Guest Post: A System of Student Financial Support

By Art Hauptman

Current arrangements for providing financial support to college students and their families in this country are not meeting many of the objectives for which they were intended. The Spellings Commission summed it up well in its final report: “The entire financial aid system – including federal, state, institutional, and private programs – is confusing, complex, inefficient, duplicative, and frequently does not direct aid to students who truly need it.” As a result, the Commission and a number of other groups with wide ranging political agendas have recommended that “the entire student financial system be restructured”. But what would that entail?

Since first established in the 1960s, the federal student aid programs of grants, loans, and work-study – in concert with state, institutional, and private efforts – have provided access to a postsecondary education for millions of Americans who otherwise might not have had enough funds to attend. More recently, federal tax offsets against current tuition expenses and tax-preferred incentives for college savings serve as an important source of financial relief for hard-pressed taxpayers from a range of incomes who worry that they will be unable to pay the constantly mounting bill for tuition and other expenses.

But there is good reason to believe that the financing system also has been a factor in some of the most nagging difficulties associated with American postsecondary education:

• The growing number of students who require remedial coursework because they are not fully prepared to do college level work when they enroll

• The fact that degree completion rates in the United States are below average among industrialized countries

• Tuitions and other charges at both public and private colleges increasing at twice the rate of inflation for a quarter century, raising concerns about college affordability.

Student aid and tuition tax policies are certainly not solely or even primarily to blame for these concerns and trends. Many other factors are much more important in explaining the lack of student readiness, low completion rates, and mounting tuition bills. But the student aid system is not blameless.

The basic underlying problem is that the current system of providing financial support to college students and their families is not a system at all. Rather it is a loose conglomeration of policies and practices at the federal, state, institutional, and private levels that often conflict with each other, with the result that efforts by one governmental unit or group often cancel out efforts by others.

Moreover, federal policies are often in conflict with each other – student aid programs intended to promote greater access may be detracting from better student readiness and success as measured by degree completion. Increasing reliance on tax policies to help families pay for college is often at odds with the more access-oriented policies contained in the traditional federal and state student aid programs. As a result of poor design and lack of policy coordination, there are many problems with the current structure of providing financial support to college students and their families, including:

• The system of applying for aid and administering it is far too complex which in itself becomes a large barrier to greater access.

• Aid often is not well targeted to students from the lowest income families making it that much harder to achieve the goal of providing greater equity of access.

• Student debt burdens are growing rapidly and there is far too little relief for the growing number of borrowers who are having trouble making their payments.

• The existing financing structure places too much emphasis on getting students into college and there is not nearly enough focus on whether students are prepared to do the work or whether they will complete their educational program.

• There is reason to suspect that the growing availability of aid, particularly loans, have been a factor in tuition and other charges growing at twice the rate of inflation for the past quarter century, suggesting a price effect of student aid.

• The provision of government aid may encourage institutions that package aid to move their discounts up the income scale, suggesting that some forms of student aid, particularly government grants, may have an adverse substitution effect.

These and very real problems that indicate the current structure of student financial support needs to be changed in fundamental ways.

A subsequent post or two, if Higher Ed Watch doesn’t tire of me, will describe a set of principles that should guide future reforms with specific suggestions for moving forward on this agenda. Big changes are needed to make current levels of government support work better for students and their families. Patchwork won’t do.

Art Hauptman is an independent consultant on higher education finance issues. The views expressed herein are his own and do not necessarily reflect the positions of the New America Foundation.