community colleges, for-prot colleges, non-tra-ditional students, high school students, recentgraduates, college drop-outs, as well as youngadults who never went to college. We reportthe results of this extensive research below.

Young People Value Investments in

Higher Education

Congress may be debating cuts to discretionaryfunding, but for young people, there is no de-bate.

Eight in ten current students oppose cuttingPell grants or loan subsidies to reduce thedecit.

The top priorities for young adults are #1)

jobs and #2) college affordability. Amongyoung African-Americans, the order is re-versed - college affordability is #1.1

Though young people are a voice to be reckonedwith in the voting booth, few public polls actuallyask them about their perspectives on the issuesWithout more information, policymakers have


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trouble keeping pace with the views of studentsand young Americans. To help close that gap,YI conducted a broad telephone poll of nearly900 young people, ages 18 to 34, about theirthoughts on the affordability and necessity of a

college education, strengthening the economy,and Congress’ top priorities.

Young people sent a clear message in this poll:this generation highly prioritizes higher educa-tion and nancial aid. The top priorities for youngadults for their leaders in Washington are #1) jobs

and #2) college affordability. Among young African-

Americans, the order is reversed.2 For example,82 percent of 18 to 34 year-olds felt that somekind of education or training beyond high schoolis more important today than it was for theirparents’ generation. This generation also clear-ly understands that the economy has changed,placing new demands on their careers.

Not surprisingly, the recognition of education’sgrowing importance inuenced young Ameri-can’s perspective on federal funding priorities.

For example, respondents felt strongly aboutnot cutting Pell grants. Even when it was sug-gested that cutting Pell grants could reduce thedecit, three-quarters of respondents still an-swered that Pell grants should not be cut. Thoseresults were even higher for current students -eight in ten opposed cutting Pell grants or loansubsidies to reduce the decit.3 The ndings areparticularly relevant in the current scal climate.

Overall, the poll demonstrated that young peo-ple are the most concerned with access to high-er education and their job prospects. Eighty-four percent of respondents wanted Congressto make the affordability of a college educationa priority, even when also asked about reducingthe federal debt by cutting spending on entitle-ments.4 Furthermore, when respondents were

asked about their feelings on making the econ-omy stronger, 88 percent supported increasingnancial aid and making loans more affordablefor college and post-high school education andtraining.5 Education, it is safe to say, is a top in-

vestment priority for this generation, even inthe current scal climate.

The Student Experience With

Federal Financial Aid

Student respondents to another survey sent aclear message when it came to their experiencewith nancial aid: they need more help.

40 percent of student and recent graduatesreported that they did not receive loan coun-seling from their school, as required by fed-eral law.

About two-thirds of private loan borrow-ers, including those with private and federaloans, did not understand the major differ-ences between their private and federal loan

options.

81 percent of students and recent graduatesfelt that a school’s job placement rate was“important” or “very important” in decidingon where to attend and send their federal aiddollars.

Despite the broad support for public investmentin higher education, young people still struggle

with the federal aid status quo. This fall, YoungInvincibles released a report, “Lost Without aMap: A Survey about Students’ ExperiencesNavigating the Financial Aid Process.” Theunderlying survey showed that students arewoefully under-informed about the nanciaaid system and need more reliable and simplerinformation regarding their student loans.6


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While we released some of the data in ourSeptember 2012 report, this white papercontains previously unreleased results onadditional nancial aid issues and studentresponses to proposed policy xes.

The survey was e-mailed to over 1.5 millionhigh-debt borrowers and targeted to thosemost likely to be affected by nancial aidpolicy. Of the 27,000 responses received,the analysis focuses on about 13,000respondents, about 5,000 currentstudents and about 8,000recent graduates. Althoughthe results of the surveycannot be generalized tothe larger population ofcurrent students andrecent graduates, thestudents included in thesurvey were more likelyto be affected by andconcerned about nancialaid policy. These facts made

the students surveyed theideal sample to study in gaining

perspective on issues related to

student nancial aid.7

The Importance of Aid

The survey results demonstrate the importanceof nancial aid for students to access higher ed-ucation. For instance, 98 percent of federal bor-rowers and 87 percent of grant recipients re-ported that receiving nancial aid allowed themto attend school. Additionally, after beginninga program of study, 96 percent of federal loanborrowers, 87 percent of private loan borrow-ers, and 78 percent of grant recipients reported

that the aid they received made it more likelythat they would or did complete their degree.8

These statistics make it clear that students viewnancial aid as essential to getting a degree.

Despite the necessity of nancial aid, about one-third of respondents reported that they did notreceive enough federal nancial aid to covertheir tuition costs. Of that population, about

one-third, reported taking on private loansto cover the additional tuition, and

about 21 percent reportedworking part-time to make

payments.9 In additionabout 54 percent of re-

spondents reportednot having enough -nancial aid to coverliving expenses be-yond tuition. To payfor living expensesmost of these stu-

dents worked part-time, and about one-

third reported workingfull-time or using creditcards to make up the differ-

ence.10 In other words, the vastmajority of students whose nancial aid

did not cover living expenses took time awayfrom their studies to work, or took on more debtusing credit cards or private loans, in order tostay in school.

Views on College Choice

We also asked respondents about what theylooked for when choosing a school to nd outwhat additional information students would ndmost valuable during the nancial aid counseling

“The vast majority ofstudents whose fnancial

aid did not cover livingexpenses took time away

from their studies towork.”


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process. In particular, we wanted to know whatkinds of information about outcomes matteredto students, and how those data points com-pared to other characteristics. For example, 81percent of students and recent graduates felt

that a school’s job placement rate was “impor-tant” or “very important” in deciding on where toattend. Three-quarters felt that way about thegraduation rate.

In contrast, only a little more than a thirdthought that the student loan default rate of re-cent graduates was important. Even though de-fault rates are an important metric from a feder-al policy perspective, the technical terminologymay not adequately communicate informationto students. 11 Our data suggests students re-spond better to straightforward measures suchas completing a degree or nding a job, and thatsome accountability metrics like default ratesdo require enforcement by the Department ofEducation.

