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How to fix the college financial aid system

(MoneyWatch) The college federal financial aid system clearly needs an overhaul. Many Americans find that the application process is confusing, the amount of available assistance is often inadequate and resources frequently go to families that need the least help.

This week, the Institute for College Access & Success, a major player in this higher-education advocacy world, released an ambitious white paper that outlined more than two dozen ways that the federal aid system can be improved.

Some of the recommendations of the study, which was conducted with support from the Bill and Melinda Gates Foundation, could be implemented at little to no cost, while others would take some political will since the changes could come from eliminating tax benefits that largely benefit affluent families.

Here are five of TICA's key recommendations:

1. The Free Application for Federal Student Aid, which is the federal aid formula that all families seeking need-based aid must complete, is too complex. For instance, the FAFSA rivals the length of the 1040 tax form. TICA supports calculating aid eligibility by using the tax and W-2 data available when students apply to college. 

2. Double the maximum Pell Grant, which currently maxes out at $5,550 per student per school year. Even doubling Pell aid, which is primarily targeted at families making under $40,000, would still cover a smaller share of the cost of attending a public university than it did in the late 1970s.

3. Improve the federal needs analysis formula to better target aid while reducing the number of questions that can't be answered with existing tax and wage data.

4. Overhaul the federal student loan program, in part by offering only one undergraduate student loan with no fees and a low in-school interest rate. Graduates would repay the loan with a fixed rate that is never much higher than the interest rate on loans available to current students.

5. Treat private student loan debt like credit card and other consumer debt and allow it to be dischargeable in bankruptcy court.

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