Paul on January 5th, 2015

Bill PayerThe college financial aid system is broken.  Even when a family’s need is validated by the daunting forms and arcane formulas, there is no guarantee that sufficient aid will follow.  The system has been reduced to an exercise that focuses on process, not results.  What matters is doing the paperwork correctly, not the financial and educational outcomes which are becoming more uncertain with every passing year.  It is a model created in another age with different challenges and a very different demographic.  What was spawned in good faith about 50 years ago has become a dysfunctional and often cruel anachronism in the 21st century.

The casualty list under the present system is nearly endless.  Americans at every income are excluded from the college of their dreams or in some cases any college at all because the financial aid paperwork alone serves as the 21st century’s version of the old literacy test once used to bar former slaves from the voting booth.  More important, the failure of the federal government to adequately support its own system results in financial aid shortfalls across the college spectrum.  Over the last 30 years, the federal infusion of funds per student has not kept pace with either the rising cost of college or the rate of inflation.  As a result, families routinely discover that they can’t afford college even when their need is validated by the financial aid formula.  This compels families at every income to make hard choices between mostly bad options.

The government’s failure to adjust to a changing landscape and to adequately support our colleges in the financial aid arena, is forcing American citizens to divert money from retirement and the economy in general in order to send their children to college.  The financial aid system’s inadequacy is going to come back and haunt this nation in the form of having to support millions of retired families economically marginalized by unexpected college costs.  You can do the math.  Is it smarter to massively invest in a four-year college experience that is likely to return the investment with interest in the form of a more productive work force and a higher tax base or a 30-year handout to retired people financially neutered by college costs?

What is needed is a system that is rational, transparent, relatively paper-free and 100% reliable; a system that promises college or any post-secondary training  as a non-negotiable part of the American birthright where the primary currency required to enter those programs are things like character, talent and vision, not dollars.  In addition, we need to create a system that includes not only a funding strategy for our public and private colleges and universities but also proprietary schools and graduate programs.  Only then will we have the kind of comprehensive approach to putting the American dream within the grasp of any citizen and only then with we have the logistics in place to ensure that our nation’s arsenal of talent and brain power will always remain strong.

In very broad strokes, the new model should work like this.  Anyone can apply to any college and if the student is accepted, the college will require a validation of the parents’ and/or student’s adjusted gross income as reported on their 1040.  The adjusted gross income will determine the percentage of the cost of attendance (tuition, room and board and fees) the family will be expected to pay.  That percentage scale (called the Family Contribution Index or FCI) should be published every year by the Department of Education in the form of a public document not unlike a tax table.  This will enable parents at any income to gain an early preview of what college, any college of their student’s choice, is likely to cost given their projected annual income during the college years.  Then the colleges will gather the appropriate adjusted gross incomes for all of its returning students and parents and in that way, the college can determine how much they will receive in cash payments (AR or Accounts Receivable) from their total enrollment.  All of this can be done electronically through an already-existing relationship between the Department of Education and the IRS.

Annually, the college will complete an Institutional Contribution Index form (ICI), a means-analysis that will determine the percentage of financial need that the college will be required to provide with campus-based aid.  The ICI should not only include the financial capacity of the college but also incentives and rewards for doing certain sensible things like cost containment, completion rates, innovation, and whatever other policies and outcomes are worthy of a reward.  In this way, the number of forms headed to the U.S. Department of Education every year will be reduced from 8 or 10 million to only a few thousand.  The data points required on the ICI should be the work product of a cadre of college presidents and other front-line operatives who understand the totality of the college universe.

Once the colleges add their aid driven by the requirements of the ICI, they will submit to the Department of Education a pro forma document that has calculated the total need for all students minus the college contribution.  The federal government will then provide to the college the funds required to cover any remaining unfunded need of students.   That amount is guaranteed provided the college’s numbers can be verified.

Grad schools should have a somewhat different approach with student loans and discretionary campus-based grants forming the primary public and private support system but with a plan that will encourage future employers to help with the payback of any loans, a plan that takes advantage of tax rules already in place for both the employee and the employer.  Proprietary (for-profit) schools should be excluded from access to publicly-funded  financial aid and instead transferred to a robust privately-funded system of  aid.  Many Americans across the political spectrum suggest that the private sector can do things better and more efficiently than governmental agencies so here is a reasonable opportunity to demonstrate the veracity of that assumption.

One of the many benefits of a smarter system is that because there are no loans involved for non-proprietary school undergraduates, students are more likely to choose career paths that are personally fulfilling rather than ones geared to helping pay back student loans.  The absence of student loans will allow graduates to put their money into the active economy rather than to live a financially marginal life created by a large student loan burden.  Because parents’ assets will no longer be a part of a financial aid formula nor the primary tool to pay for college, parents will be free to put their savings where they belong, in retirement funds.  Moreover, with the specter of college costs being so dramatically mitigated, parents are more likely to spend money more freely before, during and after college in support of the general economy, an important stimulus in today’s somewhat fragile fiscal environment.

A new, more rational approach to paying for college, one that is an integral part of the nation’s larger economic strategy is clearly in the public interest.  If it is true that a college graduate is likely to make at least a million dollars more over a lifetime than a person without a degree, the increased taxes a college grad is likely to pay will more than reimburse the nation no matter what it costs to educate a student.  Moreover, the productivity and creativity of a college-educated citizenry will add important dimensions to the nation’s security and its competitive edge in an interconnected world economy.  Part of the payback includes a lower demand for expensive public services that college graduates rarely require; things like prisons and rehab programs, food stamps and a host of other programs and services most of which are the step children of an inadequate education and the despair and hopelessness that often follow.

Change in any democracy is always difficult mostly because the agents of change are the very people who created the need for change in the first place.  Moreover, in a time where one buys influence in all three branches of government, the vested interests that profit from the prevailing college funding environment will marshal its forces to obstruct reform.  But all of that is just an excuse for doing nothing.  Ours is an age where the power of social media in the pursuit of legislative change has never been fully tested.  This is a time for a new generation born and weaned in a world dominated by social media and able to use its power in ways unimagined by forces of the status quo.

I am reminded of that wonderful speech by Herb Brooks in the movie, “Miracle”.  His young charges had no chance of defeating the powerful Soviet hockey team in the 1980 Winter Olympics but somehow Herb rallied his boys with stirring words before the game.

“….This is your time.  Their time is done.  It’s over….This is your time.  Now go out there and take it!”




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