However, a handful of other factors ranked

ahead of these outcomes. Strikingly, 97 per-cent of respondents felt academic majors/eldsof study were an important or very importantcharacteristic. Academic rigor came in as thesecond most popular trait with over 90 percentof participants identifying it as important.12 Bycontrast, less than half of respondents felt ath-letic teams, social life, or extracurricular activi-ties were important in deciding where to go.

While most students responded that they relishinformation like job placement rates, others didnot spend time reviewing those statistics beforeenrolling. Lisanne H., a massage therapist whoholds a bachelor’s in Italian Studies, sharedwith us that her priority was to get a degree,but wished she had examined information on

job placement statistics about the school shechose: “I was more hungry to just get a degree ofsome kind, and at that time that’s what everyonewas doing; in hindsight, it denitely would havehelped.” Many students intuitively care about

outcomes, but others will not go looking for themwhen making decisions. For the latter studentsif federal aid dollars go to the better-performingschools, it is imperative that they have easy-to-understand data available for consumption.

Understanding Aid

Students also made clear that they lacked in-

formation and proper counseling during thenancial aid process. An alarming number ofrespondents to the survey reported that theydid not receive adequate or accurate nanciaaid information. Only about 60 percent of grantand federal loan recipients and 40 percent ofprivate loan borrowers answered that they hadreceived accurate information.13 Mike H., whoattended the for-prot college New EnglandInstitute of Art in 2006, said he felt like he was

being sold a product rather than being providedwith information, stating: “I wouldn’t use theword ‘counseling.’”

Additionally, survey respondents lost con-dence after graduation in the information thatthey had previously received. For instance, re-cent graduates with either federal loans or pri-vate loans were about 10 percentage pointsless likely than current students to report thatthey got accurate information about their loansThis difference in respondents’ perception of in-formation accuracy could indicate that borrow-ers only learn about the details of their studentloans upon graduation, when they enter repay-ment.14 The hypothesis ts with our earlier nd-ings that nearly two thirds of high debt borrow-


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ers reported being surprised by terms of theirloans or the student loan process.15

Even before loans come due, students are con-fused. Jacqueece M., a young woman we in-

terviewed who is waiting to take her nursingboards, told us that she still lacks understand-ing about the different loans she took out: “I amnot that condent. To be totally honest … I haveso many different loans, with different interestrates, they are all on different schedules and it’sa lot to keep up with.”

It is unsurprising, then, that survey respondentsconsidered federal student loan counseling tobe lacking. Over 40 percent reported that theyhad not received federal loan counseling at all,despite the federal mandate that all studentstaking out federal loans receive counseling. Forthose respondents who remembered receiv-ing counseling (about 55 percent), 59 percentfound it somewhat or very informative, while 41percent found it somewhat or very uninforma-tive or had no opinion. When the respondents

were asked to provide a substantive answer asto what they would change about the federalstudent loan counseling system, most tended tocomment on the format of the counseling or thecontent of the counseling. Specically, 15 per-cent said they would make the counseling morepersonal, and nearly 50 percent said more orbetter information on interest rates, repaymentoptions and timelines, consolidation options,and information on the total amount owed and

estimated monthly payments should be includ-ed.16

Generally, respondents were only moderatelysatised with their current and/or previoussources of nancial aid information and wouldhave preferred more information earlier in the

nancial aid process. They typically receivedmost of their information from nancial aid of-ces and government websites.17 When askedwhere they preferred to get their informationfrom, students re-emphasized those two sourc-

es. However, a sizable minority of respondentswould have preferred to receive additional in-formation from their high school counselorssuggesting some students want to have moreinformation earlier in the process. Moreovernearly 40 percent of private loan borrowerswould have preferred more information from agovernmental website, suggesting they did notreceive enough from the loan companies them-selves.

We also asked respondents about the how theypreferred to receive nancial aid informationAlthough we expected this media savvy gen-eration to desire information through the new-est avenues, few respondents would wantedto learn about nancial aid via informal mediasuch as text messages and social media. Theypreferred traditional high quality digital sources

like e-mail, grant/loan specic databases, andgrant/loan specic websites.18 Also of notemost respondents lled out nancial aid appli-cations for themselves. This nding argues forfocusing information dissemination on the stu-dents themselves, and only secondarily on thosewho provide guidance to the students, like theirparents.19

The September 2012 survey builds upon a simi-

lar Young Invincibles report in the spring 2012called “High Debt, Low Information: A Surveyof Student Loan Borrowers,” analyzing a simi-lar sample of high-debt borrowers owing morethan $76,000 and falling into the top 5 percentof borrowers by student debt volume. 20 As not-ed above, the survey found that 65 percent of


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respondents misunderstood or were surprisedby aspects of their student loans or the studentloan process.21 Moreover, about two-thirds ofprivate loan borrowers, including those withprivate and federal loans, did not understand

the major differences between their private andfederal loan options.

The survey population also demonstrated lowcomprehension of basic nancial aid terminol-ogy. About 20 percent of respondents foundrepayment terms confusing, 20 percent men-tioned the amount of their monthly paymentsas confusing, and 15 percent thought that theirloans’ interest rates were confusing.22 Even old-er, more experienced students do not fully graspthe complexities that they face. Erica Z., cur-rently a law student at the University of Mary-land, told us she feels more condent in herunderstanding of nancial aid now that she is ingraduate school: “Haven’t had too many horricexperiences, still learning, but now condent Iunderstand 50-60% of what goes on.” Studentfeedback consistently tells us that policy reformers

must not assume that students will be able to seam-lessly translate data and information into good de-

cisions without an accompanying investment in

better counseling and nancial literacy.

Reactions to Policy Reform

Because students struggle in the currentsystem, they overwhelmingly supportmechanisms to simplify the system.

89 percent of respondents strongly agreedor agreed with being automatically enrolledin the income-based repayment plan.

Three-quarters of respondents agreed withreforming federal nancial aid to include one

grant, one loan, and one subsidized workprogram.

Over 90 percent of respondents agreed withstandardizing the format content and termi-

nology of nancial aid award letters.

