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SUMMARY OF THE ADVISORY COMMITTEE'S HEARING

**WASHINGTON COURT HOTEL, THE ATRIUM BALLROOM**

**WASHINGTON DC**

**SEPTEMBER 19, 2006**

# BACKGROUND

The Advisory Committee on Student Financial Assistance (Advisory
Committee) serves as an independent source of advice and counsel to
Congress and the Secretary of Education on student financial aid policy.
It was established by Congress through the Higher Education Amendments
of 1986 and began operation in 1988. The congressional mandate requires
that the Advisory Committee conduct objective, nonpartisan, and
independent analyses on important aspects of the student assistance
programs under Title IV of the Higher Education Act.

According to its authorizing statute, the purpose of the Advisory
Committee is to provide extensive knowledge and understanding of the
federal, state, and institutional programs of postsecondary student
assistance and to provide technical expertise with regard to systems of
need analysis and application forms. In addition, the Advisory Committee
is required to make recommendations that will result in the maintenance
of access to postsecondary education for low- and moderate-income
students. Throughout its existence, the Advisory Committee has examined
the barriers to access confronting such students and translated research
on access and persistence into policy solutions for enhancing student
assistance programs at the federal, state, and institutional levels.

*The Advisory Committee on Student Financial Assistance (Advisory
Committee) is a Federal advisory committee chartered by Congress,
operating under the Federal Advisory Committee Act (FACA); 5 U.S.C.,
App. 2). The Advisory Committee provides advice to the Secretary of the
U.S. Department of Education on student financial aid policy. The
findings and recommendations of the Advisory Committee do not represent
the views of the Agency, and this document does not represent
information approved or disseminated by the Department of Education.*

## PURPOSE OF THE HEARING

To officially launch three major projects, the Advisory Committee held a
one-day hearing to gather information relative to each task: the new
report on financial barriers to college enrollment, *Mortgaging Our
Future*; a congressionally requested college textbook study; and a
feasibility study for radical simplification of the federal expected
family contribution (EFC). The hearing brought together the higher
education policy, research, aid administration, and publishing
communities in order to obtain feedback from experts in each field, and,
finally, to obtain public comment on the projects overall. Accordingly,
the hearing was divided into four sessions, the first three of which
examined each project in detail, and a fourth that was devoted to public
comment:

-   Session I: *Mortgaging Our Future*

-   Session II: Study of College Textbook Pricing

-   Session III: Simplification of Expected Family Contribution
    Determination

-   Session IV: Public Comment and Discussion

The September 19^th^ hearing marked the public launch of the Advisory
Committee's new report, *Mortgaging Our Future: How Financial Barriers
to College Undercut America's Global Competitiveness*. The report
describes how financial barriers created by rising college prices and
insufficient need-based aid lower bachelor's degree attainment.
*Mortgaging Our Future* follows up the Advisory Committee's two previous
reports on access barriers, *Access Denied* (2001), and *Empty Promises*
(2002).

The Study of College Textbook Costs was requested by Congressman David
Wu (D-OR) and House Committee on Education and the Workforce Chairman
Howard P. "Buck" McKeon (R-CA) in a letter dated May 26, 2006 citing
concerns about the rising cost of college textbooks compounding overall
financial barriers that hinder access to a college degree. A primary
objective of the cost study will be articulating recommendations on ways
to make textbooks more affordable. The final report will be issued to
Congress in May 2007, making recommendations to Congress, the Secretary
of Education, and other stakeholders.

The Feasibility of Federal EFC Simplification Study will explore the
challenging and unresolved questions of radically simplifying the EFC in
terms of both analytical concerns regarding the use of fewer data
elements and practical issues involving benefits and costs. This study
is part of the ongoing three-year Innovative Pathways to Baccalaureate
Degree Attainment Study, which was publicly launched at the Advisory
Committee's April 4, 2006 hearing.

**HEARING PARTICIPANTS**

# [Keynote Speaker]{.underline} 

# 

# *The Honorable David Wu, U.S. House of Representatives, Member, 21^st^ Century Competitiveness Subcommittee, House Committee on Education and the Workforce*

# [Panelists]{.underline}

**Session I: *Mortgaging Our Future***

***Presenters:** Dr. Arnold Mitchem, President, Council for Opportunity
in Education*

*Ms. Sarita Brown, President,* Excelencia *in Education, Inc.*

*Dr. William E. "Brit" Kirwan, Chancellor, University System of
Maryland*

> *Dr. David Warren, President, National Association of Independent
> Colleges and Universities*
>
> *Mr. David S. Baime, Vice President for Government Relations, American
> Association of Community Colleges*
>
> *Dr. A. Dallas Martin, Jr., President, National Association of Student
> Financial Aid Administrators*

