JOE RUSSO RETIRED DIRECTOR OF STUDENT FINANCIAL STRATEGIES UNIVERSITY OF NOTRE DAME ISFAA Spring Conference Indianapolis, Indiana April 16, 2013

Questions: what if we were given a tabula rasa ? What would the ideal student aid future look like? What measures would we use to measure its success? What principles and values would guide such an effort?

What goals would we envision? Access: simple & efficient Affordability: transparent & encouraging Accountability: responsible, measurable, with performance-based incentives

What constraints would we realistically face? Limited budgets, other demands & priorities Will never have enough resources to meet full need of all The challenge: spread resources to all or target to neediest first Expectation for full cooperation among all players Increasing focus on outcomes: preparation, retention, graduation, success

What basic essentials would be needed? Partnership among all: reasonable level of cooperation Partners include: student, family, government, community, employers, private organizations Understanding that both the individual & society benefit from a better educated/trained citizenry Appreciation of education as an investment not just a commodity

What special opportunities do we face? Next Reauthorization Conclusions offered in new studies: College Board, NASFAA, Gates A leadership role for being competitive in a new world economy

What is the current image of college costs & student aid? As viewed by consumers, policymakers, the media Complex, confusing, daunting, discouraging Rising costs, high levels of debt, no jobs, questions about value Little black box, constant change Institutional practices & well-intentioned government regulations to protect consumer Myriad of reports with common themes: dramatic need to consolidate & simplify

So how do we proceed? Back-to-the-future Re-instate "look-up" tables to produce a "Federal Index" (aka EFC) rounded to nearest hundred Taxpayer authorizes IRS to provide limited data to ED  AGI, number of exemptions, social security numbers of college aspirants  Data from non tax filers to be secured same as it is now ED generates Federal Index (FI) & notifies each applicant of their eligibility for a federal Pell Grant  Amount of grant awarded in increments of $100  Awards are gradually reduced by $100 using FI from maximum amount for zero FI until funds are exhausted States & institutions use the FI for their decisions  Or adjust it (+/-), using other factors or data, if desired, as currently practiced

What about other federal tax benefits? Target federal tax benefits for higher education costs to families below certain income levels  e.g., median income for households with parents aged between 40 – 60 for tax credits/deductions  e.g., restrict federal tax consideration for 529 plans to family incomes below $250,000

What about campus-based programs? Phase out campus-based SEOG & Perkins Loans Redirect college work-study funding to institutions with proven performance & expand student eligibility Provide an institutional administrative allowance based upon its measures of performance

What are the intended consequences ? Elimination of the need for an annual FAFSA Creation of millions of dollars of savings currently needed for FAFSA processing by ED Major reduction of incomplete FAFSAs (750,000 incomplete never returned last year) Substantial reduction in need for verification of data and the institutional & government costs involved

What about the largest federal student aid program: Stafford Loans ? Option one:  Eliminate current policy for federal need using COA - FI = eligibility  Replace eligibility for subsidy determination by using FI up to certain income level until funding runs out Option two:  Eliminate in-school subsidies for all students  Redirect subsidies to "back-end" of process: the repayment period

Revised Income Contingent Loan Repayment Require all borrowers to annually pass a financial literacy test prior to distribution administered by each institution Questions would include examining borrower's full understanding on estimated monthly payment Information used would include estimates of total borrowing as well as payment as percentage of monthly income Institutional administrative allowance would be based upon a measure of school's performance

How would repayments be processed? IRS manages billing & collection process thru payroll deduction Interest accrues during school and deferment periods as well as during repayment; cap total interest Amount of monthly payment driven by a percentage (e.g., 9%) of annual income No payment due until annual income exceeds certain threshold (e.g., $20,000) Deferments for further full-time schooling and permanent, long-term hardship Cancellation provisions for full-time public service (ask what you can do for your country) & for death Loan balance remaining after certain number of years (e.g., 25) is cancelled

What are the outcomes ? Access: simple, efficient, with no significant impact on enrollment behavior or on neediest students Affordability: predictable & encouraging; helps with public service career options, fosters planning & saving Accountability: provides for more responsible borrowing & creates incentives for institutions to perform

What are remaining issues ? Major changes Phase-out challenges Self-supporting students PLUS Loans Graduate/professional students Non tax filers Tax loopholes Institutional matching for Pell Other