70 percent agreed with eliminating taxbreaks that reduce tuition costs for upper in-come families in order to sustain funding forPell grants for lower-income students.

Six in ten supported eliminating tax breaksthat make it cheaper for private universitiesto improve their facilities in order to main-

tain funding for Pell grants.

87 percent of respondents agreed with giv-ing students a reduction in their federal loaninterest rate for graduating on time.

The nancial aid system is unnecessarily com-plicated and confusing for most students. Toinform our ideas around improving the nan-cial aid system, we asked students a number of

questions about specic reforms.

In general, respondents strongly supported re-forms that would simplify the nancial aid sys-tem and our process for explaining it to a stu-dent. Most notably, 89 percent of respondentsstrongly agreed or agreed with being automati-cally enrolled in the income-based repaymentplan, a loan repayment program allowing themto pay only what they could afford based on

their income. Another three-quarters agreedwith reforming federal nancial aid to includeone grant, one loan, and one subsidized workprogram. Evidently, students strongly supporta more straightforward structure to federal aid.


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Respondents also feel that nancial aid formsshould be simplied. Over 90 percent agreedwith standardizing the format content and ter-minology of nancial aid award letters.23 Threequarters agreed that a one-time FASFA appli-

cation would be ideal, and about two-thirds ofborrowers agreed with eliminating non-nan-cial questions from the FAFSA.24The feedbackstrongly suggests that whatever reforms go intoeffect, the federal government and schools mustmake changes to the process for apply-ing and receiving nancial aid.

We also asked participantsabout a number of account-ability reforms, which ledto mixed feedback. Typi-cally, students support-ed positive incentivesfor students to reachgoals. For example, 87percent agreed withgiving students a reduc-tion in federal loan inter-

est rate for graduating ontime. Over 70 percent sup-port making more loans avail-able to students on track to gradu-ate. On the other hand, when asked ifstudents should receive more nancial aid if theyattended schools with better track records, only40 percent supported sending more nancial aiddollars to schools with higher graduation or jobplacement rates. The number does not necessar-

ily translate into disagreement: about one-thirdof students responded neutrally to the propos-als.

This evidence combined with our interviews sug-gests two main reasons for the trends. First, in-

stitutional accountability is an abstract conceptthat many students do no intuitively grasp. Thisbecame clear in our interviews, because as wespelled out the accountability mechanisms forschools in more depth, students were support-

ive, after initial concern that institutional ac-countability mechanisms would hurt an individu-al’s ability to achieve his or her educational goalsThey might ask, for example, “why should I bepunished if my school is the one who is failing?”

The feedback suggests any institu-tional accountability mechanism

must adequately protect theaspirations of individual stu-

dents, and that studentsas a whole need more

information about pro-posals to hold schoolsaccountable.

Finally, we asked aboutpriorities in higher ed-

ucation spending. Mostrelevant to this paper

70 percent agreed witheliminating tax breaks thatreduce tuition costs for upper

income families in order to sus-tain funding for Pell grants for lower-

income students. Six in ten supported eliminat-ing tax breaks that make it cheaper for privateuniversities to improve their facilities in order tomaintain funding for Pell grants. The responsessuggest students favor distributing tax benets

that go to high-income families or private institu-tions to fund programs that help those who needit most.

These national and self-selected surveys are keyto understanding the student experience.

“Any

institutionalaccountability

mechaninism mustadequately protect the

aspirations of individualstudents ... students as

a whole need moreinformation about

proposals.”


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The Student Voice:

Student Leaders Speak Up

Young Invincibles, in conjunction with several

national and state partners, conducted a surveyof student leaders to gauge their views on thecosts of college, the nancial aid process, andobservations of their peers’ experiences. Thesurvey asked respondents about their views onhow their universities prepared their peers foremployment, their general understanding of thegrant and loan system, the importance of fed-eral aid in completion, and ways in which theybelieve schools should be held accountable for

the aid that they receive. These 72 leaders pro-vided some important feedback:

Accountability: Student leaders

see value in holding schools account-able for the federal aid that they re-ceive: about 80 percent of respondentsagreed the federal government shouldhold schools that take federal moneyaccountable for strong student out-comes. However, they are wary of whatpulling aid away from schools might doto students, and are more supportive

of positive incentives.

The voice of student leaders is important forseveral reasons. First, while typical studentsand borrowers give insight into how the federaaid system is working, the views of student lead-ers give insight into how campuses may be re-sponding systemically to those issues. Student

leader are more likely to listen to their peersinteract with their school administration, andunderstand the nancial workings of a campusSecond, the views of student leaders can givepolicymakers some indication as to how themore active student voices will speak up. Lead-ers on a campus or in an organization workingon behalf of students are the ones leading cam-paigns and shaping the work of their fellow stu-dents. Their leadership experience gives them a

nuanced perspective on nancial aid issues, andincreases the likelihood that they will be activelyengaged in advocating for or against proposedpolicy changes.

Job placement rate was a top fac-tor for student leaders in choosing aschool, and those surveyed stronglysupport measures that will improvethat connection, including reforms to

work-study. Yet, they also value theability to choose an area of study with-out having nancial aid impacted.

Simplify: There is a clear consensusamong the student leaders that stu-dents have a poor understanding of thenancial aid process. Three-quarters ofstudent leaders thought that simplify-

ing the system and in-depth counselingwere key tactics to helping their peers.


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Methodology & Demographic Infor-

mation

The survey was distributed online through na-

tional and state networks. Those networks in-cluded: Young Invincibles, National CampusLeadership Council, Campus Progress, UnitedStates Student Association, the Illinois Educa-tion Foundation, the Minnesota State UniversityStudent Association, the Campaign for CollegeOpportunity in California, and several other or-ganizations connected to student leader list-servs. Those who responded were more likely tobe active and well-connected to networks that

work on nancial aid issues. While this is smalland self-selected sample, it is an important voiceto capture – these leaders often take action andleadership roles on nancial aid questions, talkto the media, call their members of Congress,and lead campus-based campaigns.

