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Susan Dynarski on Federal Student Financial Aid

The Deficit Reduction Act of 2005 cut federal spending on student loan programs by $12.7 billion over five years. Students have cried 'foul,' but some experts argue that since the financial rewards of earning a college degree have grown in recent decades, individual students should take on more of the financial burden. Others warn that rising costs and excessive student loan debt are placing a college education out of reach for many Americans.

Susan Dynarski, associate professor of public policy, studies the economics of education. Her recent research examines federal student financial aid and the questions surrounding who should pay for the rising costs of higher education.

Q: As both the cost and rewards of a college degree rise, does it make sense that more of the burden of paying for college falls on individual students and their families, even if that means taking on substantial loans? What should the federal government's role be?

Dynarski: It's never been more important to go to college. People who go to college earn more; they're more likely to have health insurance; they live longer. Any aspect of life you can think of, it's improved for those who go to college.

Conversely, it's never been a worse time to be without a college education. Earnings for people who don't have a college education began to plummet in the early 1970s and have never recovered.

It's these two facts-a secure life if you've got a college education, poor prospects if you don't-that shape my thoughts about how we should structure the finances of higher education in the U.S.

The role of government is to create the opportunities and the role of the individual is to pay back society for the opportunities he's been given.

The federal and state governments should make sure that the doors of college are open to anyone who's academically able. Government can help people afford college with grants, loans, and low tuition at public universities.

Once a person has gone to college, it's her turn to help others. College graduates need to help pay for their education, so that future generations can also benefit from a college education. If college graduates don't pay for their education, then who does? All of society, including all of those high school dropouts and high school graduates who are doing so poorly these days. It's inequitable to expect that a high school dropout should pay for my son to go to college.

Q: The federal student-aid application is longer and more complicated than a federal tax return. What are the consequences of this development?

Dynarski: Over the years, as the tools used to fund college have multiplied, the bureaucracy and paperwork required to wade through student aid has multiplied as well. Poor families file a very simple tax form, about a half-page long, to pay their US income taxes. When these same families apply for financial aid, they have to complete an eight-page form with over 120 questions! That's quite a challenge for a family that speaks English as a second language, in which the parents have not graduated high school. This complexity may discourage quite a few families from applying for the financial aid that they deserve.

There is also considerable uncertainty associated with financial aid. A young person does not find out about how much aid he can get for college until the spring of his senior year in high school. Late in the senior year of high school is far too late for such critical information to arrive. Families should be able to make plans about college education when their children are entering high school or even while they are in grammar school. A simple aid program could be communicated early to families, allowing them to plan for their children's education and encourage them in their college dreams.

Q: Who does the current federal aid system benefit the most? Are federal aid dollars reaching those most in need of help in paying for college: academically qualified but financially needy students?

Dynarski: On paper, the federal financial aid formulas are quite progressive, and in fact the Pell grant does predominately go to families with incomes below $40,000 a year; about 90 percent of Pell grant funds flow to those families. But the hurdles that I describe that are required in order to apply for aid, I would say, screen out those people who are just on the margin, who are just thinking about whether college would be right for them. So somebody who is able to wait until senior year in high school, fill out their forms, apply to colleges without even knowing if college is affordable, I think has defined themselves as someone who is firmly committed to going to college. What aid should be doing is encouraging those who are teetering on the edge, who are not quite sure if they can afford it, and encouraging them to go to college. A simpler aid program would serve that goal.

Q: How feasible is it that the federal government could design a simplified system that would allow it to achieve its stated goal of increasing access to college for needy students?

Dynarski: We currently have a very efficient organization for collecting just about all the information that is necessary to determine aid eligibility: the Internal Revenue Service. The IRS already collects just about all the information that's required to determine eligibility for the Pell grant or for student loans. It would be fairly simple for the IRS to generate estimates of aid eligibility. Several countries already take this approach, and there are few barriers to the U.S. doing this as well.

Q: Anything you'd like to add?

Dynarski: So far I've talked about financial aid for college, which is what we traditionally think of as the way in which people finance college, but the tax code has increasingly been used as a tool for funding access to college. Under the Clinton administration, tax incentives for college became a very important way for families to pay for college. They now rival the Pell grant in their reach. My current work is an integrative analysis of all of these methods for funding college. Seen as a whole, is our system for funding college progressive? Regressive? And how could we reduce complexity in these two very complicated systems? I'm designing a proposal for simplifying both programs, for creating a method for funding college that could operate through the tax system but have the progressive attributes of the financial aid programs that currently exist.