By Richard Vedder
When I was on the Spellings Commission, I offered what was no doubt viewed as a naive perspective: we have 17 programs to help students --why not collapse them to one, the Pell Grant program? We would then give them to more students in larger grants than previously, and at the same time exit various targeted aid programs and the student loan business. I argued it would be vastly simpler, easier to understand, save some money, and help the kids we wanted to assist the most. My suggestion was met with complete silence. I was told that the revision of student aid programs, while needed, was a task too complex for the Spellings Commission to take on.
Along comes yet another study that confirms my hunches. Susan Dynarski and Judith Scott-Clayton have written an excellent paper, "Complexity and Targeting in Federal Student Aid: A Quantitative Analysis," for the National Bureau of Economic Research, America's premier independent economic research organization. The authors conclude that all the elaborate targeting of beneficiaries in many of the programs is done in a costly and inefficient manner. Compliance costs to meet all the regulations and administrative burdens of the multiplicity of programs adds, very conservatively, $4 billion in burden to users of the aid, colleges, etc. In short, the system does not work well and it is costly. A simpler system can be devised that is less costly but still works to serve national educational policy objectives as determined by the political process.
What keeps Congress from simplifying the process? While there are several possible answers, I think the major one is special interest lobbying. Various groups like certain provisions of current law, and will fight efforts to eliminate program A or B or C, even if part of a comprehensive reform.
Ideally, the federal government should move to a modified Pell Grant system where vouchers are given out on the basis of need and educational potential, with the amount of the grant increasing with need and the probability of educational success. Money should never be given to schools or their financial aid offices, but rather directly by the federal government to students who then would pick the school of their choice, and the school that a student enrolls in could then redeem the voucher for cash. This would:
1) Make colleges more student-centered, as they vie for money that they, the students, control
2) Reduce the power of financial aids offices to negate the intended effects of federal student aid policy by varying the amount of institutional support with changing federal aid
3) Greatly simplify our student aid system, saving the billions annually mentioned in the aforementioned study;
4) Tie aid more clearly not only to need --the number one consideration -- but also to the probability of success, probably increasingly modestly the graduation rate of entering students
5) Lower the ability of schools to raise tuition and fees knowing that student loans would simply increase to make up the differential --modified Pell grants would only rise with the general rate of inflation, no more.
The fiddling with interest rates and fees on federally subsidized loans does nothing to deal with the confusion and high cost of our complex federal system of assistance. The Feds should get out of the loan business period, and stop assisting relatively prosperous middle income kids wanting to go to school. They should stop enabling schools to charge whatever the traffic will bear. They should get smart, and put the interests of the public above the narrow interests of those persons wanting to maintain some semblance of today's dysfunctional status quo.