A total of 72 student leaders of various back-grounds participated in this survey concerning

their experiences and opinions on college af-fordability, and job prospects post-graduationThe majority were student leaders seeking abachelor’s degree. Most respondents attend apublic university (70 percent) followed by 17

percent who attend a private not-for-prot uni-versity, almost 9 percent who attend communitycollege, and 4 percent who attend a for-protinstitution. Every respondent did not answerevery question; percentages reported on eachquestion refer to the percentage who respond-ed to that particular question.

The category of “student leaders” is character-ized by a variety of positions held on campus bythe respondents. The majority of respondents55 percent, identify as a leader in an active stu-dent organization on campus, such as a frater-nity or sorority. Over one-quarter are studentbody presidents of their campuses. The nearly8 percent who chose “other” included roles suchas athletic team captains, leaders of campusprojects, student representatives-at-large, andstudent trustees.

Number of Respondents

Table 1.1


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Brandeis UniversityCalifornia State University

California State University at Northridge ColbyCollegeCommunity College at Forest ParkFlorida International University Georgetown

UniversityGeorge Washington UniversityHoward UniversityHunter CollegeIowa State UniversityMacaulay Honors College at CUNY Hunter

Mankato State UniversityMinnesota State UniversityMinnesota State University at MoorheadModesto Junior College

Occidental CollegePurdue University

Quinnipiac UniversityRivier UniversitySt. Louis UniversitySUNY Binghamton UniversitySouthwest Minnesota State UniversityTexas Southmost CollegeUniversity of California - Santa Cruz University

of MaineUniversity of RichmondUniversity of Texas at Brownsville

Virginia Commonwealth UniversityVirginia Tech UniversityWinona State University

Analysis of Responses

Student leaders are looking for change in thefederal aid system. Despite this desire among

student leaders to see changes in nancial aidat their school, 63 percent of students said theirschool did not seek their advice in potential -nancial aid reforms. Only 9 percent answeredthat they have been consulted in efforts forchange. Should policymakers and campuses be-gin to listen more closely, here is some of whatthey may hear.

Help Wanted: Connecting School to Work

Student leaders value the role of colleges anduniversities in helping students nd jobs aftergraduation. When asked to rate the importantfactors when picking a school, the “job place-ment rate” of the institution was ranked second,

just behind the “graduation rate.” Some ofthe more commonly cited reasons for picking aschool, such as academic prestige and the pro-gram’s US News and World Report Rankingwere rated far lower. A total of 81 percent ofrespondents who value the job placement rateof a school is a show of overwhelming support.

Respondents attend, or have attended, the following schools:


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Top Student Factors in Picking Colleges, In-Depth

Top 3 Factors In-Depth

Table 1.3

Not At All Important

Not Very Important

Somewhat Important

Important

Very Important

50

45

40

3530

25

20

15

10

5

0

G r a d

u a t i o n R a t e

J o b P l a c

e m e n t R a t e

R e c e n t G r a d L o a n D

e f a u l t R a t e

I n c o m e o

f G r a d u a t e s

U S N e w s & W o r l d R e p

o r t R a n k i n g

L o c a t i o n

S i z e o f S c h o o l

S o c i a l L i f e

A c a d e m i c P r e s t i g e

A c a

d e m i c R i g o r

Q u a l i t y

o f F a c i l i t i e s

Q u a l i t y o f A t h l e t i c T e a m s T

o t a l N u m b e r o f R e s p

o n d e n t s

Very Important

Important

Somewhat Important

Not Very Important

Not Important At All

100%

80%

60%

40%

20%

0%

Graduation Rate Job Placement Rate Location

52.2%

26.1%19.6%

2.2% 0%

50%

32.6%

15.2%

2.2%0%

45.7%

34.8%

15.2%

0%4.3%

Table 1.2


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Interestingly, in our broader survey, studentsranked choice of major above job placement andgraduation rates. Student leaders often are keenobservers of their peers, both older studentswho have graduated, and younger ones entering

their programs. The fact that the respondentschose to rate factual data like job placementrates and graduation rates higher than repu-tation and prestige shows the priorities thatstudent advocates will have when ghting forchanges in their campus’ behavior. Important-ly, this survey result could foreshadow futuretrends of more data-driven decision-making bystudents in picking their schools, particularly asthat information becomes more accessible toless-informed students.

Indeed, some of the graduate students we inter-viewed believed this information is important,but are not convinced they would have given itmuch weight at the time they applied to colleges.Katie H., who completed her bachelor’s degreein business administration from Suffolk Univer-sity, told us, “I think those are good questions

to ask, but I don’t remember if I looked at thator not.” Student leaders could be key players inmoving the ball to ght for and successfully dis-seminate better information for their peers.

Unfortunately, a majority of respondents agreedthat their school is doing an insufcient job inhelping students nd a job after graduation.Fifty-three percent of respondents answeredthat their school either did not provide students

help, or that the help came too late. In contrast,about 34 percent answered that their schoolprovides sufcient support in helping studentsnd jobs post-graduation.

Young Invincibles knew that connecting course-work to jobs was important to students, and

wanted to test various policy solutions. Forexample, the survey tested whether studentleaders might support a measure that providednancial incentives to students who work tograduate quickly and choose majors based on

high-demand jobs. Students who choose to major in mechanical engineering and follow a de-gree plan that allows them to graduate in threeyears instead of four would be offered opportu-nities for nancial aid that aren’t available to alstudents.

We found, however, that such an approach wasnot popular among those surveyed. Only 11percent of respondents agreed strongly withthis policy, whereas 46 percent of respondentseither disagreed or disagreed strongly. Another30 percent answered neutral or had no opinionThese responses made it clear: student leadersvalue strong job placement rates in schools, butalso value the ability to choose areas of studyThe question must also be distinguished fromsupport for loan incentives that provide as-sistance to students who choose majors that

pay less, which students see as an expansion ofchoice, rather than narrowing options such asthe survey question suggested. Any policy pushin the direction of spending more aid on high-demand elds would have to maintain that free-dom and would need to convince student lead-ers of the value of such a policy.

