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This white paper analyzes the potential effects of requiring income-driven repayment for all federal loans as well as relying on paycheck withholding for loan payments, with particular attention to the implications for low-income students and families. The Institute for College Access & Success (TICAS) also examines the relevance and evolution of mandatory IDR ["income-driven repayment"] systems in Australia and the United Kingdom, and the paper includes specific recommendations to streamline and improve student loan repayment options in the United States. Two appendices are included: (1) Citation List of Figure 2: "Key Comparisons of IDR Systems and Context: U.S., U.K., and Australia"; and (2) Borrower Example Details.

There is widespread agreement that the complexity of the current Free Application for Federal Student Aid (FAFSA) is a barrier to college access and success. One indication is the large and growing number of lower income college students who do not apply for aid, even though they are likely eligible for a Pell grant: an estimated 1.5 million in 2004 alone. Unfortunately, simplification of this long, complex, and intimidating form has been difficult to achieve. Most proposals focus on changing the formula for calculating aid eligibility, usually by using fewer pieces of information to determine what a student's family can contribute towards college costs. That approach can change who qualifies for aid and how much aid they receive, creating concerns about equity and cost that tend to stall such simplification efforts. This report recommends a different approach, which will make it significantly easier for students and families to apply for aid regardless of the underlying formula. Many of the most difficult and important questions on the current FAFSA could be automatically answered by the IRS and eliminated from the form that applicants have to fill out themselves. The IRS (Internal Revenue Service) already provides full transcripts of tax data to third parties at any taxpayer's request, and recently began offering transcripts in electronic form. Instead of digging through piles of papers, doing calculations with various lines of data, and transferring numbers by hand from a tax form to a worksheet to an application, students and parents could give the Department of Education direct access to needed income information. In some cases, the available records would be one year earlier than is currently used in the financial aid process. Using the most recent tax data available to answer most of the income-related questions on the FAFSA would improve the financial aid process in several important ways. Going to the source would: (1) Simplify the application process for students and their families; (2) Improve college access and success; (3) Reduce errors; (4) Cut colleges' paperwork burden; and (5) Protect data privacy. Appendices include: (1) Examples of Using IRS Data, including: (a) Application for the San Francisco Working Families Credit; (b) Direct Loan Program Tax Disclosure Form; (c) Small Business Administration Branded IRS Transcript Request Form; and (d) Example of a Commercial Income Verification Service Using IRS Transcripts; (2) IRS Form 4506-T: Request for Transcript of Tax Return; (3) "Opinion on Legal Requirements for Disclosure of Tax Transcript Data from the IRS to the Department of Education at the Taxpayer's Request," Holland + Knight LLP; and (4) 2007-08 FAFSA on the Web Worksheet. (Contains 28 endnotes.) [This report was written with contributions from Robert Shireman and Deborah Frankle. Additional funding was provided by the Rosalinde and Arthur Gilbert Foundation and the BayTree Fund.]