By Watson Scott Swail, President and CEO, Educational Policy Institute

Last week, the National Association for Student Financial Aid Administrators (NASFAA) unveiled its recommendations for changes to the current federal financial aid system. This comes at the heels of what undeniably will be a sea change in the present system by the Obama Administration. NASFAA has called this offering a National Conversation Initiative, which included town halls across the country, as well as the convening of an expert panel of financial aid practitioners and policymakers, of which I was an invited participant, along with other colleagues Don Heller (now enjoying the UK!), National Center for Public Policy and Higher Education Director Pat Callan, and EPI Board member Dave Breneman.

NASFAA came up with nine draft recommendations that are now being held open for comment until Labor Day. Purely for your edification, here are my somewhat unvarnished comments regarding NASFAA’s recommendations:

Simplify the aid application process by limiting the number of questions on the Free Application for Federal Student Aid and allowing families to check a box on their tax forms to share that information with the U.S. Department of Education. “Simplifying the aid application” is the standard, de facto complaint about the US system. NASFAA has it right in asking for the Treasury/IRS to participate in this game. Congress could simplify the application process dramatically and swiftly by asking the Treasury to cross-reference information. But don’t hold your breath. The IRS keeps tax information hostage and does a pretty good job of securing personal information. When was the last (or only) time you heard of misplaced IRS data? So, allowing information to work outside of their constraints is unlikely. In the end, the FASFA is not THAT onerous. It IS onerous for those who are not used to such forms, and there should be free services available, beyond that of TRIO, GEAR UP, and other federal and localized programs, to help families apply for aid. Please tell me why these services aren’t part of high school counseling?

Change the complicated needs-analysis system to an eligibility-analysis system based on adjusted gross income and tax exemptions. Again, this goes back to simplification of the FASFA. Before the HEA of 1992, almost all Colleges and Universities used the College Board’s PROFILE financial aid form to determine eligibility for financial aid. With the “simplification” provided through the HEA, and the introduction of the FASFA, the system became free and supposedly simplified. Was it? Perhaps a bit. But many private universities still use the PROFILE because it offers better, more accurate information. If the IRS would supply this information, we could make better decisions using accurate data.

Allow students whose families are not required to file taxes because of their low income, or who receive means-tested federal benefits like food stamps, to automatically qualify for the largest Pell Grant. Let those who qualify for it receive that full amount, regardless of the cost of their institution. Um. Why not? Of course, this would require a change in the eligibility requirements of Pell, and, while we haven’t done the analysis, it would surely be more costly. Still a reasonable idea.

Set the maximum Pell Grant at 70 percent of the weighted average of the costs of attendance at in-state public institutions. Great idea. Won’t happen, but keep pushing, NASFAA. Unfortunately, we can barely get the Pell to cover 70 percent of tuition and fee charges, and at public institutions, room and board charges are more expensive that tuition and fees. So, we’d be talking a doubling or tripling of the Pell, because as the Pell becomes bigger, eligibility will also increase due to the tax implications. We are in a recession, but that doesn’t mean we can’t dream.

Eliminate the Academic Competitiveness Grant and Smart grant programs and redirect that money to the Pell Grant program. It was a Bush program. It’ll be gone anyway. The Obama Administration is already putting a ton more money into Pell. I’d be shocked if they do much more in this economy. But they have shocked me with their speed and direction thus far, so nothing is out of consideration.

Make federal loan limits the same for students in each grade level, and set loan caps at the same amount as the maximum Pell Grant. Hmmm. I kind of agree with keeping first year lower to reduce public finance risk. We want to help lower-income students aspire, apply, and attend (the three A’s) higher education. But we need some proof that they can cut it, too, before opening the financial floodgates. It is a delicate balance in public and social policy to provide enough incentive and safety nets without throwing away good taxpayer money.

Regarding pegging the rates to the Pell, that has some merit, although that would certainly massively increase the borrowing limits for students. Also, if both Pell and loan limits are raised to these relatively high levels, how will public (and private) institutions react? If history serves as a precedent, expect even larger increases in tuition and fee charges. If these rates are pegged to cost of attendance (COA) instead of tuition and fee charges, expect large increases in the COA. Why? Just look at the airline industry. We all focus on fares, but then get hit with luggage charges. That’s your COA… doesn’t count the same when most analysis looks at tuition and fees…

Change the student-loan programs so students are subsidized during repayment rather than while in school. Expand the income-based repayment model so students never put more than 10 percent of their discretionary income toward federal loan debt, and forgive all loans after 20 years of payments.

I’ve always been an advocate of income-contingent repayment models, but they have never been designed to work well in such a complex system as that in the US. Especially in areas of high public need and specialties, we need to have some system to ensure that our work force is not taking on absurd amounts of debt to become teachers, nurses, and social workers. A $100k in debt to earn $30k a year? We need to provide some safety nets for these individuals. Regarding the subsidy, the amount of money that students save during college is considerable, but not worth the investment of the taxpayer. Let them pay during college (and perhaps serve as a slight incentive to finish), but provide additional help during repayment.

Eliminate the Hope and Lifetime Learning tax credits and the tuition-and-fees tax deduction, and put that money toward income-based repayment of student loans and the Pell Grant program. No argument. Although tax credits are still the politicians’ favorite mechanism (read: buy votes) for financial aid, they’re a bad idea. Didn’t like them in 1997; don’t like them now.

Provide every child with $500 to start a college savings account, and give tax breaks to anyone who contributes to a child’s college savings account. I won’t say this was my idea, but I’ve been saying this for 10 years (I guess I just did). The ROI for the nation would far outweigh the cost of the program. Don’t even bother to make it needs-tested. Just give it to everyone. How much money do we give families just for having children (now, THAT doesn’t make any sense in this era)? Target the money toward non-compulsory, postsecondary education. Delayed gratification is great for families and youth. You want to make students think that college is possible? Give them a savings account.

I congratulate NASFAA for taking the initiative and trying to move the conversation forward. Phil Day has done a tremendous job bringing NASFAA back to the policy table. Although I don’t expect half of these proposals to move onto the legislative floor, it’s always good to aim high in order to get any movement at all. Let’s keep the good ideas coming and debate the future of financial aid and college costs in the US.