Lastly, the survey asked respondents for theiropinions on a policy recommendation being

considered by Young Invincibles called “PelWorks.” Pell Works would reform federal workstudy by tying the program to federal Pell grantsand retargeting work study funding to studentsmost in need, and encouraging jobs related toa student’s eld of study. Respondents over-whelmingly supported this reform: 81 percent


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answered that this would benet students attheir school. That being said, 60 percent of re-spondents feel that their school does a good jobof providing “real world experience” throughwork study jobs, paid internships, and course-

work connected to local and regional employers.Certainly, high-achieving students who becomeleaders on campus are more likely to personallyland quality job placements like sought afterpaid internships and top work study positions.However, the overall support for work-studyand current programs make it clear that an aid-based program is popular among students, butthat these leaders agree that there is room forimprovement.

Navigating the Federal Aid Process

Student leaders were in agreement with over-all survey respondents, stating that the currentsystem is too confusing and that schools couldbe more proactive in providing information andin-depth counseling to students around nancialaid. For an open answer question, the student

leader respondents mostly replied that makingnancial aid information more accessible, lower-ing the student-to-counselor ratio, and provid-ing information that is clearer and easier to un-derstand were all critical.

When asked about the accuracy of informationthat is provided to them by their own nan-cial aid ofces, about half of respondents, 47percent, believe that information their peers

receive about nancial aid is either “very accu-rate” or “mostly accurate,” while the other halfof respondents, stated that the information thatis provided to them and other students is only“somewhat accurate.” Similarly, 57 percent ofrespondents do not believe that the informationthat their peers receive about grants and loans

were “clear and understandable.” Only 14 re-spondents believe that information is presentedin a clear and understandable way.

Student leaders were asked what they thoughtwould help students make more informed de-cisions about grants and loans; the top two re-

sponses chosen by about three-quarters of stu-dent leaders were a simplied process and morein-depth counseling.

When asked what could be done to improvefederal student loan counseling, respondentsanswered their schools should “be more proac-tive,” “advertise [information on loans] aroundcampus, and hold workshops that help studentsnavigate the system.” Other respondents asked

for more aggressive advertising of loans andrepayment programs. These changes could bemade without having to take legislative actionaltering federal aid.

The survey asked student leaders a few ques-tions on interest rates and their views on repay-

Compensation of Grants and Federal Loans

Table 1.4


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ment options, especially for recent graduateswho are struggling to nd work. Regarding in-terest rates, there was signicant support forlowering rates that would ease payments forrecent graduates who are low-income. About43 percent of respondents “strongly agree” that

borrowers should be automatically enrolled ina loan repayment program that allows them topay only what they can afford based on their in-come. An additional 38 percent agree with thispolicy reform. In sum, 81 percent of respon-dents showed support for automatic enrollmentin income-based repayment programs.

Respondents found automatic enrollment fa-vorable even when asked in comparison to other

repayment options. About two-thirds of studentleaders said that they favored a repayment planwhere borrowers are enrolled in a programwhere their loan payment was a xed percent-age of their income, versus based on the amountowed. These results signify the potential for sig-nicant student leader support for revamping

the student loan repayment system.

Completion Student leaders who participated in our sur-vey see their peers dropping out of school for

nancial reasons as a serious issue. Almost 80percent answered that dropping out of schoofor nancial concerns was a “very big problem”or “somewhat of a problem.” They stated thatmore nancial aid will allow their peers to stay inschool instead of dropping out in order to workfull time, and allow students to concentratemore on their classes while in school. Almost70 percent believe that more nancial aid wilallow their peers to focus more on school and

encourage completion. Only 13 percent of re-spondents answered that most students at theirschool received enough aid to stay in school andnot stress about their nances.

Support for Reform Measures (Respondents checked all that apply)

Table 1.5


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Similarly, 80 percent of respondents agreedwith the statement “the amount of grant(s)/fed-eral student loan(s)/private student loan(s) thatstudents at my school receive make it more like-ly that they will complete their degree.” Studentleaders supported measures for rewarding stu-dents who graduate on time, however, respon-dents generally did not agree that nancial aidshould be contingent to nishing a degree plan.

That being said, when asked if federal nancialaid should be used to encourage students tograduate on time and participate in programsthat will get them work experience, 80 percentof respondents either strongly agreed or agreedwith this statement. Respondents were askedif nancial incentives should be offered to theirpeers who take on more coursework to gradu-ate quicker, given the fact that at the average

4-year public school, only about 50 percent offull-time students graduate within 6 years, stu-dent leaders agreed that those who strive tonish on time should be rewarded with accessto additional nancial aid like bigger Pell grantsor lower interest rates. While student leadersseem wary of pulling existing nancial aid from

those who take longer to complete a degreethere does seem to be interest in added incen-tives to encourage a quicker trajectory.

School Accountability

Student leader respondents had interesting an-swers about how to hold schools accountablefor their success in providing adequate educa-tion. Respondents did agree that schools have aresponsibility to do better keeping tuition downhelping students graduate, and connecting stu-dents to jobs. Specically, about 80 percent ofrespondents agreed the federal governmentshould hold schools that take federal money ac-countable for strong student outcomes.

But student leaders were wary of reform pro-

posal to take away federal dollars for Pell grantsand student loans from students who attendschools with very low graduation rates, such asa rate below 15 percent. About 54 percent ofrespondents do not believe federal nancial aidshould be limited at these institutions despitetheir poor records of degree completion. Stu-

Ways Increased Financial Aid Would Beneft Students (Respondents checked all that apply)

Table 1.6


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dent leaders seem to hold similar concerns asthe more general survey repondets, worryingthat students will be harmed.

In line with keeping tuition down, student lead-

ers also shared opinions on how federal dollarsallocated to universities should be spent. About76 percent of respondents either agreed strong-ly or agreed that tax breaks for private universi-ties for amenities, such as new dorms, should beeliminated in favor of maintaining funding forPell grants for low-income students. Only 12percent disagreed or disagreed strongly withthis elimination for private universities. Thisis consistent with the views of student leadersthat federal dollars should be concentrated inacademics and used as investments in students,rather than general university improvements.Certainly, most respondents to the survey at-tended public schools – but this breakdown islargely reective of the student body as a whole.

