College Grants on a Postcard: A Proposal for Simple and Predictable Federal Student Aid

The federal system of student financial aid is broken. Information about aid eligibility is hidden behind a thicket of complicated paperwork, and is also highly uncertain. Concrete information arrives just a few months before or even months after students enroll in college - far too late to affect enrollment decisions. Economic theory and evidence suggest that the costs of complexity and uncertainty are high: many high school students won't even start on the path to college if they aren't certain they can afford it. Capable students teetering on the margin of college entry are thus discouraged from going to college by its price, even though aid is available to them. This is a waste of human potential. This waste is unnecessary. Dozens of questions on the federal aid application contribute virtually nothing to the determination of grant aid, so the aid formula could be radically simplified while still preserving its distributive properties. But simplification must achieve more than a shortened application form: families need certain information about aid eligibility, and they need it early. Small tweaks and Band-Aid solutions are likely only to add to the complex, confusing, and uncertain situation faced by students and their families. We propose a drastic simplification of the current system of educational grants and tax incentives. Our proposal combines Pell Grants and the Hope and Lifetime Learning tax credits for undergraduates into a single, streamlined grant administered through the Department of Education, using information already collected by the Internal Revenue Service (IRS). Eligibility can be explained on a postcard, allowing students and families to anticipate their grants many years before the college decision. This set of reforms will improve the effectiveness of the billions already committed to higher education, allowing aid to serve its intended goal: opening college doors to those with the ability but not the means to pursue higher education. [Jointly listed as Brookings Institution’s Hamilton Project Discussion Paper 2007-01 and KSG Faculty Research Working Paper Series RWP07-014.]]