# Session II: Study of College Textbook Pricing

***Presenter:** Dr. James V. Koch, Professor of Economics and President
Emeritus, Department of Economics, Old Dominion University*

***Respondents:** Ms. Debra Prescott, Senior Analyst, U.S. Government
Accountability Office*

*Ms. Valerie F. Lewis, Commissioner of Higher Education, Connecticut
Department of Higher Education*

*Ms. Patricia Scott Schroeder, President and Chief Executive Officer,
Association of American Publishers*

*Mr. Richard Hershman, Director of Government Relations, National
Association of College Stores*

*Mr. David Rosenfeld, Campus Program Director, Student Public Interest
Research Group Campus Program*

### Session III: Simplification of Expected Family Contribution Determination

***Presenter:** Dr. Sandy Baum, Professor of Economics, Skidmore College
and Senior Policy Analyst, The College Board*

***Respondents:** Ms. Laurie Wolf, Executive Dean, Student Services, Des
Moines Area Community College*

*Mr. Joe Paul Case, Director of Financial Aid, Amherst College*

*Mr. George Chin, Director of Student Financial Assistance, City
University of New York*

*Dr. Steven E. Brooks, Executive Director, North Carolina State
Education Assistance Authority*

### Session IV: Public Comment and Discussion

***Respondents:** Ms. Melanie Amrhein, President, National Association
of State Student Grant and Aid Programs*

*Mr. Stephen Hochheiser, Director, Academic Reseller Management, Thomson
Learning*

*Ms. Lauren J. Asher, Associate Director, The Institute for College
Access and Success*

*Mr. Mark Kantrowitz, Publisher, FinAid*

*Mr. Travis Reese, State Chair, Minnesota State University Student
Association*

**SUMMARY OF HEARING**

**Session I: *Mortgaging Our Future***

Session one panelists provided response and commentary on the Advisory
Committee's just-issued report, *Mortgaging Our Future: How Financial
Barriers to College Undercut America's Global Competitiveness*, which
estimates the number of bachelor's degrees lost during the 1990s and the
current decade due to financial barriers. The report concludes that
barriers in the form of record high work and loan burden caused by
rising college prices and insufficient need-based grant aid undermine
access and degree completion. Six policy implications are determined, as
follows: one, reinvigorate the access and persistence partnership to
increase need-based aid from all sources; two, restrain increases in the
price of college; three, moderate the trend toward merit-based aid and
reliance on loans; four, reduce financial barriers to transfer; five,
strengthen early intervention programs; and, six, invest in efficient
and productive college remediation.

Dr. Arnold Mitchem, President of the Council for Opportunity in
Education (COE) spoke first, commenting on the report's likely impact on
the federally funded TRIO programs and other early intervention
programs. Dr. Mitchem began by noting that *Mortgaging Our Future*
reinforces the mission of COE in defending the interests of low-income
students, including first generation college students, minorities, and
the disabled by quantifying the problem of low-income student
baccalaureate degree attainment. The two key problems addressed in the
report, inadequate need-based grant aid and other financial barriers,
can trump the good work of early intervention programs such as TRIO,
that play a vital role in the receipt of student aid by low-income
students. For example, students in Talent Search (a component of TRIO)
apply for financial aid at higher rates than their peers: in Florida, 52
percent of Talent Search students apply, as opposed to 33 percent of
their peers; in Indiana, 59 percent apply, as opposed to 45 percent of
their peers; and in Texas, 62 percent apply, as opposed to 35 percent of
their peers. In conclusion, Dr. Mitchem stressed the need for a
multi-party access and persistence partnership with the federal
government leading the charge, as recommended by the Advisory
Committee's report.

Ms. Sarita Brown, President of *Excelencia* in Education, Inc.
(*Excelencia*), then provided comments on the problems Latino students,
in particular, face in overcoming financial barriers to college. The
concerns raised in *Mortgaging Our Future* overlap with and reinforce
the concerns of *Excelencia* regarding Latino students. *Excelencia*
recently partnered with the Institute for Higher Education Policy (IHEP)
to produce the report, *How Latino Students Pay for College*, using data
from the National Postsecondary Aid Survey (NPSAS), which determines how
financial aid is distributed among various racial and ethnic groups.
This joint report found that the majority of Latino students who access
financial aid are first-generation college students; most live with
their parents, enroll part-time, and/or enroll at a two-year
institution; and one-quarter come from homes with incomes below
\$40,000. For these reasons, Latino students, while applying in equal
measure as their peers, are actually receiving less financial aid.
Unequal distribution of financial aid among race and ethnic groups is
not limited to undergraduates; minority students are still
underrepresented in graduate programs and are more dependent on federal
aid in order to enroll. The recommendations in *Mortgaging Our Future*
are particularly praise-worthy because they are actionable. Of
particular importance to minority students are the recommendations to
increase need-based grant aid; to reduce barriers to transfer, which
affect Latinos disproportionately as 60 percent begin at a two-year
institution; and to strengthen early intervention programs.