Respondents also felt that in order to keep tu-ition down, help more students graduate, and

connect their peers to jobs, the governmentshould incent schools to perform well by pro-viding greater nancial support to the school:almost 60 percent answered either in agree-ment or strong agreement. Again, the positivewording of this question may account for stron-ger support than similar questions that askedif nancial aid should be taken away from low-performing schools. When asked if nancial aiddollars should be taken away from very low-per-

forming schools, the most often chosen answerwas neutral at 34 percent. This likely stems froma) a fear that current students would be unfairlyharmed, and b) a need for more concrete under-standing of what these penalties would entail.

This dichotomy is signicant, particularly as

policymakers in Washington consider account-ability metrics, and reects the concern cited bystudents more generally: a reluctance to punishschools that do not perform well so as not to un-fairly harm students who attend those schools

but a general agreement that it is reasonable toreward students and schools who perform wellAny accountability recommendations shouldadequately address those valid concerns, ensur-ing that if schools lose funding, current studentswould not be harmed; policymakers should alsoadequately convey this to student leaders whowould otherwise support such measures.

Student leaders have a unique and critical posi-tion in the higher education landscape, servingas a connection point between the general stu-dent body, policymakers, and administrationsImportantly, student leaders, like other stu-dents, are often personally impacted by policydecisions, good and bad, made by our leaders inWashington. The student leader voice is a pow-erful one, and one that must be heeded as deci-sions about nancial aid reform are considered.

Conclusion: A Desire for Reform

Though America’s students are very diverse andhold a variety of different views, our surveys andinterviews have revealed clear trends of opin-ion. For example, our generation strongly sup-ports investment in higher education and wantsCongress to protect Pell grants from decitcuts. Moreover, students feel that nancial aid is

overly complex and poorly explained. They sup-port a variety of reforms that would improve in-formation delivery and simplify the system itselfFinally, students tend to support accountabilitybut only it accountability measures do not un-fairly punish students for their schools’ mistakesThese takeaways shape our ideas for reform


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Reimagining FederalFinancial Aid

After nearly a year of research into the tone ofthe student voice on federal nancial aid, weset about to develop principles for reform, andultimately, specic solutions to meet the needsof our generation. Our analysis demonstratesthat federal nancial aid plays a crucial role ineducating this generation, but needs changeto truly live up to the values we set forward.Too few students can afford college. Too fewstudents and families can make sense of a

complicated system. Too few institutions areheld accountable for poorly serving students.We set forward solutions below that addresseach of these concerns consistent with thevalues of our generation:

Fully fund Pell grants and tie innovativereforms to this foundational program.

Convert Federal Work Study to PellWorks,a grant program that rewards schools thatcreate opportunities for low-income stu-dents to nd job experience related to theireld of study.

Convert Federal Supplemental EducationalOpportunity Grants to PellPlus, a fundingstream that rewards schools who enrollhigher numbers of Pell students and gradu-ates the highest percentage of studentswith high risk factors.

Create a system of student loan insurancewhere all federal borrowers take out a sin-gle type of federal loan and automaticallyenroll in Income-Based Repayment upon

graduation.

Provide students with more informationabout school outcomes, simplify the FAF-SA, standardize nancial aid award letters,

and scale up efforts to counsel studentsabout federal nancial aid.

End or reform tax breaks that subsidizeprivate schools to build expensive build-ings and use savings to fund Pell grants.

Implementing these changes would dramaticallyimprove the federal nancial system from the

perspective of students. In the sections belowwe offer up specic details on how to put thesereforms into practice.

Bolstering Grant Aid

The foundation of the federal nancial aidsystem is the Pell grant, a 40 year-old programthat has sent millions of students to collegeGrants are distributed to students based on a

sophisticated need-based formula, and between9 and 10 million students qualify for someamount of aid.1 The program is well-targetedto students and families who need it most, andacademic research shows us that need-basedgrant aid like Pell is responsible for enrollingmore low-income students. Making collegetruly affordable able requires a multi-facetedapproach, including a dramatic reversal in stateappropriations. At the federal level, Pell grants

are the single most powerful tool that we haveto enroll students and keep debt levels low.

The Importance of Pell

Pell grants increase enrollment of lower-middle and lower income individuals. Initially


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established under the Higher Education Act(HEA) of 1972, Pell grants are available tostudents seeking undergraduate degrees andwho have limited means with which to pursuehigher education. During the 2010 - 2011

academic year alone, more than 9.5 millionstudents relied upon Pell grants as a primarysource of funding for their pursuit of a collegedegree.2

Currently, Pell grants are mostly funded asa discretionary line item within the federalbudget, with a portion of funding comingfrom mandatory spending: each grant is 12%mandatory and 88% discretionary.3 The grantsare made available to anyone who qualies.In 2007 through 2010, Congress increasedfunding for Pell and restructured the way inwhich it is funded, creating and then altering themandatory funding side of the equation.4

Those increases were too good to last. Witha tough economy and an increase in collegeenrollment, Congress failed to keep funding

at the levels needed. In April 2011, Congresspassed the Department of Defense Full-YearContinuing Appropriations Act, which repealedthe newly instated summer Pell grant. Then,in August 2011, Congress passed the BudgetControl Act, which appropriated an additional$17 billion in mandatory funding needed tokeep Pell almost level for 2011 – 2013, but alsoleft a shortfall in Pell grant funding that had tobe lled by appropriators. The law also included

mandatory caps on discretionary spending, aswell as sequestration, or additional automaticcuts, that would effect Pell starting in 2014.

In December 2011, Congress passed the Con-solidated Appropriations Act of 2012, a bill thatlled the gap leftover by the Budget Control Actthrough a variety of cuts. For example, Con-

gress cut the ability of a student to access Pelgrants from 18 semesters to 12 semesters, butmade that cut retroactive. As a result, more than100,000 Pell recipients, including those nearingcompletion, began losing their access to grants

Those cuts disproportionately hurt minoritystudents.5 That round of cuts also cut off accessto Pell grants for students without a high schoodiploma or GED to receive federal aid if they a)passed a federal test; or b) completed 6 credithours of postsecondary education. 6 Several in-novative career pathways programs across thecountry relied on the “Ability to Benet” (ATB)provision to help disadvantaged students com-plete post-secondary credentials by curtailingremedial education and co-enrolling partici-pants in adult education with courses leading toa job in a high demand eld. The cuts eliminatedATB for an estimated 90,000 students.

