Obama must allow student loans to be dischargeable again in bankruptcy. That is the ultimate safety net for people when a degree does not quite work out and they are drowning in debt. I filed chapter 7. It was discharged January 9, 2009. Yet, I still owe 170,000 in principle alone. Why? If I qualify for chapter 7, then by default it means I am experiencing hardship and I should enjoy the same right given to generations before and that is the right to not become an indentured servant to the government or anyone else. I should be able to amend my bankruptcy to include all of my student loans. PERIOD! Bans are a business and they take risks. If they cannot handle the risk, they should get out of the business. One might say, that then banks would no longer lend money as freely. Fine! Our system should not be relying on student loans anyways. It may surprise people but the only form of "aid" that many graduate students can get is student loans. It may further surprise people that I have personally watched fellowship go to not citizens and foreigners (many Pakistanis, Chinese etc) while citizens and permanent residents (me for example) are offered nothing but the opportunity to go into debt. We are left with the choice of getting no advanced degree (and watching foreigners get it) or taking a risk, taking the loans and hoping for the best. Well, guess what...the best has not happened. As a fallback, I should get to include my loans in bankruptcy and have a fresh start in life. I should take the 333,000 the government expects me to pay (I am including interest, spread over 30 years) and do something more productive. Like save for retirement, buy a house, raise a family.

There are several other key steps needed to make college more affordable, besides simplification of the FAFSA form and formula and eliminating or simplifying the education tax benefits.

1. The Pell Grant needs to be transformed into a true entitlement program with 100% mandatory funding and the maximum Pell Grant indexed to inflation. The maximum Pell Grant should be increased enough to eliminate loans from the financial aid packages of low income students nationwide.

Part of the funding for this change could be obtained by repealing the education tax benefits and by eliminating the subsidized interest on the Stafford loan program. The education tax benefits and the subsidized interest are very expensive, do not increase access to higher education by low income students, and do not provide funding when the students need it to pay college bills.

But the rest of the funding needs to come from new money. I believe that President Obama recognizes that a college education is an investment not just in the future of the individual, but also in the future of the country.

2. The half dozen or so federal education loan programs need to be replaced with a single loan program, with loan limits up to the full cost of education, that is focused solely on providing cash flow assistance. Students and/or their parents would be eligible to borrow from this loan program. Eligibility would not be based on financial need. Need-based aid should be provided through grants and work-study, not loans. Including loans in the financial aid package has a chilling effect on enrollment by low income students.

3. Methods of saving for college should be simplified by repealing the Coverdell education savings account and merging the best features of this program (e.g., the ability to use the funds for elementary, middle and secondary school expenses) into the 529 college savings plans. Also, families should be allowed to use 529 college savings plans to pay down qualified education loans. This will help families who want to delay taking a distribution from their 529 plans because of recent stock market losses.

4. College financial aid award letters should be standardized, to make it easier to compare colleges and to make it clearer just how much the family will spend out-of-pocket to pay for their child's college education. See FinAid's Guide to Financial Aid Award Letters for additional discussion of the need for standardization of financial aid award letters and a few tools for comparing the award letters.

5. Leverage public-private partnerships to increase private sector support for higher education. For example, currently private scholarships provide about $3.5 billion in student aid per year, but there are no strategic efforts to try to increase the number and amount of scholarships awarded. Congress should amend the tax code to provide a 50% tax credit for donations to tax exempt nondiscriminatory organizations that award at least 90% of donations as college scholarships. This would stimulate a significant increase in private scholarships.

I am splitting this response into several pieces to bypass the length limitation on responses. The first piece will discuss President Obama's proposals for federal student aid (see The Agenda - Education). The second piece will discuss ideas for making college more affordable.

The American Opportunity Tax Credit has been incorporated into the stimulus bills as an increase in the Hope Scholarship tax credit, but at a lower amount and without the community service requirement. The Hope Scholarship amount will increase from the current $1,800 to $2,500, be available for four years instead of two, will have higher income phaseouts and be partially refundable. This is also a temporary change, with the expansion available only during the 2009 and 2010 tax years.

Education tax benefits like the Hope Scholarship, Tuition and Fees Deduction, and Lifetime Learning Tax Credit are not as well targeted at students with financial need as the Pell Grant program. It would be better to repeal all three programs and use the money saved to increase the maximum Pell Grant. But falling short of that, at least the redundancy should be eliminated, replacing all three overlapping programs with a single education tax benefit. The pending legislation enhances the Hope Scholarship but does not simplify the education tax benefits.

Simplifying the FAFSA is not just a matter of replacing the FAFSA with a checkbox on the federal income tax returns, but also a matter of simplifying the need analysis formula. The current form is six pages long, and using tax data eliminates perhaps a page of the form. Moreover, many low income students do not file income tax returns and so would still have to file a FAFSA. Also, using IRS tax data would require basing the FAFSA on two year old income data instead of one year old data. (This is actually a good thing, since it would permit families to apply for financial aid before applying for college admission, allowing them to choose colleges in part based on the out-of-pocket cost. This will allow market forces to help control college prices by introducing competition on cost as an additional consideration. However, it may be met with some resistance by those who believe that one year old data yields greater "accuracy" than two year old data.)

The American Council on Education (ACE) has estimated that more than one million students who would have been eligible for the Pell Grant did not receive it because they did not file the FAFSA. The complexity and length of the form and the intrusive nature of the questions are often cited as key reasons. The complexity of the form is driven in large part by the complexity of the formula. But in order to remove the FAFSA as a barrier to access to higher education, it is not sufficient to cut a few pages out the form. Rather, the form must be simplified enough that it can fit on a postcard and be completed in less than 60 seconds. I've proposed a simplified need analysis formula that would base the Expected Family Contribution (EFC) as 15% of discretionary income, divided by the number of children in college. Discretionary income would be defined as the amount by which income exceeds 150% of the poverty line. This is simple, transparent, and yields EFC figures for most families that are in the same ballpark as the current formula.

The Obama administration has much deeper issues to resolve. I think the stress should be on the right education, not just higher education.

Student loan debt has become a right of passage for students looking to attend private universities on the back of low rate and sometimes higher variable rate loans.

We need to reset our education priorities and encourage trades, arts and other jobs that may not require hallowed halls.