Dr. William Kirwan, Chancellor of the University System of Maryland,
then discussed the report's findings in the context of his decades of
experience working with low-income students at the state level.
*Mortgaging Our Future* presents graphic evidence of the risk of
creating a permanent underclass, which would provoke a national calamity
in terms of America's global competitiveness. The report's methodology
is impressive, and provides a perfect companion to the international
picture painted in recent data from the Organisation for Economic
Co-operation and Development (OECD). If nothing is done about
educational attainment among low-income students, the U.S. risks
replacing retiring baby boomers with less-qualified workers. To avoid
such a situation, the U.S. must improve K-12 education, invest in higher
education, and invest in more need-based student aid. Over the last
decade, need-based aid has increased by 56 percent, the rate of
inflation, while merit-based aid has increased by 240 percent. The
University System of Maryland recently conducted a study on financial
aid, which determined that the lowest-income students were graduating
with 25 percent more debt than the average student; as a result, the
University's new goal is to shift institutional resources so that
low-income students graduate with 25 percent less debt. In service to
that goal, Maryland Governor Robert Ehrlich has doubled need-based aid
for state institutions, and the Pathways program at the University of
Maryland, College Park campus has guaranteed that participants will
graduate with zero debt, similar to programs at the University of
Virginia, University of North Carolina System, and Harvard University.
In closing, Dr. Kirwan stated that he supported all of the report's
policy recommendations.

Following Dr. Kirwan's presentation, Dr. David Warren, President of the
National Association of Independent Colleges and Universities (NAICU),
spoke on student financial barriers at the national level. *Mortgaging
Our Future* reflects the concerns of a season of reports on issues of
global competitiveness, including those by the National Academies, the
American Association of University Professors, and The College Board.
The Advisory Committee's report, however, can be regarded as a prism
through which to view all of these because it connects financial
barriers to specific groups of students with challenges to
competitiveness. If we cannot remove financial barriers to college for
academically qualified but needy students, then the foundations of this
republic will crumble, global competitiveness efforts will decline, and
the benefits of an educated citizenry will be denied to millions of
students. The partnership of government, institutions, and community
interests that emerged from the establishment of the Higher Education
Act of 1965 (HEA) is now unraveling. Within the last five years, the
maximum Pell Grant has not increased, the philanthropic center has been
flat, and states have experienced a 21 percent reduction in funding for
students. There has been a 61 percent increase in borrowing, and 25
percent of students now use a credit card to pay for college. Not enough
grant aid is available, and tuition is too high. *Mortgaging Our Future*
makes clear that students are failing to attain a baccalaureate degree
due primarily to a lack of capitalization, not a lack of preparation or
information. The HEA partnership needs to be remade in order to solve
these problems.

Providing the perspective of community colleges was Mr. David Baime,
Vice President for Government Relations at the American Association of
Community Colleges (AACC). Community colleges take seriously their role
of preparing students for eventual baccalaureate degree completion
because the latter degree is more economically viable than an
associate's degree. The intention to complete a baccalaureate degree can
change over time, and stated intentions captured by data are not always
accurate. In addition, students who seem to be college-qualified on
paper do not always perform when it comes to handling actual college
coursework, a problem routinely dealt with at community colleges. For
example, 53 percent of community college students receive remediation,
and math is the area of greatest need. Students also benefit more from
remediation if they are working with the core program simultaneously.
Merit aid is a dangerous path, but certain merit programs that provide
incentives to increase completion of credits for transfer can work well.
The AACC is disappointed with the American Competitiveness Grants (ACG),
which are limited to full-time students---62 percent of students at
community colleges enroll part-time---and, in addition, the Department
of Education (ED) is denying grants to certificate students, which the
AACC regards as against statute. As *Mortgaging Our Future* states,
among low-income high school graduates who complete Trigonometry and
aspire to a baccalaureate degree, only 19 percent who start at a
community college actually attain the degree, while 69 percent of those
who begin at a four-year college do so. This problem needs financial
redressing, along with solutions to articulation issues. Too often,
transfer students do not receive the same amount of institutional aid as
their peers enrolled at a four-year institution from the beginning.