As it stands now, each new budget cycle threat-ens Pell. Looming mandatory shortfalls threat-en to leave the program underfunded by $8 bil-lion in 2014, with additional gaps in subsequent

years. This constant battle harms students’ ability toaccess a college degree. Academic literatureclearly demonstrates that access to grant aid in-creases enrollment again low-income studentsA recent study by Bridget Terry Long and Ben- jamin J. Castleman found that being eligible for$1,000 in grant aid increased enrollment by4.1 percentage points.7 In a 2006 study, Sarah

Turner and John Bound found that less publicresources to subsidize education meant lowerdegree attainment.8 Another study found thata 10% increase in the maximum Pell award isassociated with a 15% increase in revenuesreceived at the average institution, meaningthat “low-income students appear sensitive tothe level of aid conditioned on the decision to


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enroll.”9 Another recent study found that Pellgrants served as signicant factor in encourag-ing lower income students to enroll in rural com-munity colleges.10

Opponents of Pell grants sometimes raise theprospect that additional grant aid fuels tuition in-crease, but study after study has clearly demon-strated that this is not the case. As leading highereducation economist Sandy Baum put it, “Thereis no convincing evidence that increases in PellGrants feed tuition increases in either publicor private not-for-prot institutions. Increasesin federal grant funding for low- and moderate-income students are critical to assuring educa-tional opportunities for students with the mostlimited ability to pay and critical to the future ofour economy.”11

Indeed, Pell grants increase access for thosewho need it most. Almost three-quarters of ofPell recipients had family incomes less than orequal to $30,000.12 But this is not just a matterof equity. Our country also needs more students

going to school and graduating. Along with in-creasing state investment, a key component ofmaking college affordable again is a large-scaleinvestment in the Pell grant. Ideally, Pell grantswould increase at the pace of tuition ination.Even with the federal decit looming, we canat least ask in the near-term for a commitmentfrom Congress and the Administration to fundPell grants and halt the constant threat of cuts.

Use Pell to Guide Other Campus-Based Aid

Pell grants increase access, and in a recentYoung Invincibles survey, about four out of vePell grant recipients in a recent survey statedthat access to grants made it more likely that

they would complete/completed school.13 Theprogram utilizes a well-targeted14 formula thatpinpoints students who most need the helpGiven the goal of increased access to studentsof all income backgrounds, we propose that the

Pell grant program become the guiding basis forother, less-targeted campus-based aid.

Convert Federal Work Study intoPellWorks

The Federal Work Study program (FWS) allo-cates $1 billion a year to colleges who in turnsubsidize jobs for 1.5 million students.15 But the

funding formula gives more money to schoolsthat have been in the program longer, not nec-essarily those with students of greater needMoreover, even though institutions can only pro-vide subsidies to students with “nancial need,”the method for calculating that need favors stu-dents with higher tuition costs. Many privateschools spend their allotment by deeming high-income families needy because they still cannotpay their soaring tuition out-of-pocket. In fact

because higher income students tend to go topricier schools,16 students from families makingover $100,000 receive higher average awardsthan families making less than $40,000.17

Even if funding ends up at schools with high-needstudents, the funding choices left to schools donot always lead to funding going to those whoneed it most. It also allows schools to pull fund-ing from students, perhaps as an upfront incen-

tive to enroll. Kesha T., who attended a privatecollege told us, “work study was only offeredduring my freshman and sophomore year. . seems to be offered more to new students.

FWS also does not guarantee valuable experi-ence: universities must align FWS and course-


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work “as much as practicable,” a vague standardthat does not ensure useful experience. 18 As Ke-sha T. added: “It wasn’t really valuable besidesgetting to know other students.”

While many students have a positive experiencewith federal work study, we did hear a strong in-terest in improvements. For example, one stu-dent who completed her bachelor’s degree inbusiness administration from at Suffolk Univer-sity found it to be difcult juggling a work-studyprogram on top of an internship, and believed itwould have been better if work-study was partof her internship instead of trying to do both.Indeed, in order to gain experience, studentspile on unpaid internships on top of work studyin order to afford school. Another stated that awork-study option related to her major “wouldhave been much more valuable. . . part of my pro-gram … I had to do work study in the morning atthe gym, then go to classes, and then do my in-ternship in the evening.”

We propose to revamp FWS to create Pell-

Works, a program that connects students tolocal employers. Schools would submit a Pell-Works proposal to the Department of Educa-tion, or potentially the state’s Department ofEducation or Department of Labor, who wouldreceive an allocation of work study dollarsbased on the number of Pell students in eachstate. The application would request funding forthe estimated number of PellWorks slots cre-ated and associated administrative costs. Most

slots would need to be lled with Pell students,though schools could make the case for non-Pellstudents with signicant need.

Each proposal would include a description ofbusiness partnerships where students can gainexperience in their eld through subsidizedwork. The state entity will show preference

in allotting funds to community colleges, andschools with high Pell enrollment and a dem-onstrated ability to place students in high-needskills areas - though funds could still be used foron-campus work that builds skills or provide stu-

dents with opportunities to increase campus in-volvement, particularly given the rural locationof some campuses. Students could then chooseto attend a PellWorks school, knowing that at-tending would avail themselves of relevantsubsidized work, and the PellWorks money. Thegrant could be available over the summer tohelp students who cannot afford an internshipand no longer have access to summer Pell.

Given the value that students place in connect-ing their eld of study to getting a good job, itis unsurprising that the vast majority of studentleaders stated support for this specic proposalThe potential for this program could be enor-mous. With federal work study funding onlyproviding a limited amount of money to test thisprogram, we envision a long-term scaling up asthe model proves its success.

