Makin' Money

End FAFSA as we know it

Chris Farrell Apr 15, 2011

The college acceptance letters are in. It’s now the season for parents and their students to decide where to go and how to pay for the bill. Yet not enough of these conversations are going on in low-income homes. William & Mary economists Robert B. Archibald and David H. Feldman–authors of Why Does College Cost So Much?–believe the current financial aid system shares the blame. They have a radical and intriguing solution.

**Archibald & Feldman: **Our financial aid system is inherently complex in part because it is means tested. Families and students with more income and more assets receive less assistance. This strikes most people as sensible and fair. It’s also cost effective to target the group that would otherwise be cut out of the college market by the price.

The main federal program for making a college education more affordable for millions of American students is the Pell Grant. But if you ask people to explain how the Pell program works, most will be unable answer very clearly. It also has a poor track record of increasing the number of students from poorer families who actually go to college, and its complexity is the reason why.

This is not an academic debate. Twenty years ago the US was the clear world leader in expanding its college educated workforce, and this lead helped fuel a surge in innovation that raised the American standard of living. Over time, other nations have caught up.

Now, college completion rates in the US actually lag those of many other nations.
President Obama has committed his administration to ensuring that “America will regain its lost ground and have the highest proportion of students graduating from college in the world by 2020.” A laudable goal, but the path to achieving it is a minefield.

College completion among America’s higher income families is not a problem. “College qualified” students from these families already graduate at rates that would make President Obama’s pledge a reality.

What is less well known is that “qualified” students from poorer families who expect to go to college and who have actually started down the complex path of getting admitted to a university, actually go to college at rates not much lower than for America’s middle and higher income families. The barrier to achieving President Obama’s goal is the large number of potentially qualified young people from poorer and middle-income families who do not think they can ever afford a college education.

There are many good proposals for simplifying our aid system, but any plan that is means tested will be complex in ways that leave people unsure of what they must pay until they have come to the very end of the college application process. By this time it’s far too late to make all the behavioral changes that would increase the college attendance rates of students from poorer families.

The alternative to complex means tested programs is a universal program like the Georgia HOPE scholarships. This program pays the tuition and fees at all public institutions in Georgia to which any resident high school student with a “B” average has been accepted. It is a simple program that most students can easily explain. And it has increased the college going rate among poorer families in Georgia.

Targeted programs seem more efficient, but they aren’t particularly effective at increasing the college going rate. Universal programs do a better job, but they cost more. The gain comes from giving families the certainty that they have a secure down payment on a modestly priced public education.

This may seem like an odd time to suggest that we think about another federal entitlement program. But as President Obama and others have noted, not all spending is bad. Some spending is actually an investment.

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