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Broad Financial-Aid Reform Pushed

The rising cost of college means that most students today rely on some form of financial aid, yet many find the system confusing. While making major changes in the financial aid system is a challenge in the current political and economic climate, a new paper out from the Institute for Higher Education Policy encourages policymakers to tackle reform in an effort to increase college completion.

Making Sense of the System: Financial Aid for the 21st-Century Student, released Monday by the nonprofit, Washington-based IHEP, outlines more than a dozen federal policy recommendations for improving the financial-aid system to increase college enrollment and completion. It includes efforts to promote early and coordinated preparation for college. Rather than have a series of isolated policies, the paper suggests the need to have a coordinated system for students.

"Ideally, financial-aid programs will work in concert, with investments being made by all who have a stake in its success and throughout a student's career," the paper says. It also outlines the need to inform students well before they apply to college about costs and resources available.

Among the paper's recommendations:

Use IRS information to communicate potential financial-aid awards so families can anticipate aid and plan, similar to a Social Security statement of benefits.

Create a system of early financial-aid "accounts" to leverage family savings and public/private resources. Family-income data could be used to determine eligibility and awards. Some initial money would be needed to seed the accounts, but Pell-eligible students could simply receive a portion of their eventual award as a way to start the accounts.

Match family college savings for low-income households through public or employer dollars. A public savings match could be provided directly through federal dollars or through a federal grant program for states to match contributions by low- and middle-income families in their state 529 plan.

Make the American Opportunity Tax Credit fully refundable so it can be used by low-income households, and create a pilot program for early delivery of the credit.

Each idea is accompanied by an analysis of who would be helped or hurt, whose behavior would change, costs involved, and issues with implementation. The policy ideas are intended to spark a new conversation about reforming the financial-aid system for a student body that is diverse and more nontraditional than ever before.

"Higher education, and financial aid, must be responsive to these needs if it is going to provide a net benefit for all students," the paper concludes.

The white paper was funded by the Bill & Melinda Gates Foundation as part of the Reimagining Aid Design and Delivery (RADD) project. (Gates also provides funding to Education Week for coverage of industry and innovation.)

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