The final panelist was Dr. A. Dallas Martin, Jr., President of the
National Association of Student Financial Aid Administrators (NASFAA),
who provided an overall perspective on the importance of student
financial assistance to degree attainment. Dr. Martin began by
commenting that President Bush, in his State of the Union address, noted
that the preservation of global competitiveness is essential to American
interests. The November 2005 Policy Alert issued by the National
Commission on Public Policy and Higher Education raised similar
concerns. If the educational attainment of the workforce declines, that
will negatively affect American competitiveness by decreasing income,
which decreases the nation's tax base. NASFAA concurs with the Advisory
Committee on its central recommendation, that stakeholders must work
together to solve the problem. That partnership must resolve the
inequalities and leakages in the pipeline by addressing the factors
contributing to the large percentage of students not college-qualified.
Additionally, as the net price of college continues to increase,
collective resources must be reprioritized in order to reduce net price
by expanding need-based aid. Over the last decade, academic preparation
and aspirations have increased, yet financial aid has not. In addition
to the problems identified in the report regarding college-qualified
students, there are the problems of those college students who do not
succeed being saddled with significant debt, but no degree; a growing
dependence on credit is problematic. Restoring the student aid
partnership is essential.

The presentations were followed by a discussion among panelists and
Advisory Committee members. Issues discussed included mechanisms to
address problems with the student aid partnership, the role of the
Leveraging Educational Assistance Partnership (LEAP) program, the
dissemination of the findings of *Mortgaging Our Future*, the
capitalization of higher education, the relationship of the business
community to the partnership, and alignment of standards issues.

## SESSION II: Study of College Textbook Pricing

The second hearing session focused on the development of a study plan
for the Advisory Committee's congressionally requested Study of College
Textbook Costs. The session was divided into three parts. First,
Congressman Wu addressed Advisory Committee members, explaining the need
for the textbook study and congressional intent with regard to it.
Second, Dr. James Koch, consultant to the Advisory Committee, presented
his proposed study plan. Third, respondents representing various
stakeholders in the higher education community and textbook publishing
industry commented on Dr. Koch's plan, additional problems, and possible
solutions.

Keynote speaker Congressman David Wu addressed the Advisory Committee
first. Representative Wu began his remarks by recognizing the
significant work accomplished by Chairman McKeon on the U.S. House
Committee on Education and the Workforce. The problem of textbook costs
was brought to Representative Wu's attention when a *New York Times*
article on the subject described complaints similar to those Wu has
received from his constituents, the issue on which his office has
received the most constituent input of any education issue.

The problem presented by rising textbook costs is a classic example of
the "broken market" theory in economics: textbooks are chosen by
professors, the campus bookstore orders them, and students must pay for
them. Publishers have some role in pricing the books; however, students
have no choice in terms of prices beyond the slight differentials
provided through Internet vendors. Given the problem, there are several
possible solutions: one, live with the problem as it is; two, encourage
stakeholders to make voluntary changes; or, three, enact new government
regulations. The last is the most severe; however, if the market doesn't
heal itself, public pressure to do something will be tremendous. All
must work on positive solutions to the problem of textbook costs.

Congressman Wu then articulated some of the most pressing issues for
various stakeholders. The GAO study, *College Textbooks: Enhanced
Offerings Appear to Drive Recent Price Increases*, provides some
critical data. Since 1986, textbook prices have increased 180 percent,
tuition has increased 240 percent, but the general rate of inflation has
only increased by 72 percent. For community college students, the cost
of textbooks and supplies represents 72 percent of tuition and
fees---for some of these students, the cost of textbooks is equal to
tuition and fees. For students at four-year colleges, the cost of
textbooks and supplies represents 26 percent of tuition and fees. To
cope with this mounting problem, students would like course syllabi
earlier in the year in order to research prices. In addition, students
are advocating for better resale value. In terms of the issues
publishers face, the product ages quickly and is distributed to a narrow
market; therefore, many publishers consider the production of textbooks
a public service.

In conclusion, Congressman Wu urged all stakeholders to avoid intrusive
legislative and regulatory actions by finding ways to work better
together. Some initial areas of inquiry might include: faculty offering
syllabi earlier, publishers sending price lists to professors, and
bookstores and publishers examining issues relative to fixing a broken
market. The price of college textbooks should not be a barrier to
access.

