As policymakers work to reauthorize the Higher Education Act, EFC makes the following recommendations based on our member organizations’ broad and extensive experience and expertise in helping students and families successfully finance their higher education goals.
Support Low-Income & First-Generation Students
Recommendation: EFC urges lawmakers to strengthen the Pell Grant program by increasing access to the program, increasing the value and reach of a Pell Grant — including allowing incarcerated individuals to access Pell Grants — and protecting the Pell Grant program and its funding for current students and future generations.
In addition, EFC supports the Early Pell Promise Act, which would authorize an Early Federal Pell Grant Commitment Program, in which eighth grade students who are eligible for free or reduced price lunch would be eligible to receive a commitment to receive a Federal Pell Grant. EFC believes this legislation would give students, early in their academic career, the motivation and support that stems from knowing that a college education is financially possible for them.
Rationale: Academic research shows that Pell Grants positively influence degree attainment.
According to one study on the impact of financial aid on degree attainment for low-income students, conducted by academic researcher Ray Franke, “For students with limited financial means to attend higher education, receiving need-based aid that does not have to be repaid, substantially increases their chances to obtain a bachelor’s degree within six years.”
Another academic study, which was conducted by researchers Sara Goldrick-Rab and Robert Kelchen, shows that a commitment program such as the Early Pell Promise could increase the enrollment rates of Pell Grant recipients — students from low-income families — by approximately four percentage points, with projected program benefits exceeding program costs.
Recommendations: Simplify the FAFSA to increase the number of filers and therefore increase access to federal student aid for those daunted by the application process.
Lessen the burden of FAFSA verification — an audit-like process that is “unintentionally and quietly wreaking havoc on students trying to access financial aid,” according to the National College Access Network.
Rationale: According to the National College Access Network, “Only 56 percent of Pell-eligible students selected for verification go on to receive a Pell Grant, in comparison to 81 percent of Pell-eligible students not selected for verification. This represents a 25 percentage point melt: students who likely were Pell-eligible but were unable to access Pell dollars. It is unknown how many of these students are able to find a way to pay for higher education and still enroll and how many forgo their plans entirely.”
Recommendation: EFC recommends the federal government support existing and proven college access and success initiatives and explore ways to leverage the existing infrastructure of nonprofit and state-based organizations. These organizations have long-term records of success in operating as the go-to sources in their communities and states for helping families to and through college.
Specifically, EFC recommends that the federal government provide nonprofit and state-based organizations the resources to continue to offer and expand their services to an even greater number of students and families — including through the development of tools to help colleges better counsel their students.
Rationale: Collectively, EFC members offer a variety of robust and successful programs and services to students and families in their states, including scholarship and grant programs, financial aid and default prevention counseling, and extensive college planning and financial literacy programs and affordable education and refinancing loans.
In the past year, EFC members provided over 2.5 million individuals the resources needed to successfully plan, save, and pay for college. However, as nonprofits, EFC members have limited resources. These organizations could reach many more students and families in their communities with access to additional funding.
Increase Transparency for Students & Families
Recommendation: Ensure that students and families have transparent, clear, and actionable
information available to them as they make one of the largest financial decisions of their lives.
Implement the recommendations outlined by uAspire and New America in their June 2018 policy paper, “Decoding the Cost of College: The Case for Transparent Financial Aid Award Letters.”
These recommendations include:
Require a Written Financial Aid Offer to All Qualified Students
Employ Standardized Terms and Student-Friendly Definitions
Include Cost of Attendance with Breakdown of Direct Costs and Indirect Expenses
List Gift Aid and Loans Separately
Do Not Include Parent PLUS Loans and Work-Study as Line Items in Aid Offers
Calculate the Student’s Net Cost and Estimated Bill
Identify Critical Next Steps for Student/Family
Rationale: Two recent reports offer compelling cases for overhauling financial aid award letter practices.
uAspire and New America conducted a thorough qualitative review using a subset of 515 award letters from unique institutions and found “not only that financial aid is insufficient to cover the cost of college for many students, but also that award letters lack consistency and transparency.”
Of the 515 letters, “more than one-third did not include any cost information with which to contextualize the financial aid offered.”
In a similar study, The Institute for College Access and Success “examined almost 200 award letters from public and private nonprofit colleges and found that the vast majority fell far short of effectively communicating critical information to prospective students.”
Recommendation: Increase the credit criteria requirements Parent PLUS; for a parent who does not qualify for a Parent PLUS Loan, EFC recommends that the student’s borrowing cap be increased to fill the gap that the Parent PLUS Loan would have filled. Additionally, EFC recommends that the federal government significantly increase grant aid for students from low-income families and fund proven outreach programs at the local level that counsel families and students on borrowing.
Rationale: Rather than saddle low-income families — and, in particular, parents — with loans they are unlikely to be able to repay, EFC recommends that the federal government increase the credit criteria required for Parent PLUS Loans. If a parent does not meet the credit criteria for a Parent PLUS Loan, then the student’s borrowing cap should be increased.
Under this policy, the debt will be the responsibility of the student — the expected beneficiary of the education and the predicted increased income that accompanies it — and the student will have the flexibility to repay the loan under either standard or income-based repayment. The parent will not bear the burden of the debt and the negative consequences of potential delinquency or default.
To accompany this increased student borrowing limit, the federal government should also invest in increase grant funding, as well as robust outreach and support services programs to support low-income students through college. To provide these services, the federal government should look to leverage — through federal funding — the existing infrastructure provided by schools and nonprofits, including EFC members.
Recommendation: Amend the Preferred Lender List (PLL) statute to allow schools the ability to recommend to students and families loans offered through nonprofit and state-based organizations, without the onerous procedures.
