In a February 2013 study published by the Institute for College Access and Success (ICAS), research showed that many families still are unable to cover all their financial needs for their children to enter college. Yes, many have been helped by increases over the last three years in the G.I. Bill and Pell Grants, not to mention the tax breaks extended by President Obama, yet there is still room for improvement and to close the gaps still seen in access to higher education by many lower income families. There is a drastic need to simply the student loan application process.
The ICAS study determined there were five major reasons as to why this is still happening. It also made recommendations for both the federal student aid program and the colleges and universities that accept students with federal student loans and grants.
Available grant money based on financial need is not enough, pushing families toward federal and private student loans. Often when a family needs to turn to Federal Student Loans or Private Student Loans, they quickly lose interest because of an over complicated application process. There is a lack of information going to these lower income families regarding financial aid, tuition costs .vs. the benefit of one college over another. Just finding the college that meets their budget, and educational standards alone is difficult enough.
Once a family has found the right college for them, and determined the cost of the loans is within their budget once repayment starts, its then time to figure out the financing aspect. This is again another stopping point for these families. The application process can be difficult, in many cases requires a credit check, and can also be an embarrassment for the parents if they are denied credit on their co-signature for their children. Having an over complicated application process can and does undermine the actual effectiveness of the programs there to assist those who need it most.
States and Universities were found as not being held accountable to the cost of their tuition in comparison to the education they are providing. Take for example an example of a new family trying to buy a home financed through a private lending institution. When the family chooses a home, and seeks to take out a mortgage on that home, the bank will order an appraisal to see what the value of the house is, and lend accordingly. They will not loan you $300k for a house valued at $200k. With the educational system, no such rules apply. A student looking to study philosophy at a cost of $30k per year, with an estimated salary of $25,000 once they graduate may not exactly be a wise investment. The College or University in this case does not value that this particular field study may not warrant the cost.
The ICAS has also found that the changes in the federal financial aid programs have not made students in financial aid the highest priority. There has been a lot of work done recently within the Department of Education to assist those in repayment on their Federal Student Loans, but not enough for lending to low income borrowers has been does in the opinion of the ICAS.
Recommendations for the Federal Student Loan Programs:
The ICAS also made recommendations on how to fix these issues. One of their main recommendations, which will benefit everyone, is to streamline the Student Loan Application along with the College or University admissions application. Essentially when someone is applying for admission, all the application data should be streamlined into a system where the student will be notified with their acceptance letter what type of funding they qualify for, the amounts, interest rates, etc. This way once a student is accepted into the University, they will not need to do anymore research for their loans, it will all be presented to them at the same time as of their acceptance letter. This would greatly simply the process for everyone, especially those who may not be familiar with lending practices and may be intimidated by talking to different lending institutions.
The ICAS also found that fraud can play a role in the assistance getting to those who need it the most. The Department of Education can prevent fraud more efficiently by flagging those applicants who have applied for aid previously and whose enrollment history is suspect. In this recommendation, colleges must work with the Department of Education by looking at the applying student’s enrollment history at every college where they have applied for admission, been accepted and how long they were enrolled while receiving federal grants or loans.
Recommendations for Colleges and Universities:
Rewarding or punishing schools based on the Student Default Risk Index (SDRI) instead of the Cohort Default Rate (CDR) can also have a positive effect for college bound kids. While the CDR shows only those students who have defaulted on their loans, the SDRI also factors in the school’s borrowing rate. By using the SDRI, the Department of Education can better determine the risk of a student defaulting on a loan from that particular school. At the same time, schools should be required to share their calculated Risk of Default to all new applicants. This way a prospecting student can compare schools on this basis as well. Knowing if school A has a 3 times larger default risk than school B may be a deciding factor, and its the students prerogative to know this information and do with it as he pleases. Educating kids about the different options available to them in the Federal Loan Forgiveness program, and the different repayment plans can prevent many from going into default on their loans.
Providing additional funding to those schools who keep a low SDRI can incentivize universities to be active in the students careers once they have stopped paying the university tuition and they enter the workforce. They will strive to have a lower SDRI which may make them refocus the cost of their school vs quality of education and likelihood of their graduates getting a job after college.
These determinations and recommendations will not solve the problems faced by every student, but they go a long way to streamlining the process for them. Reduced paperwork, better aid calculators and making colleges more accountable for the funding they receive only serve to make the American Dream more available and affordable for everyone.