Dr. James V. Koch, Professor of Economics and President Emeritus,
Department of Economics, Old Dominion University, presented his findings
on possible strategies for conducting the Study of College Textbook
Costs. First, he defined the unique characteristics of the American
textbook market: one, those who choose textbooks (faculty) are not the
individuals who pay for them (students), which is similar to the
prescription drug market, and both create "price inelastic" systems;
two, most postsecondary institutions have a financial stake in the
profits from textbooks as one-half own campus bookstores and
approximately 35 percent contract with a bookstore chain; and, three,
some rational market strategies by publishers and bookstores---bundling,
international price differentials, and frequent new editions---will
persist unless institutional and student behavior changes. Dr. Koch then
provided a series of policy options, including the provision of
incentives to institutions to publish lists on the Internet with ISBN
numbers and direct links to other sellers; requiring textbook package
unbundling to enable purchase of needed items only; and the adoption of
textbook rental systems. In addition, institutions might require faculty
to understand textbook prices and use the same edition of a textbook for
longer periods of time. Students might also benefit from nonprofit
bookstores, such as those at Montana, Oregon, Texas, UCLA, and
Wisconsin, Madison. Institutions might also be encouraged to negotiate
lower prices directly with publishers, and consider supplying textbooks
as part of tuition and fees. Finally, Congress could reverse bans on the
re-importation of textbooks.

Dr. Koch outlined four possible next steps for the Advisory Committee.
First, the Committee should sponsor a series of regional hearings to
corroborate findings, gather input, and distribute information. Second,
a set of pilot projects could be sponsored that would provide financial
incentives to participating institutions. Data from these controlled
tests could provide solid information about the benefits and costs of
these approaches. Third, the Advisory Committee might suggest that
Congress request the Justice Department and the Federal Trade Commission
(FTC) to investigate the legal and economic issues of re-importation
bans. Fourth, the Committee could explore the cost/benefit issues of
tying institutional eligibility for federal aid to the adoption of
market innovations discussed in the report. Many problems will disappear
without legislative or regulatory intervention if institutions and
students have improved knowledge about their options, the best solution.

Ms. Debra Prescott, Senior Analyst for the GAO, then discussed Dr.
Koch's findings relative to the GAO report, *College Textbooks: Enhanced
Offerings Appear to Drive Recent Price Increases*. Ms. Prescott noted
that the most important strategy is to promote general student awareness
of issues relative to textbook pricing. But before undertaking regional
hearings, the Advisory Committee should undertake a more systematic
study. It is unclear whether wide-spread savings on textbook prices can
be achieved. For instance, the GAO found that the supply of used books
was limited; thus, supply and demand forces would be mitigated relative
to resale value. In terms of offering items à la carte, since different
economic rationales are developed for providing different sorts of
bundles, including the provision of free or bonus materials, à la carte
items might cost more if purchased separately. In addition, rental
systems can be costly. The economics of the textbook market are
complicated, and altering them can produce unintended price
consequences. The Advisory Committee needs to know more about intended
winners or losers before moving forward, and undertake a more systematic
study prior to taking action.

Ms. Valerie Lewis, Commissioner of Higher Education for the Connecticut
Department of Higher Education, provided information on the State of
Connecticut's 2005 study of textbook costs and the solutions implemented
by the state. Prompted by students, Connecticut examined what could be
done to reduce costs by each of the major stakeholders: states,
institutions, bookstores, and publishers. States can increase aid for
unmet need, create course materials need-based grants, and ensure that
aid is awarded earlier to give students time to comparison shop. States
might also include textbook costs in total educational costs, allow
costs to be included in pre-tax savings plans, and eliminate sales taxes
on textbooks. Institutions can investigate textbook pricing on campus,
ensure that faculty are aware of textbook prices, make course book lists
available in advance, encourage use of the same textbook for multiple
years and multiple courses, and discourage the automatic ordering of
bundled material. In addition, institutions can implement bookstore
buy-back programs, ensure that libraries maintain reserve copies, allow
students to receive financial aid credits at bookstores, and urge
bookstores to be more responsive to student concerns. Bookstores can
work with faculty and publishers on course adoption timelines,
economically sound bundles, and timely retail price disclosure. In
addition, bookstores can disclose ISBNs, provide used textbooks, and
price textbooks by credit hour. Publishers can work more closely with
faculty to provide retail prices, describe changes between editions,
provide realistic publication dates and lead time for edition changes,
and provide information on lower cost textbooks. Publishers can also
offer bundled components individually and disclose price differences, as
well as end the practice of default or automatic bundling. More
customization is also possible, including digital and other custom
texts. The result in Connecticut has been that postsecondary
institutions are very engaged in examining these issues, financial aid
credit for book purchase is available, and the state has continued
elimination of sales tax on textbooks, and has implemented a disclosure
law that requires publishers to provide faculty with textbook prices and
revision histories.

