Stay Up to Date on Financial Aid Legislation! (continued)

Changes on the Horizon

Within the federal financial aid system, there are a couple of changes pending and more significant reforms that are being considered:

Simplifying the FAFSA

This week, the Secretary of Education announced the simplification of the Free Application for Federal Student Aid (FAFSA). The main changes include a shorter and simpler online application that eliminates several questions and a web application that will allow some families to answer the remaining financial questions with data from the Internal Revenue Service. This is intended to reduce the barriers for students seeking federal funds and should result in more students applying for and receiving financial aid, thereby increasing college attendance. While this is a bold step, more needs to be done to ensure equity and to weigh the implications for state scholarships and grants.

Income-Based Repayment

Beginning in July, new and current student loan borrowers will have the option of a more flexible repayment plan. With the Income-Based Repayment (IBR) plan, student loan payments are capped to no more than 15 percent of discretionary income, an amount that is based on the federal poverty guideline. These new options apply to Stafford, Grad Plus and federal consolidated loans that are in good standing. This plan should reduce the burden for student loan borrowers and allow them to pursue their desired career path. In addition, unemployed borrowers can apply for a deferment of up to three years.

Overhaul of Federal Student Aid

A comprehensive overhaul of the federal student aid system is also being considered. In his budget proposal, President Obama recommended eliminating the Federal Family Education Loan (FFEL) Program and using the proposed savings to finance larger Pell Grant awards and make the Pell program mandatory. For the past 15 years, institutions have been able to choose the FFEL Program, a public-private partnership that has existed for 44 years, or the Direct Loan Program, in which funds are provided by the federal government. The main drawback of the President’s plan is the elimination of the strong and local services offered by FFEL participants that help students attend college, repay their student loans and avoid default. More than 75 percent of institutions currently participate in the FFEL Program.

Many associations, groups and individual organizations agree that improvements are needed to the financial aid system and have submitted alternative proposals. The student loan community has developed a proposal to combine the advantages of the federal government’s low cost of funds with the private sector’s origination, servicing and default aversion capabilities. It will be up to the House Committee on Education and Labor to determine which reforms are in the best interest of students, families and taxpayers.

College Access and Completion Fund

Included in the President’s proposal is a recommended $2.5 billion “College Access and Completion Fund.” This fund would be used to increase college outreach and financial literacy activities and would be divided among all states. Many college access providers could expand their services, including FFEL organizations that currently provide comprehensive assistance to students and families in applying for college, exploring careers and paying for college. Organizations could also increase their financial literacy efforts, which the JumpStart Coalition recently confirmed is necessary. Its latest national survey found that the financial literacy of high school students had fallen to its lowest level ever, with a score of just 48 percent. To help students better manage their finances, FFEL organizations provide detailed training on budgeting, student loan repayment, credit cards, identity protection and understanding credit reporting.

This is a critical time for higher education financing in this nation. To rebuild our economy, our nation demands an educated workforce. We all need to ensure that a strong financial aid system is in place to help all qualified students achieve their postsecondary goals.

Karen Lanning is Vice President, Communications and Research for the National Council on Higher Education Loan Programs. Learn more at www.nchelp.org