financial literacy

States: Our financial aid needs major overhaul

A new report notes that a handful of emerging paths may lead to greater financial aid impact

Although state financial aid programs can be powerful policy tools to defray the increasingly burdensome costs of college, many states’ financial aid programs are not in alignment with strategic postsecondary education policy goals, according to a new report from the Education Commission of the States (ECS).

The report, State Financial Aid: Applying redesign principles through state engagement, examines a variety of state-level projects intended to redesign state financial aid and shares lessons learned from those efforts.

During the past two years, ECS supported states as they developed more strategic approaches to financial aid policy design, notes author Sarah Pingel, Ed.D., a policy analyst in the Postsecondary and Workforce Development Institute at ECS. In 2014, states allocated $11.7 billion to financial aid programs that supported 4.5 million students. States that want to redesign their financial aid programs can apply for state technical assistance through the State Financial Aid Redesign Project.

State financial aid policy experts met to envision new financial aid programs that truly meet state and student needs. As the group proposed changes to current state financial aid policies, four redesign principles and lessons around those principles emerged.

(Next page: The four leading state financial aid principles)

1. Student-centered: Aid programs designed around students and their needs set students up for successful outcomes.

  • Some states offer financial aid programs for students who meet certain academic and/or financial criteria while in grades spanning from 6-10.
  • This approach is considered student-centered because the application process is simple and short, and students can form a college-going mindset when they receive earlier notification of aid eligibility.
  • States should pay attention to the financial criteria students must meet to qualify for early promise programs, including implementing a secondary income check in later high school years.

2. Goal-driven and data-informed: Aid programs should have a clearly defined and easily understood intent aligned with measurable state education and workforce goals.

  • A powerful, overarching goal should be in place to inform statewide financial aid policy development and maintenance.
  • Setting goals can be challenging due to the number of stakeholders in financial aid policy development and the number of related legislative proposals.
  • Stakeholder balance is an important part of the process.

3. Timely and flexible: Aid programs should provide financial support to students when it can have the greatest impact on enrollment and persistence decisions.

  • Typical state financial aid that is allocated in equal portions over each academic term is limited in timeliness and flexibility.
  • The free college movement could eliminate application and disbursement processes via a universal $0 tuition price.
  • A timely and flexible system of supporting college attendance may mirror a universal public high school experience: students elect to enroll and attend free of charge without filing forms related to their family’s financial situation.

4. Broadly inclusive: Aid programs need to respond to the diverse enrollment options available to students.

  • State leaders to examine their own notions of which institutional types should be eligible to participate in state aid programs, notions which may be based in opinion or preconceived ideas of institutional prestige or merit.
  • States are also encouraged to put students’ needs first in program design.
  • ECS encourages states to first identify a program goal, and then structure student-centered eligibility criteria that will bring a state closer to that goal.

Laura Ascione