Ms. Patricia Scott Schroeder, President and Chief Executive Officer of
the Association of American Publishers (AAP), responded to Dr. Koch's
report on behalf of textbook publishers. Ms. Schroeder stated that Dr.
Koch's report contains some valuable points and includes stakeholders
that have been overlooked in past discussions. The decline in state
subsidies for institutions, combined with increasing numbers of entering
students unprepared for college work have created a number of strains on
the educational system, some of which publishers have been instrumental
in addressing. While institutions attempt to hold down costs, publishers
have been making a greater investment in learning tools, class
management systems, and faculty services to ensure quality education.
The AAP has four specific concerns regarding Dr. Koch's report. One, the
average cost figure used, \$900 to \$1,000, is faulty and should be
removed. The average cost of textbooks to students is \$650, which
excludes supplies and computers and takes resale value into account.
Two, studies show that technology-based learning tools provided by
publishers substantially increase course passing rates. Three, the
Advisory Committee should not encourage the Justice Department and FTC
to examine re-importation policies as that would call into question
international pricing agreements in other industries. Four, the Advisory
Committee should hold regional hearings only after developing its
recommendations, as to do so earlier would provoke finger-pointing
instead of positive solutions. Potential solutions to lowering textbook
costs include eliminating sales tax, using custom textbooks, and
developing electronic books (e-books). E-books reduce acquisition,
warehousing, inventory, and redistribution costs, as well as costs
associated with updating and customizing textbooks.

Mr. Richard Hershman, Director of Government Relations for the National
Association of College Stores (NACS), spoke regarding the role of
college stores in providing and pricing college textbooks. Mr. Hershman
began by describing the various ways in which college bookstores work
with students and faculty to reduce costs, including stocking used
books, encouraging faculty to factor cost into ordering decisions,
facilitating communication between stakeholders, and providing budgeting
materials to students. While Dr. Koch's report presents valid issues,
NACS believes that it represents an incomplete and inaccurate picture of
the economics of the textbook industry, a lack of understanding of the
mission and structure of bookstores, and a faulty understanding of the
various factors that impact materials costs. Faculty were not included
in the GAO study; therefore, the Advisory Committee should analyze their
role in textbook pricing. Mr. Hershman discouraged the Advisory
Committee from holding regional hearings while the study is underway for
reasons similar to those of Ms. Schroeder. NACS would like the Advisory
Committee to conduct research in the following three areas: one, the
understanding of average student course material costs and the
collection and reporting of that data; two, the costs associated with
supplemental materials, which were cited by the GAO as the primary
reason for overall price increases; and, three, the methods by which
students pay for course materials and to what extent those represent
access barriers. Regarding the last point, the use of credit cards to
purchase supplies increases overall prices because credit card companies
charge a 1.9 percent interchange fee.

Luke Swarthout, Higher Education Advocate for U.S. Public Interest
Research Group (PIRG) delivered the testimony of Mr. David Rosenfeld,
Campus Program Director for the Student PIRG Campus Program, who was
unable to attend the meeting. The Student PIRGs generally agree with the
solution-based, market-based orientation of Dr. Koch's report, with two
notable exceptions: one, publishers have a long-standing practice of not
revealing price or lower cost options to faculty unless asked; and, two,
faculty, not bookstores, exercise control over textbook purchasing,
including the ability to order materials bundled or unbundled. The
Student PIRGs support developing pilot programs, such as rental
programs, both limited- and full-scale; the broader dissemination of
Creative Commons textbooks; the promotion of other used book forums,
such as links to alternative vendors and online book exchanges; the
development of purchasing guidelines for faculty; and the adoption of
policies similar to the disclosure law recently enacted in Connecticut.
In terms of state and federal actions, legislation should not be taken
completely off the table; for example, Connecticut's disclosure law is
an appropriate one. In addition, the Advisory Committee should consider
whether the FTC and the Justice Department should investigate the ban on
the re-importation of foreign textbooks. In conclusion, the Student
PIRGs support regional hearings as an important way to bring students
and faculty to the table.

Congressional staff present then provided their response to the Study of
College Textbook Costs plan.

Mr. Brad Thomas, Professional Staff Member of the House Committee on
Education and the Workforce, present on behalf of U.S. House of
Representatives Committee on Education and the Workforce Chairman Howard
P. "Buck" McKeon, stated that the proper role of Congress at this
juncture is to listen to feedback from students and the Advisory
Committee. Chairman McKeon is concerned about the increasing costs of
college, including textbooks.

Mr. Brian Branton, Legislative Director for Representative David Wu,
said that the impetus for the examination of textbook costs was reaction
to a hearing from constituents on the issue and a newspaper article, and
this prompted Representative Wu to seek greater awareness regarding the
complexity of this issue and the number of stakeholders it affects.
Because of the issue's complexity, it is important that the Advisory
Committee explore the topic.

Ms. Beth Osborne, Legislative Assistant to Representative Jay Inslee,
commented that Representative Inslee appreciates the diligence of the
students who brought this to his attention. Because his sons are in
college, this issue is particularly compelling. Microsoft is located in
his district (Washington's 1^st^ district) and contributes a great deal
to educational innovation.

