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Is the College Financial Aid System Broken?

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The Institute for College Access and Success has a new report on student debt and the class of 2012, and it’s definitely worth reading. This also seems like a good time to revisit a session from EWA’s 66th National Seminar held at Stanford University.We asked journalists who attended to contribute posts, and today’s guest blogger is Jon Marcus of the Hechinger Report. Stream any session from National Seminar in your browser, or subscribe via RSS or iTunes. For more on higher education finance, visit EWA’s Story Starters online resource. 

When the advocacy organization Young Invincibles made a tag cloud of responses to a survey of students’ attitudes toward financial aid, “confusing” and “complicated” were the most prominent terms. Plus “some other words that I probably can’t say here,” the organization’s policy and research director, Rory O’Sullivan said during the panel discussion “Paying for College: Financial Aid Innovations,” part of EWA’s National Seminar held this month on the campus of Stanford University.

O’Sullivan and other panelists concluded that the financial-aid process in American higher education is needlessly difficult, has become outmoded and does little to encourage completion. In short, the process needs to be revamped. “The notion is not necessarily that the system is broken, but that the system is so complex or convoluted,” said Eric Bettinger, an associate professor at the Stanford Graduate School of Education and a faculty research fellow at the National Bureau of Economic Research.

And while moderator and Money higher-education writer Kim Clark posed the question of whether “financial-aid innovation”—the panel’s topic—was an oxymoron, like “fat-free ice cream,” the experts said there are opportunities, and plenty of ideas, for change. “There are a lot of proposals out there—and with good reason—for how to reform not only [the financial-aid form] FAFSA, but the student-aid system overall,” said O’Sullivan.

For example, Bettinger said he got better financial-aid results for low-income students from an experimental collaboration with the tax service H&R Block, which allowed customers to fill out their FAFSA at the same time they did their taxes.

Standardizing and simplifying hard-to-understand financial-aid letters is also under way, though not by all colleges and universities.

But more substantial reforms are needed, the panelists agreed. For instance, the alphabet soup of loan programs could be consolidated into a single form of loan, O’Sullivan said, with repayment based on income—offering a sort of insurance plan for families reluctant to borrow for college.

The discussion also focused on whether financial-aid officers should work to identify students who could benefit the most from more money—by being more likely to graduate, for instance—rather than helping students without regard to such factors. “It’s not clear that throwing more money will close some of the gaps,” Bettinger said.

Much of what is needed is transparency, the experts said. In its survey, which involved 12,000 high-debt borrowers, Young Invincibles found that four of 10 did not recall receiving any counseling about their federal financial aid. “What we offer and the way we provide information to students isn’t seen as counseling, and it isn’t particularly effective,” O’Sullivan said.

Just having the facts can help, said Lee Gardner, a senior editor at The Chronicle of Higher Education, whose new College Reality Check website, developed with support from the Bill & Melinda Gates Foundation, provides such things as net cost and average debt, by institution. “It’s a small thing, but people are hungry for this sort of information,” Gardner said. “They want to understand this stuff.”

Nate Johnson, a senior consultant on higher-education policy at HCM Strategists, said financial aid could be more effectively used as an incentive to promote completion, not just enrollment. Money, he said, can “nudge students into doing what is in their own best interests.” But to do this, the payoff needs to be more immediate than distant, Johnson said. Such inducements are more effective with lower-income than higher-income students. And the amounts have to be right—not too much, or too little.

Johnson, who has a doctorate in English, used Shakespeare’s Love’s Labour’s Lost to illustrate his point. In it, a king and his friends decide to devote themselves to the pursuit of learning—until a princess arrives. She insists the king go through with his studies for at least a year before she’ll marry him and he’ll gain access to her fortune. “So if you get the incentives right, you might get the outcomes that you want,” said Johnson.

It’s about more than just transparency, Johnson said: “The system’s flawed. Transparency doesn’t really help that.”

Bettinger suggested programs like one piloted at several colleges and universities called Dreamkeepers, which helps keep small financial problems from derailing students’ graduation plans. “There are the moments in students’ lives where bad times hit them,” he said. “How can we help them in those moments?”

Meanwhile, the federal work-study scheme is outmoded, O’Sullivan said, with a formula that has come to benefit higher-income over lower-income students, and also needs an overhaul.

All of these ideas face the reality of inertia, the panelists conceded.

“The rigidity in terms of, how you change the system,” Bettinger said, “is very difficult.”

Have a question, comment or concern for the Educated Reporter? Email EWA public editor Emily Richmond at Follow her on Twitter: @EWAEmily.