Thursday, September 18, 2008

The College Board Federal Student Aid Report

By Richard Vedder

I have only seen the new report of the Rethinking Student Aid Study group headed by Michael McPherson of the Spencer Foundation and Sandy Baum of the College Board for a short time, and attended a phone/video conference on the reports release that concluded literally minutes ago. So the remarks below must be preliminary.

First, the Spencer, Lumina and Mellon foundations should be commended for bringing together some serious people to rethink the issue of federal student aid. The Spellings Commission largely punted on taking on the issue, and this report is a step towards an intelligent discussion. Let me also say that there are quite a number of ideas in the report that make a great deal of sense, that would be improvements of a significant sort over current practices.

That said, if I were Czar and I had a choice of adopting the College Board report or not, I would probably say "no" to it, for several reasons. First, the underlying premise is that more Americans need to attend and graduate from college. I increasingly believe that is NOT the case. Vast numbers of college educated Americans are taking jobs with minimal skill requirements, and many jobs have little need for individuals with high academic achievement -tens of thousands of mail carriers have college degrees, for example, as well as over 15,000 hairdressers have advanced academic or professional degrees. And I buy into Charles Murray's argument that limited academic abilities mean that we already have many students attending college who cannot easily succeed for reasons unrelated to college finances.

Beyond this, the College Board group, not surprisingly, has issued a report that urges us to INCREASE total federal student financial aid spending in order to increase college access and completion. The exact amount of the increase is somewhat elusive, and depends on how certain blanks in the report are filled in, but it looks to me like many billions of dollars a year. I think higher education is primarily a private good with private benefits, and that equity and efficiency both suggest that for most Americans, higher education should be financed privately. On balance, this study rejects that philosophy and advocates increasing federal support for higher education.

Still, there is a number of good ideas in the report. Example: get rid of the FAFSA form and determine Pell Grant eligiblity by simply looking at family adjusted gross income and family size. Families can find with certainty the grant money they are eligible for by going to a table. Why not, however, go even further ---and have the IRS itself rewards scholarships in the form of vouchers to students themselves, giving them a sense of empowerment and reducing somewhat the leverage and power of financial aid offices that too often have been ethically challenged in recent years?

The proposal calls for some consolidation of aid programs, but retaining the current general student tuition tax credit, mainly on the grounds that it is politically impossible to eliminate it (in a general reform of the tax system, I think elimination of the credit IS politically feasible). Consolidation is a good idea. The proposal calls for changing loan repayment formulas a bit, in a good way. Again, however, why not go even further and turn some loan programs into equity programs, with payments tied to income and total repayment variable dependent on financial success?

The College Board group wants to make billions in block grants to schools contingent on their success rate in getting low income students through to graduation. The first problem: the Law of Unintended Consequences. If you incentivize schools to graduate more students, they may simply lower graduation standards to do so, requiring even less intellectual efforts than the pathetically low amounts now required. We will be encouraging schools to lower academic standards (better, probably, would be to incentivize students to perform better by giving them a bonus for early graduation, high grades, etc.)

There is much more in the report. There is a somewhat weird government savings programs for low income families --with NO financial contribution expected of the families. College savings is low for everyone --rich and poor alike, because at the current time there are enormous disincentives to savings (which could be eliminated if all wealth and savings related information were denied to college financial aid offices).

My guess is that this study will get buried, at least temporarily, in the turmoil arising over the crisis in financial markets and the presidential campaign. But the issue is important, and rethinking the student federal financial aid program is desirable.

1 comment:

Daniel L. Bennett said...

The argument that there is a strong disincentive for parents to save for their kid's college education is both meritorious and economically valid. Basic labor theory supports the idea that individuals can achieve higher utility by spending the money that would have been saved for college on other consumption goods or services, especially if there is a light at the end of the tunnel (ie guaranteed student loans). Increased spending on student aid will undoubtedly lead to less private savings for higher education.

Besides, I'm increasingly supportive of the idea that college is not for everyone (with a near 50% dropout rate, we should all begin to question this assertion). I do believe that everyone needs a post-secondary training to prepare them for a career, but this doesn't equate to college. Vocational, technical and military training are obvious alternatives for those whose talents lie outside of the academe. The public needs to learn to accept these careers and cease demeaning them.