The session concluded with a question and answer period for Advisory
Committee members and panelists. Issues discussed included the viability
of proposed solutions, the need for additional analysis and information,
and the economic problems involved.

## SESSION III: Simplification of Expected Family Contribution (EFC) Determination

Session three panelists provided response and commentary on the design
of the Feasibility of Federal EFC Simplification, a study to determine
the extent to which the EFC formula can be radically simplified with
minimal adverse effects on program integrity, delivery, and costs. The
session was divided into two parts. First, Dr. Sandy Baum, Professor of
Economics at Skidmore College and Senior Analyst for The College Board,
presented her draft study design. Second, panelists representing
postsecondary financial aid offices and programs provided commentary and
suggestions on the design.

Dr. Baum began her presentation by noting that the focus of the study
would be on the student receiving aid and not on the complexity of the
issue itself. Under that lens, the Advisory Committee will examine the
number of data elements on the FAFSA and each element's contribution to
the determination of EFC, as well as the effect on student access to
financial aid, the feasibility of delivering timely information, and the
costs and benefits of alternative approaches. EFC simplification matters
because current complexity makes early information unavailable; for
example, with a less complex formula, a table might be created that
gives a rough idea of potential aid available. Complexity discourages
students from applying for financial aid and does not necessarily yield
more accurate data.

The primary risks of simplification are an increase in the number of
additional forms required by states and institutions, as well as
potentially unfair redistribution of aid; therefore, the questions that
frame the study are carefully considered. Concerns include the potential
redistribution curve of federal aid; whether EFC must be used for all
federal aid programs or just Pell; the number and types of family
structures and financial circumstances; the number of data elements
necessary, including any alternative elements; and whether data must be
more recent than currently in use.

The EFC study approach will be to review previous analyses, identify and
evaluate alternative models, and report to Congress and the Secretary of
Education. The data to be examined are actual FAFSA data from the
Department of Education, including a stratified random sample of 500,000
2003-04 FAFSA filers with detailed information on financial status,
dependency, age, type of institution, enrollment status, EFC, and Pell
award. The study methodology will examine the available characteristics
of students in order to analyze potential redistribution, examine
eligibility variations under the current methodology, and compare
eligibility determined with fewer data elements. The study will also
consider the feasibility of using IRS data.

Measurement of benefits will take the following into account: ease of
use for students, nature of potential beneficiaries, validity and
reliability of data, access issues, and comparison of the potential
system not just to the paper form, but to the online system replacing
it. Costs would be assessed by examining who might lose aid eligibility,
the validity and reliability of the resulting data, potential increase
in program costs, and acceptability of outcomes to the financial aid
community. Additional issues to consider include implications for states
and institutions, the impact on the number of aid applicants, the
possibility of revenue neutrality, vertical and horizontal equity, and
the possibility of constructing a look-up table. The final report will
identify feasible and desirable alternatives to the current EFC formula,
implementation issues, and an outline of the legislative and regulatory
issues.

Ms. Laurie Wolf, Executive Dean for Student Services at Des Moines Area
Community College, provided the perspective of a two-year institution on
the proposed study design. The EFC formula is due to be re-examined as
eight-track tapes were the current technology when it was designed. At
that time, most students were traditional students, now 75 percent of
students are nontraditional. The 1992 HEA amendments introduced the idea
of data exchanges between ED and other agencies, but that has not yet
occurred. If a data match with the IRS were implemented, 34 questions or
two pages could be eliminated from the FAFSA; verification requires the
revelation of sensitive personal data and slows down the EFC process. In
addition, any simplification study must take into account the needs of
students who file no tax forms because they owe no taxes, but there are
at least 11 other data bases that could be matched against the process,
including the Department of Homeland Security, the Food Stamp program,
the Immigration and Naturalization Service, the Social Security
Administration, and the Selective Service. Ms. Wolf noted that 37
percent of entering fall students at Des Moines do not apply for
financial aid until August 1 or after, only two to three weeks before
the start of classes. It takes six to eight weeks to process financial
aid applications, but the majority of students expect electronic filing
to result in 24-to-48-hour notification. In conclusion, Ms. Wolf
recommended revising the EFC formula, putting more funds into financial
aid programs, and streamlining aid administration through the use of
partners.

Mr. George Chin, Director of Student Financial Assistance at the City
University of New York (CUNY), responded from the point of view of a
public four-year institution. The study is a timely one, and the main
question should be to determine who would benefit most from
simplification, which has had little impact on the poor. EFC
simplification should, therefore, reach for equity, not equality. In
that regard, IRS data may or may not be useful as the tax code is now
skewed toward sheltering income; thus, the actual income of families is
not always clear. The Advisory Committee should also consider whether it
is simplifying the form or the formula; in the current formula, aid
administrators now leave out home equity and retirement assets. The
Committee may want to consider the impact of funding a negative EFC for
the poorest Pell Grant recipients, because, if there's going to be
error, there should be error on the side of the poor.

