The Federal Student Aid System Needs Reform

The federal higher education financing system is doing too much for too many and not enough for those who need the most support. The government lends a staggering $126 billion in federal student loans each year. With some programs allowing students and families to borrow virtually unlimited amounts, without considering the ability to repay, it’s no surprise families are overextended and too often overborrowing to pay for college

This system as it currently stands compounds two harms: First, it causes tuition inflation —particularly in areas like graduate school — and then saddles families with debt they cannot reasonably be expected to repay. In fact, recent data shows that in the past 20 years, college costs have grown twice as fast as the consumer price index (CPI). Similarly, a study by the Federal Reserve Bank of New York found that increases in federal lending cause higher tuition.

Reforming the System

Polling shows Americans overwhelmingly believe addressing the unlimited nature of federal loan programs would be an important step both in protecting students and making college more affordable. Reform should start with the unremarkable yet often forgotten principle that borrowing should not be the first option when it comes to paying for college. That means connecting more students to grants and scholarships. Meaningfully increasing Pell Grants, which don’t need to be repaid, can also increase college enrollment and retention rates.

Those who qualify for Pell Grants should also be able to apply for them more easily. In 2023, more than $4 billion in Pell Grants went unclaimed — that’s billions of dollars that could have put higher education within reach for the students with the greatest financial need, students for whom another loan is simply not the answer. Our research also consistently finds that many families are not applying for scholarships because they either don’t know how to access them or incorrectly believe they won’t qualify. That’s why we created a free resource — Scholly Scholarship Search by Sallie — that puts more scholarships within reach for college-going families.

Focusing on Completion

We also need a renewed focus on college completion, not just college access. Those with a college degree earn $1.2 million, or 86% more over their lifetime, than those with a high school degree. Public-private partnerships can play a role in supporting college completion. Sallie Mae has partnered with Delaware State University (DSU),  endowing $1 million to research barriers to degree completion and re-engage hundreds of near-completer students to get back on the path to graduation. The program will also develop and advance policy recommendations and best practices to foster student re-engagement nationwide. We’re also removing barriers to completion through our Completing the Dream Scholarship. Together with Thurgood Marshall College Fund, we’ve eliminated nearly $2 million in unexpected costs for students.

The federal student aid system can and should be simpler and work better for students and families. That will require sensible federal student aid reforms, greater transparency and clarity around college costs, connecting students with demonstrated need to grants and scholarships before borrowing and supporting college completion, not just college access. It’s well past time we go beyond quick fixes and focus on meaningful and lasting reform to address these broader issues.