Rationale: The Higher Education Act currently requires postsecondary institutions to follow onerous procedures before they can provide information or guidance to students and parents on non-federal loan options. However, due to competing administrative needs, few postsecondary institutions have allocated the time and resources to complete the process.
Nonprofit and state-based student loan organizations offer loans utilizing state funding or tax-exempt bond financing, which in many cases enables the organizations to offer loans at lower costs than other programs. If schools do not create a Preferred Lender List, school personnel are restricted from advising students on non-federal loan options, including nonprofit and state-based student loans that are less costly than other programs.
ACPE’s lowest fixed-rate loan (4.93 percent APR) is lower than the lowest fixed rates offered by Sallie Mae, Wells Fargo, and Discover. ACPE’s highest fixed-rate loan (7.93 percent APR) is significantly lower than the highest rates offered by those private lenders (11.26 percent, 11.85 percent, and 13.99 percent APRs, respectively).
However, because many Alaska schools lack the bandwidth to create a Preferred Lender List, Alaska families are unaware of lower-cost options available to them and instead rely on internet searches — dominated by for-profit lenders — to find supplemental funding options.
Recommendation: Require the disclosure of annual percentage rates (APR) applicable to federal student loans, especially federal PLUS loans. EFC endorses the Transparency In Student Lending Act.
Rationale: The federal government, as the originator of more than 90 percent of all education loans in the nation, should be required to provide a more complete picture of the costs of these loans so students and families can make fully informed higher education financing decisions.
The federal government is currently not subject to the same disclosure requirements as private lenders, and, as a result, consumers are often unaware of the total expense associated with a federal student loan, including origination fees and the potential effects of deferment, forbearance, and interest capitalization on the total cost of their loan.
Recommendation: Provide higher education institutions with the authority to reduce loan limits for certain borrowers and require all non-federal education loans to be certified by a higher education institution official.
Rationale: In order to prevent overborrowing, EFC supports providing higher education institutions with the authority to reduce loan limits for certain borrowers; even if a borrower is eligible to borrow a certain amount from the federal loan program, it does not always make sense for them to do so. Providing institutions with the authority to further limit borrowing will help to minimize overborrowing.
Additionally, EFC supports requiring all non-federal education loans to be certified by a higher education institution official. Requiring school certification will ensure that nobody borrows more than the cost of attendance less other aid from non-federal education loan programs.
Improve the Repayment Process
Recommendation: To improve outcomes and the borrower experience, Congress should reduce repayment options to two plans (standard and income-based).
Rationale: Through their work counseling borrowers throughout all stages of the education financing process — from when they first begin researching loan options until they successfully make their last payment — EFC members know first-hand that the current repayment process is far too complex for even the most well-informed borrower.
According to the Urban Institute, “The strongest consensus on reforming federal student aid centers on the need for simplification. There are too many different programs with too many different provisions. Multiple types of federal student loans as well as multiple repayment plans add layers of complexity to student loan repayment.”
For example, for borrowers with Direct Loans and Federal Family Education Loan Program Loans, there are currently eight different repayment plan options, all with differing eligibility and terms. There are also dozens of deferment, forbearance, and forgiveness programs, each carrying their own confusing array of terms and conditions.
Recommendation: Create a mechanism for borrowers to give the Education Department advance permission to automatically access their tax information for the limited purpose of determining eligibility for all IDR plans.
Rationale: Student loan borrowers in repayment have a large number of options, including six different plans that base payments on a borrower’s current income — often referred to as IDR plans. Under IDR plans, some borrowers have no monthly payments, and some borrowers have their remaining balances forgiven. Eligibility requirements differ for each plan, and federal law requires borrowers to update their financial and demographic data on an annual basis to stay enrolled in an IDR plan.
Education Department data shows that 57 percent of borrowers enrolled in IDR plans do not recertify their incomes as required before their deadlines. When a borrower doesn’t recertify their data on time, they are required to make higher monthly payments — which are not based on income and which may cause financial distress. Additionally, any unpaid accrued interest capitalizes, increasing the total cost of the loan.
According to the Education Department, one-third of those borrowers who did not recertify their incomes on time had their loans go into hardship-related forbearance or deferment.
Implementing multi-year consent will help ensure that struggling borrowers who are eligible for an IDR plan are able to stay in that plan without interruption.
Recommendation: Create a pilot program that would leverage existing state-based and nonprofit organizations to provide free counseling services to distressed student loan borrowers and use the data from this study to support expansion of these services to all states.
Rationale: Similar to the National Foreclosure Mitigation Counseling Program (NFMCP) created to help struggling homeowners recover from the financial crisis, EFC recommends the creation of a program to assist financially distressed student loan borrowers. It is our belief that with the plethora of repayment plan options, there is no reason for any borrower to default on their student loan. However, most borrowers are unaware that the programs exist or find navigating the myriad repayment options too difficult.
In the same way that NFMC leveraged community-based nonprofit organizations, our proposal leverages existing state-based and nonprofit organizations who have experience in counseling families on planning and paying for college. These organizations would provide the proposed counseling services to distressed borrowers in their states; services would include one-on-one counseling by phone or in-person to help borrowers get back on track and into a repayment plan that best meets their specific needs.
Like NFMCP, this program would be funded through Congressional appropriations, first on a pilot basis. Specific metrics would be set to measure success and to determine if additional funding should be made available to expand services beyond the pilot program.
State-based and nonprofit organizations are limited by funding; this program would allow them to expand their services to a highly targeted population of at-risk borrowers.
Success will be defined through a set of metrics that account for the program’s success in reducing delinquency and default among program participants. Early success will be measured by decreasing the number and percent of borrowers in delinquency among a targeted cohort of borrowers. Longitudinal metrics will be established to measure recidivism rates to ensure the early success is sustained over time.