Mr. Joe Paul Case, Director of Financial Aid at Amherst College,
commented from the perspective of independent institutions. Mr. Case
stated that the Feasibility of Federal EFC Simplification Study should
be pursued and based his response on his own 1991 proposal to simplify
EFC. The target of federal financial aid should be those students with
the greatest need, such as those who qualify for Pell Grants. Radical
simplification of EFC could focus on the informational needs of the
federal government in determining eligibility for a Pell Grant. Other
stakeholders, such as institutions, state agencies, and private
organizations, could use this stripped-down form as their sole method of
determining aid eligibility, or could require additional data and forms
for distributing their own funds, with the provision that combined
resources not exceed the cost of attendance. While this would decouple
federal need analysis from what states and institutions do, the current
need analysis formula often does not provide data especially tailored to
individual institutions. In the case of institutions like Amherst with
substantial resources delivered across a broader range of incomes,
administrators need to make more accurate assessments of ability to pay.
The FAFSA has developed its length and number of questions as middle-
and high-income families have attempted to lower their taxable income in
order to appear poorer; if the formula is refocused on low-income
students, there may not be a need for the federal government to ask as
many additional questions. Any proposed simplification would need to
have adequate definitions, such as the difference between an independent
and a dependent student, or the determination of parental status. In
addition, simplification of EFC must take into account any possibility
of redistribution effects.

Dr. Steven E. Brooks, Executive Director of the North Carolina State
Education Assistance Authority, was unable to attend the hearing.

A discussion period for panelists and Advisory Committee members
followed the panelist presentations. Issues considered included
continued use of a single form, the need to further analyze student
data, concerns about possible redistribution effects, and the effect of
the tax code on EFC calculations.

## SESSION IV: Public Comment and Discussion

Session four panelists presented the views of various members of the
higher education community on issues discussed during the hearing. The
purpose of this final session is to gather additional comments and
feedback from interested parties. An open call for comments is issued by
Advisory Committee staff prior to the hearing; those who sign up in
advance are allotted five minutes to present their remarks.

Ms. Melanie Amrhein, President of the National Association of State
Student Grant and Aid Programs (NASSGAP), commented on *Mortgaging Our
Future* and the EFC feasibility study. States are willing partners in
obtaining grant aid for needy students, and the establishment of
partnerships is part of NASSGAP's platform. NASSGAP supports additional
funding for LEAP, as the Advisory Committee recommends, and also
supports its Grants for Access and Persistence (GAP) proposal. In terms
of EFC simplification, any changes have the potential to redistribute
aid away from the neediest students, and if the FAFSA is streamlined to
the extent that too many state-specific questions are eliminated, states
might require additional forms.

Mr. Mark Kantrowitz, Publisher of FinAid, provided a response on the EFC
feasibility study. A perfect assessment of ability to pay is not
possible because such figures are based on prior year income. However,
the quick EFC calculator on FinAid's website can be used to calculate
likely EFC with more timely data. The Gates Millennium Foundation uses
the calculator to determine family income. Mr. Kantrowitz agreed that
the EFC formula and the FAFSA could be simplified and noted possible
areas, including elimination of data with minimal impact, elimination of
asset figures, elimination of worksheets, and consideration of prior
year tax data.

Ms. Lauren J. Asher, Associate Director of The Institute for College
Access and Success (TICAS), offered feedback on the EFC feasibility
study. Of special importance is considering which groups of students are
being helped or hurt by potential redistribution. The use of IRS data in
EFC calculation brings up the issue of shifting the system to the IRS
form from the FAFSA. IRS data is said to be difficult to obtain, but
loan programs and state agencies have been accessing it through IRS form
4506T. In terms of form simplification, the online FAFSA is actually
longer than the paper FAFSA because of the worksheet.

Mr. Travis Reese, State Chair of the Minnesota State University Student
Association (MSUSA), commented on the textbook study. He asked the
Advisory Committee to consider the role students would play in the study
and regional hearings. Some primary student concerns are bundling
practices and subsequent unused materials, and the role faculty play in
ordering supplemental material from publishers.

Mr. Stephen Hochheiser, Director, Academic Reseller Management, of
Thomson Learning, provided a response on the textbook study. Publishers
have been meeting the need for remedial support for some time by
producing supplemental materials. Custom textbooks have become a
solution to students' primary complaint that some materials go unused;
custom products are now one of the largest growth areas in academic
publishing.