Sunday, September 27, 2009

Making it Easier to Get Aid

Efforts are underway to simplify the complex, byzantine system we've created to administer financial aid, and it's about time. Streamlining the process holds promise-- take a look at the recent H&R Block study if you have any doubt. Where policymakers are starting, by reducing the complexity of the application, is a good place to begin, but we could do more. There are some basic facts about individual decision-making which are neglected in the design of the current system-- and remedying those oversights could go a long way towards enhancing participation.

I don't want to argue over who figured out first that humans aren't highly rational beings. Maybe it was the behavioral economists, maybe the psychologists, maybe the sociologists. In any case, it's clear that we tend towards inertia, confusion over too many choices, and that we're highly influenced by what those around us do. And as Richard Thaler and Cass Sunstein nicely articulate, the right kind of policy "nudge" can get us moving in a better direction.

In today's New York Times, Thaler makes a strong case for changing the organ donation system from an "opt in" model to an "opt out" one. He cites evidence that in countries where people have to go out of their way to decline to donate their organs, a far greater percentage choose to donate. For example, in Germany, the opt-in system results in a positive donor consent rate of just 12%-- in Austria, the opt-out system has the opposite effect-- 99% of adults donate.

Thaler also highlights the benefits of a system where some kind of choice is required-- where it's impossible to skip the step of making a decision. So in Illinois, you have to decide whether or not to donate when you signup for your driver's license-- and 60% of people decide "yes."

The benefits are clear-- plenty of people need organs, and this is a way to make sure more get them,without resorting to a scary open-market system where we need people to sell and buy organs.

I think this could work for financial aid. Right now we have a system that leaves many eligible students out-- simply because they do not fill out the required form-- the FAFSA. We can fix this. Instead of having students submit a separate financial aid application in addition to their college application, why not require it? If students want to decline to apply, make that the decision that needs to be reached-- rather than the other way around. Right now you have students being admitted to college who forgot to apply for aid-- let's flip that, and make sure the processes are integrated, and the only ones not considered for aid are the ones who took actions not to be considered.

This model would require ramping up aid counseling, for sure, to make certain that students who wanted to apply could figure out the process. Hopefully, with the simplification of the FAFSA pending, this will become less burdensome. But it ought to pay off in the end-- getting more eligible students access to the dollars they are entitled to. Money left on the table is money wasted-- and if we can identify a fairly simple, elegant solution to the problem then heck, shouldn't we try?