US policy think tank proposes overhaul of college financing
College financing in the US badly needs overhauling says a policy think tank that is about to propose new ways to simplify the complicated landscape of American higher education and help more students get through college successfully.
The Hamilton Project, set up by the Brookings Institution in 2006, is stirring up a debate around the financing of American higher education.
To establish a platform for the debate, the think tank, which is guided by an advisory panel of academics, business leaders, and former public policy makers, is planning to publish details of three proposals over the coming weeks.
An outline of the three proposals, accompanied by a rationale, is set out in a paper published online on 4 October on the project’s website: Higher Education Today: Innovative Approaches for College Financing
In their paper, authors Melissa Kearney, Director of the Hamilton Project and Professor at the University of Maryland, and Benjamin Harris, Policy Director of The Hamilton Project and Fellow in Economic Studies at the Brookings Institution, refer to previous work that highlights how a college degree is one of the best investments a young person can make in the US.
Over his or her lifetime, a college graduate earns on average around $570,000 more than a person with only a high school diploma.
For students from low-income families, a college degree offers them economic mobility and a ticket out of poverty.
For example, children born in the lowest 20% of family income distribution (the bottom quintile) who complete a four-year college degree have a 19% chance of finding themselves in the highest 20% (the top quintile) of income distribution in adulthood, and a 16% chance of staying in the bottom quintile.
This compares with a 45% chance of remaining in the bottom quintile for a child that does not earn a college degree, and only a 5% chance of moving to the highest quintile.
Yet for many Americans, a significant barrier to getting a college degree is the high cost of entering higher education, and subsequent issues such as debt and high loan payments afterwards.
Research shows that the current system of financing higher education in the US places substantial barriers to students from low and middle income families.
One of the main reasons, is the lack of clear, accurate information about costs and financial aid options, say the authors, who say there are three ways to improve this, each to be tackled by one of the papers coming out in the coming weeks.
The three papers propose the following changes:
- Reform federal lending and financial aid programs – restructure the “one size fits all” Pell Grant program which currently serves 9 million students from which only an estimated 45% have completed any credential six years after beginning their degree. Suggestions include adding tailored guidance and support services, distinguish between independent and independent recipients, simplify eligibility and application process, and strengthen incentives for timely completion.
- Simplify college cost estimation – the majority of students (including 60% from low- and middle-income families) rule out schools based on the sticker price, but net-price calculators, which have been introduced to overcome this barrier, are often difficult for prospective students to find and use. An improved cost calculator, based on an existing model, that only requires five pieces of information and provides a relatively accurate picture of what a perspective student will have to pay, would go a long way to resolving this.
- Introduce new system of federal student lending – using an income-based model of repayment. Many individuals struggle to pay back their student loans because the current system requires repayment within ten years of leaving college, when incomes are low and variable. Missed payments incur penalties and balances turn into debt burdens that stop young workers gaining economic independence and stability. A new system based on a contingent model of repayments, that rise and fall with the borrower’s income, is proposed.
The Hamilton Project will release the new policy proposals at a forum on the evolving role of American higher education in society.
The authors of the new proposals will be joined by leading voices in higher education, a former US Treasury Secretary, and others.
For further information, see the Hamilton Project website.