“FAFSA.” This acronym once seemed Greek, but most of us have been forced to familiarize ourselves with this term through our college education. FAFSA is the Free Application for Federal Student Aid, the form that you must fill out to receive financial aid and loans from the federal government to help pay for college. It is nationally implemented and, as a result, has caused national financial damage. Our economy demands student loan reform.
Every October, FAFSA applications become available for financial aid for the following school year. This application may deem you eligible for federal loans, which are much less expensive than private loans, as well as scholarships, grants or work study requirements. This aid is bestowed on a calculation of four main factors: your year in school, whether you work full time or part time, your estimated family contribution and the cost of your attendance.
From these calculations, a few key variables arise to decide how much aid you will receive. These elements are your parents’ income, assets and the total number of children in college. This information aggregates to formulate your EFC, or Expected Family Contribution. However, the number of dependents and the number of students enrolled in college next year are counted separately. This proves a massive confounding variable that is not considered holistically when calculating your family’s estimated contribution potential.
Nevertheless, even if your family exceeds the need-based category with the sum of their net assets and income, it is important to remember that your parents are not legally obligated to transfer that financial ability to your college tuition. The implications of this discrepancy are very large. Many students are being denied financial aid on a calculation of aid ability that they will never receive.
As a result, this imposes huge ramifications on the middle class. In fact, the number of middle-class students who have to take out non-federal student loans due to getting denied financial aid from the government has increased from 30 percent to 60 percent in the past couple of decades. This issue — if left unsolved — could lead to major economic and social consequences.
Not being able to access a federal loan, which is more affordable than a private loan, could pose a deterrent to middle-class students attending college and receiving higher education and greater quality of life. This is counterintuitive to the point of student aid, as it seeks to provide higher education and income opportunities to everyone, defeating the privilege barrier.
However, a band-aid fix of offering more federal loans is not the answer, as federal student loans already amount to more than $1.6 trillion. This dilemma demands change on a fundamental level.
Though this is a very complex issue, I cannot successfully sign off on my article without offering potential solutions. I researched to clarify this multi-dimensional dilemma and found a 46-page paper called “Student Debt and the Federal Budget” by the Bipartisan Policy Center. It was quite dense, but no worries, I read it so you don’t have to.
Federal student loan debt in the United States has swelled since the Great Recession, growing from $642 billion in 2007 to $1.566 trillion in 2020, a 144% increase. This expansion of debt is disproportional to the number of borrowers, which has only increased by 52% over the same period. This indicates that students have to borrow more to finance their education due to the rising cost of college attendance.
Though much of this debt is caused by the Great Recession, a lack of accountability results in two out of five borrowers making no progress on repayment three years after graduating. This negative correlation between debt levels rising and completed payments cause a great burden on our taxpayers, and the federal government is positioned to lose billions of dollars.
This sheds light on the consequences of a faulty student loan system on our economy. Taxpayers ultimately pay the price of borrowers’ defaults or forgiven loans. As student debt held by the government continues to rise, taxpayer liability keeps pace. This means that our taxes may have to be raised to pay off the loans that borrowers have failed to pay. The rise of student debt combined with the crippled ability of most borrowers to repay their debts has begged a policy change to simultaneously provide loan relief and limit federal student borrowing.
The Bipartisan Policy Center offered a few potential solutions in their project. Though there are many viable options, one single change may not cure all of the issues that the student loan system is facing. However, beginning a reform to the system will reduce reliance on federal loans and mitigate taxpayer exposure through improved borrower accountability and repayment support.
An income-based repayment and pay as you earn plan will eliminate the confusing bureaucracy obstacle that our current loan system demands. Avoiding complicated plans with different payment formulas and eligibility requirements offers greater clarity by enrolling all borrowers into a single streamlined IDR plan.
Less than 1% of borrowers who entered repayment between 2010 and 2014 who were enrolled in two of the most-used IDR plans defaulted in contrast to 14% of borrowers in a standard plan. Additionally, the IDR system could be even more economically efficient if repayment formulas required high-income borrowers to pay off their loans quicker, which would decrease the likelihood of defaulting on loans that borrowers can afford to pay.
It is important to remember that most future high-income earning students have the highest loan debt, which — if defaulted — is a major consequence to the taxpayers. This is not to punish high-earning individuals, but to create an equity balance for borrowers if repayment is proportional to income amount.
This plan eliminates many of the complications that students encounter when enrolling in a loan system, holds borrowers accountable for their repayments, creates an equitable payment system and alleviates the toll that unpaid federal loans have had on our economy by reducing loan defaults.
As both a borrower of federal loans and a taxpayer, I want to contribute to improving the health of our economy. This can begin through participation in creating awareness and cultivating momentum for change. Though the implications of FAFSA and our current student loan system are confusing, one consequence is glaringly obvious — the damage to our economy.
Grace Reiman is a junior English major. Reach her at email@example.com.