Convert FSEOG to PellPlus The Federal Supplemental Educational Oppor-tunity Grant (FSEOG) program provides need-based grants to very low-income undergradu-ate students. However, the allocation formulais based on longevity in the program and costof attendance. We instead propose convertingFSEOG to PellPlus, a funding stream given to

schools that enroll higher numbers of Pell stu-dents and graduates the highest percentage ofstudents with high risk factors.

Currently, FSEOG grants can be used to pay forthe costs of higher education, such as tuitionand books. Using a statutory formula, ED allo


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cates funds based on the institution’s previousfunding level and the aggregate need of eligiblestudents in attendance in the prior year. TheFederal government’s share of FSEOG fundscannot exceed 75 percent of the award amount;

schools must allocate the rest.19 The Secretaryof Education allocates FSEOG funds based onboth base funding for schools that have partici-pated in the program, and based on cost of at-tendance.20

The institution makes the award determinationonce it has been allocated funds from the Feder-al government. The institution must give prior-ity to students who are considered to have “ex-ceptional need,” but must prioritize rst thosestudents who qualify for Pell grants. First theinstitution will award funds to students with thelowest expected family contribution AND whoalso receive Pell grants. Then, if the institutionhas funds left over, it will award the extra fundsto eligible students with the lowest EFC, butwho do not receive Pell grants.21 Once the fullamount of the school’s FSEOG funds has been

awarded to students, no more FSEOG awardscan be made for that year. In other words,FSEOG funds are rst come, rst served. Theaverage award is $716, though students canreceive up to $4,000. While FSEOG grant pro-grams are generally well-targeted,22 with 93.4percent of its funding to students with total in-comes under $50,000,23 schools with highercosts of attendance have access to a larger poolof aid.

Rather than basing allocation on longevity in theprogram or rewarding higher costs, this grantaid should be converted to PellPlus, to serve asthe foundation for reward schools who 1) main-tain a base percentage of Pell students and 2)achieve an increasing graduation rate for the

lowest-income Pell students. Once the fundinggets to campuses, it could be used to increasethe Pell grant awards for recipients. A similarplan was proposed in the President’s 2012 bud-get request.24 If such as plan proves successfu

in bringing up graduation rates among thosewith the lowest graduation rates, larger invest-ments into the program would be warranted.

By attaching these funding streams to Pell eli-gibility and ability to connect school to worknot cost of attendance or longevity, nancial aiddollars will better follow students who need thehelp the most. Funding the Pell shortfall and re-vamping federal work study and FSEOG to bet-ter serve students will help increase access forthose who need it most, fuel stronger relation-ships between schools and employers, and fos-ter completion.

Reimagining Federal StudentLoans

Grant aid used to pay for a much larger share of

tuition, but that is no longer the case. As collegetuition prices skyrocketed over the past threedecades, student debt levels trailed closely be-hind. With few other options to cover risingcosts, most students turn to loans to nancetheir education. In 1993, one in three graduat-ing college seniors borrowed to pay for schoolleaving with an average of $9,200 in debt.25 Nowtwo-thirds26 of students graduate with an aver-age of $26,600 in debt.27 As a country, we holdone trillion dollars in student loans.28 Althoughthe debt may be worth it for many, rising defaultrates and persistent delinquency make it clearthat student loans do not pay off for everyone.29

The past few years have brought signicantchanges to the student loan system. Interest


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rates have uctuated,30 new repayment planshave appeared, and Congress cut out middlemanbanks giving the Department of Education soleresponsibility for issuing federal loans. Therewere also new disclosure requirements and a

push to create easily navigable online compari-son tools like the “College Navigator.”

Although many of the changes improved life sig-nicantly for students, the federal student loansystem still does not meet important metrics.Recent adjustments notwithstanding, the FreeApplication for Federal Student Aid remainsoverly complex,31 and students frequently re-port trouble with the process.32 Student loancounseling falls seriously short of properly edu-cating students about their options.33 Changesto student loan terms and conditions have cre-ated a system of more choice in repayment, butthe system is too complicated for students tofully take advantage of that choice. It is no won-der that in a Young Invincibles survey of highdebt borrowers, two-thirds reported that theymisunderstood or were surprised by aspects

of their student loans or the student loan pro-cess.34 As a student succinctly told us in a recentinterview: “The information is too fragmented and

complex. The system needs to be streamlined and

simplied.”35

We propose to do exactly that: dramatically sim-plify the federal student loan system and betterprepare students to make important nancialchoices. We rst detail how the status quo does

not meet the principles of a successful nan-cial aid system. Next, we outline steps to betterserve the needs of this population by 1) over-hauling our information and counseling systemto ensure that students make good choices, and2) converting the federal student loan systeminto a student loan insurance system, requiringthat students repay no greater than what a grad-

uate can afford, and that stakeholders meet cer-tain metrics in order to access such a program

The Status Quo: Good Policy, Weak

ImplementationThe federal government has made several posi-tive changes to the student loan system over thepast ve years. Income-Based Repayment en-sures that more students have an opportunityto make affordable payments on their federaloans. Cutting banks out as middlemen in theFFEL program created a simpler process wherestudents would borrow federal loans from a

single source through the Direct Loan systemThe Department also now has a single websitewhere borrowers can apply for repayment op-tions, like Income-Based Repayment. Outsidethe federal realm, private lenders responded tothe credit crunch by limiting their previous pred-atory practices. Consequently, more studentsnow take out federal loans that typically havebetter terms over private loans. Each of thesechanges has helped students access nancing

options at a time when states are pulling backon investments in higher education.

Nevertheless, our federal student loan system isnot yet where it needs to be. The inherent risksin taking out loans dissuade students who standto benet. Too few students receive clear in-formation about their options, leading to disas-trous nancial consequences. Schools can enrolentire student bodies nanced by federal loans

with no accountability mechanism to ensurethat their degree earns enough to pay back theirdebt. As a result, we do not use our resourcesto best help students. Students cannot wait forstate budget investments in higher education tostop shrinking, or for the federal government toramp up grant aid; those bigger trends will take


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longer to reverse. Amidst this era of budgetarybelt-tightening, the federal student loan systemmust function at its full potential.

Loans I

Student Perspective on Federal Financial Aid Reform

Documents

Transcript of Student Perspective on Federal Financial Aid Reform