Archived Information

Reauthorization of the Higher Education Act


Encourage Savings, Increase Fairness, and Simplify the Financial Aid Process for Students and Families by Changing the Student Aid Eligibility Formula

The current federal student financial aid formula can unfairly penalize families who are responsible and save for college, and unnecessarily burdens students and families. The Clinton Administration is requesting authority to change the way the Higher Education Act treats a family?s assets to address these problems and promote savings, fairness, and simplicity.

"The Clinton administration is considering [proposing] an important change in federal college financial aid rules that would make the system fairer, simpler, and more honest. It would also eliminate the strong bias against saving that exists under current rules, and make it easier for families to provide for future college costs. While we often disagree with Clinton administration proposals, this is one time when we are enthusiastic supporters."

--Martin Feldstein, former Chairman of the Council of Economic Advisers under President Reagan, and Kathleen Feldstein, economist, "A fairer way to pay for college," Boston Globe, 9/16/97.

Current Law Needs to Be Changed: Federal law now bases a family?s financial aid determination on their assets as well as their income. Assets are also used by many colleges and universities in determining institutional aid. However, current law (as reauthorized in 1992) exempts certain assets, such as homes and savings in certain retirement plans. As a result, current law:

Reform Would Increase Fairness, Encourage Savings, and Simplify the Aid Application: The Clinton Administration?s proposal for the reauthorization of the Higher Education Act addresses the inequities and complexity described above. It would provide authority to change the current treatment of assets, after consultation with the higher education community. For example, it would enable the Secretary of Education to estimate a family?s assets based on family income, parent age and other factors or to exempt assets entirely. Any of these approaches would be designed to protect families with incomes so low they cannot save.

"I really notice this sense that people have of inequity. It comes out most clearly in regard to the way savings get treated in the financial aid system. If...you have diligently saved over the years for college -- you?re going to get quite a bit less aid than somebody who has been profligate who has had the same income profile."

--Michael McPherson, President of Macalester College and author of "The Student Aid Game," quoted in the Los Angeles Times, 2/15/98.

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