Expanded Federal Investment

At the federal level, student financial aid has grown dramatically during the past seven years. Overall, the Clinton-Gore commitment to opening the doors of college is the largest federal investment in higher education since the G.I. Bill. The Clinton-Gore Administration has more than doubled student aid to more than $50 billion in aid for students today. Three-quarters of the aid is in loans, with the rest predominantly in grants. The new tax credits for postsecondary education—HOPE and Lifetime Learning—provided nearly 5 million taxpayers with $3.5 million in tax relief in 1998, the first year that these new benefits were available. When fully phased in, this program will provide $6 billion a year to help America's families pay for college. More than one-half of full-time, full-year undergraduate students now receive some form of financial aid.³⁹ Seventy percent of all student financial aid comes from the federal government. The new Lifetime Learning tax credit is a big step in providing more access for part-time students at any point in their lifetime and as many times as they wish to use it.

The new 1994 Direct Student Loan program delivers loans to students more quickly, simply, and cheaply. Together, students and taxpayers have already saved $18 billion through student loan reforms, in both the Direct Student Loan program and the Guaranteed Loan program (FFEL).⁴⁰ Pell Grants, the foundation of assistance for low-income students, were initially tied to providing a certain portion of costs for families below certain levels; these ties have been lost over time. Since the early 1980s, loans have grown significantly, in part, because they are cheaper to provide and, in part, because they are entitlements. This has resulted in what many have termed the "loan-grant" imbalance.

The need analysis system—the system of determining what families and students can be expected to pay—has also evolved over time with little careful reexamination of the underlying goals and principles to take into account new students, including lifelong learners, and new modes of educational delivery, including distance learners. The current system is still based on the initial 1954 model, even though it has become more and more complex as Congress writes more detail and specificity into the law each time a reauthorization occurs. Because of the way the system is structured, students cannot apply early for aid, thereby adding to their uncertainty of aid eligibility. The earliest students can now apply for fall semester aid is January, when they have their tax returns completed. They typically need to wait until the spring to find out what financial aid they will receive.

This Web of complexity is difficult to navigate; every applicant must fill out a long detailed form. It is not at all clear that the added complexity gains much—if anything—in more accurately reflecting financial need. But it certainly does contribute to the misconceptions of many Americans about what aid they are eligible to receive. Thus, the need analysis system and the form are impediments to full access.

We are taking steps to improve the system. In July 2000, the U.S. Department of Education signed a unique incentive-based information technology contract with a private contractor. The contract is to modernize the Student Financial Assistance Office’s loan systems, which handle more than $52 billion in loans per year. The contractor will be paid a percentage of the savings, not a fee upfront. The contract is the first of its kind. The central data system’s 12 functions will be reduced to seven and incorporated into the other systems. It is expected these changes to the system will save $40 million to $50 million over the next four years

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