Enhance the Federal Government's Commitment to Need-Based Aid

Current Law: 

With few, minor exceptions, such as the Byrd program, federal aid for students has been need-based, rather than merit-based.  The law incorporates clear standards to establish financial need. Pell Grants provide essential grant aid to the neediest students in the country, at the point in time that they must pay their educational expenses.  However, the Tax Relief Act of 1997 dramatically altered the federal government's focus on supporting the neediest of students to providing tax credits (Hope and Lifetime Learning scholarships) to middle- and upper-middle-income families for educational expenses already paid by the family.  A recent GAO report indicates that in tax year 1999, in its infancy, these tax credits provided $4.8 million in funds vs. $7.2 million in Pell Grants to the needy.  They estimate that the tax credits for education will soon overtake Pell in total dollars. 

Issue:

The federal government has acted to broaden access to higher education for millions of lower income students.  However, the Pell Grant has not kept pace with inflation and covers significantly less of a students tuition costs than it did at its inception.  Funding for campus-based Supplemental Educational Opportunity Grants (SEOG) have been stagnant in recent years.  Many in Congress are in favor of merit components to the present federal programs.  Merit-based aid, to a great extent, is class-based aid.  Excellent high schools, high SATs, AP courses, enrichment courses and travel, are all a function of family income.  To award federal funds based in any way on merit rewards the wealthy over the needy.

Proposal:

Maintain historic federal commitment to need-based financial aid.  New programs or changes to existing programs should be considered in this context. 

In order to maintain and expand the federal commitment to need-based financial aid, MASFAA supports the proposal of NASFAA, to do away with the Hope and Lifetime Learning Tax Credits and use this otherwise lost revenue to bolster and increase Pell and SEOG grant funding for the neediest students.

Possible Objections:

It is difficult to take away tax benefits.  The middle class needs help, too.

Counter Argument:

Tax credits to middle and upper-middle income students do not encourage college attendance ­ they simply reward behavior that would have taken place in the absence of the tax credits. Contrarily, Pell Grants awarded to the neediest of students enable them to attend college which was previously out of their reach. 

If the government's vested interest in having an educated citizenry is the basis for financial aid for college, then providing access to those who would not otherwise be able to attend should take first priority.

To provide funds through tax breaks to those who would attend college anyway is thus an inappropriate use of tax dollars, given that the needy are severely under-funded.