A New America Foundation report published Thursday suggested that higher education institutions replace the current federal financial aid system with a program requiring the federal government, state governments and universities to collectively fund college students’ education.

The “Starting from Scratch: A New Federal and State Partnership in Higher Education” report concluded that the current system, including Federal Pell Grants, federal loans and tuition tax credits, is irreparable, and the only way to fix the financial aid system is through a new plan.

Higher education institutions can take advantage of loopholes in the current financial aid system that compromise the benefit of students, said Iris Palmer, a senior policy analyst with the Education Policy Program at New America and a co-writer of the report.

“[The system] allows institutions to shift their aid structures to recruit high-income students and actually cut down on their institutional aid to poorer students, because they are covered by increasing federal financial aid,” Palmer said. “It is obviously not fulfilling student need.”

Palmer added that most students who are in need of financial assistance do not receive the full amount of money they need because the Free Application for Federal Student Aid form students fill out does not completely represent their needs.

“We still have a huge gap between what the federal government says [it] can afford and what students are actually charged for college,” Palmer said.

New America proposed a new system in which the federal government directly provides funds to the states. Each individual state would be responsible for distributing the funds to institutions that have met certain guidelines, according to the report.

States would only be allowed to participate in the proposed program if they maintained a level of funding per student equal to the average over the past five years, match at least 25 percent of federal funding received and be more active in holding colleges accountable for their performances, the report stated.

For colleges and universities to participate in the new system, they would be required to enroll a substantial share of low-income students and would be held accountable for their overall performances, the report suggested.

The average student debt for Boston University students who graduated last year is $36,000, BU spokesperson Colin Riley said. He added that the amount is manageable because some parents help students pay the loans.

The university recognizes that helping more students receive an education is the most important issue at hand, Riley said. BU has also been working on a better financial aid system since the 1970s, when then-President John Silber proposed a new system.

“We’re always looking for a system that would be fair and ensure that deserving students are able to receive need-based aid,” Riley said. “Silber … proposed an aid system that was funded by the students, and the way that would have worked is … a student could take out loans and repay those loans as part of their annual taxes over their lifetime, [and] it would be a revolving fund. But the federal student aid program has changed dramatically over the past 15 to 20 years.”

Several students said the new financial aid plan would be beneficial if it can allow more students to afford to attend better colleges.

Naomi Carolan, a sophomore in the College of Arts and Sciences, said the plan to abolish the current financial aid program entirely would be too risky because it would suddenly be difficult for many members of the middle class to support their kids through college.

“The discrepancy comes more from a middle-class population,” Riley said. “[The new system] is creating this bipolar divide [in which universities] have lower-income students and very wealthy students who are able to make all of their payments.”

Lianna Frazier, a sophomore in the School of Education, said she would encourage any financial aid program that allows more students to access higher education.

“Sometimes it seems almost too good to be true that everyone would get financial aid in some form,” Frazier said. “But I also know a lot of students who would love to come to a place like BU but just can’t afford [the tuition].”

Shereen Abubakr, a sophomore in the Questrom School of Business, said there are major issues with the current financial aid system.

“Whenever students go through [the current system], they end up getting less money than they actually need,” Abubakr said. “If this new system somehow gets a better representation of what [students] need, then I’m all for it.”

Brooke Morrison, a sophomore in the College of General Studies, said he’d support New America’s plan because financial aid should vary based on each institution.

“For expensive schools like BU, a lot of student [would] not be here without financial aid,” Morrison said. “If financial aid was more productive and gave us more money, then more students, especially from lower income families, could be here.”

A previous version of this story incorrectly attributed a quote to BU spokesperson Colin Riley instead of Naomi Carolan, a sophomore in CAS. This correction is reflected in the story above.