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New America proposes budget-neutral student aid overhaul

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Pell Grants should be entitlements, the New America Foundation says in a new report that proposes a budget-neutral overhaul of federal student aid.

As entitlements, the grants would disburse automatically according to a permanently funded formula, and would thus avoid the uncertainty of the annual appropriations process.

The maximum Pell Grant should also gradually increase over the next 10 years, the report says. Ten years ago, the maximum covered 98 percent of the average public 4 year school's tuition and fees, but that number has dropped to 64 percent.

Under the proposal, colleges that enroll small amounts of low-income students and charge them high prices would have to match Pell Grant awards. Colleges that enroll high amounts of low-income students and have at least a 50 percent graduation rate would qualify for Pell Grant bonuses.

For federal student loans, New America's proposal would have borrowers repay on the basis on their earnings after they graduate. It would also consolidate federal loan programs into one system.

To make these and other changes budget-neutral, the report proposes to get rid of tax breaks related to student loans. The various tax breaks available are complicated, sometimes overlap and can be regressive.

The government loses about $2.5 billion in revenue each year to tax-advantaged college savings plans, many of whose benefits go to high-income families, the report says.

It also proposes limits to how long students are eligible for grants and loans, to discourage enrollments that last much longer than degree programs are designed to.

The Supplemental Educational Opportunity Grant program, which the report says is outdated is disproportionately helps wealthy private colleges, would meet its demise, and the savings would go toward the Pell Grant expansion.

For more:
- read the report, "Rebalancing Resources and Incentives in Federal Student Aid"

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