The Student Perspective on Federal Financial Aid Reform

Executive Summary

The coming months and year could be a turning point for students, their families and for the future of higher education in this country. The long-term trends of state disinvestment and in- creased student enrollment have brought student debt to unprecedented levels, and with it, public agreement that something must be done. At the same time, the federal government is facing enormous financial decisions in the near- term, with Washington debating choices around expiring tax cuts, automatic discretionary cuts known as sequestration, a Pell grant funding shortfall, and the fast-approaching re-authorization of the Higher Education Act. It is an under- statement to say that large-scale decisions as to the future of investment in higher education in this country could be right around the corner. Now is the time for reform.

Unfortunately, the perspectives of students and young people have traditionally been an after- thought in these key debates in Washington. As a result, improvements to the federal aid system take years to accomplish, and never go quite far enough. Cuts, on the other hand, come quickly and hit hundreds of thousands of students at once. This project seeks to put an end to that. With the impending decisions in mind, Young Invincibles set out to capture the experiences and perspectives of a variety of students. We first analyzed existing polling, engaged in our own survey data collection, interviewed and held roundtables with hundreds of students and non- students from all backgrounds, and took note of the unique role and ideas of student leaders. We found that:

Key Research Findings

 Young people, and particularly students, broadly support investments in federal financial aid, even in the face of federal deficits. Nationally, three-quarters oppose cutting Pell grants for deficit reduction. In a survey of high debt borrowers, a large majority supported ending tax breaks for universities in order to sustain funding for Pell grants.

Students overwhelmingly lack information and strong counseling about federal loans, federal grants, and private loans. About 40 percent of high debt borrowers responding to a survey reported never receiving federally mandated loan counsel- ing.

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

When it comes to school accountability, students prefer incentives for driving improved outcomes to more punitive alternatives, likely worrying that other mechanisms will unfairly punish individuals. Student leaders in particular sup- port strong accountability measures for schools, but seem to hold similar concerns.

 Clearly, major reforms are needed to ensure that low- and middle-income students have access to school, that students graduate with a good job and minimal debt, and that all stake- holders – including students and schools – are held accountable for these goals. With the results of our research in mind, we next turned to look at what those financial aid reforms might look like. We provide the following recommendations for changes to the federal financial aid system:

Key Policy Solutions

Fully fund and invest in Pell grants as a centerpiece of our financial aid system, protecting a critical tool for giving low-in- come students access to college. Invest in 2 new Pell programs, PellWorks and PellPlus, by reforming existing funding streams.
1) Pell Works: Use the Pell formula to re- target federal work study, sending work study dollars to schools that best connect school to work.
2) PellPlus: Instead of sending FSEOG dollars to schools that have been in the program longest, send dollars to the lowest-income students and to schools doing a better job of helping the lowest-income students graduate.

Overhaul our student loan system with a single, simple federal loan. Provide automatic enrollment into the Income-Based Repayment as a form of insurance against tough economic times. Increase transparency with an online hub incorporating new and existing data, improve existing online counseling tools, and increase access to counselors for students in desperate need of guidance.

Rethink and simplify tax incentives for higher education. Contemplate consolidation of credits like the American Opportunity Tax Credit and Lifetime Learning Credit, and consider redirecting expenditures for tax-exempt bonds that help private institutions and high-income investors to fill the Pell grant shortfall and fund expansions like PellWorks during reauthorization of the Higher Education Act.

These reforms take bold action on the part of all actors: President Obama, Congress, the Department of Education, schools, and importantly, students. But such action is necessary if we are to provide the same economic opportunities to this generation as we have to every previous one.

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