Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter.
Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.
OCR for page 35
Overview of Student
Financial Aid Programs
TYPES AND SOURCES OF STUDENT AID
Student financial aid may be described by a number of different terms
and categories. A useful method of presentation is to characterize three
types of aid and the four sources from which each type might come.)
The three types of aid are:
· gift aid grants and scholarships, which need not be repaid;
· employment- part-time jobs, which enable the student to earn part
of his or her educational expenses; and
· loans funds that have to be repaid, almost always with interest, but
usually not until the borrower is no longer attending school.
Student aid programs originate from one of four sources:
· postsecondary institutions
· state government
· federal government
· private foundations or organizations outside the school
Figure 3-1 shows the amount of financial aid awarded from these sources
for academic year 1991-92.
~ This section is adapted from FACTS - Financial Aid Concepts for Training Staff, National
Association of Student Financial Aid Administrators (1990).
35
OCR for page 36
36
Institutional and
Other Grants ($5,991 )
1 As/
State Grants ($1,9`
Veterans Benefits ($908)
3%
Other Federal
Programs ($955)
3%
QUALITY IN STUDENT FINANCIAL AID PROGRAMS
Pen Grants ($5,242)
Guaranteed Student Loans - federal ($13,716)
45%
Federal Campus-Based
Programs ($2,030)
7%
FIGURE 3-1 Estimated student aid by source, academic year 1991-92 (current
dollars in millions). SOURCE: The College Board (1992~. Reprinted by permis-
s~on.
Institutional Programs
Most postsecondary institutions have their own scholarship and grant
programs to assist students. Such institutional programs, however, are much
more prevalent at private institutions than at public ones. Scholarship pro-
grams typically have specific academic or talent requirements that must be
met by the recipients; grant programs are usually based on demonstrated
need. In addition, many schools use their own financial resources to admin-
ister part-time employment programs, as well as short- and long-term loan
programs. Since federal money is not involved in these programs, institu-
tions are free to establish eligibility criteria without regard to federal regu-
lations. For administrative ease, however, some institutions choose to fol-
low federal rules in awarding their own funds.
State Aid Programs
Many of the grant programs administered by states were initiated or
encouraged under the federal State Student Incentive Grant Program, which
provides matching funds for state financial aid programs. Some states have
relatively limited amounts and types of student financial aid, whereas others
provide substantial funds through a full range of grants, loans, and employ-
ment.
OCR for page 37
OVERVIEW OF STUDENT FINANCIAL AID PROGRAMS
37
The terms and conditions of state aid programs vary widely by state.
For example, there are differences in whether private institutions are eli-
gible for state aid. Also, some states restrict eligibility to state residents
attending postsecondary institutions within the state. Others have reciproc-
ity agreements with other (usually neighboring) states whereby residents
from each state included in the agreement may use aid funds from their
home state at institutions within the other states included in the agreement.
In addition to funding student aid programs, states also subsidize tuitions in
that they are by far the largest source of funds to support the operating and
capital budgets of public colleges and universities.
Federal Title IV Programs
Federally funded student financial aid is made available largely through
Title IV of the Higher Education Act. Title IV programs comprise Federal
Pell Grants, Federal Campus-Based Programs, and Federal Family Educa-
tion Loan Programs.2
Federal Pell Grant Program
Pell grants provide aid to undergraduates, which does not have to be
repaid. A Pell grant is the underpinning of the federal financial aid pro-
gram, and it is designed to help the neediest students. For this program,
need is measured by a statutory methodology, which is based on a calcula-
tion of the expected family contribution to the student's education. (This
methodology was called the Pell Grant Index prior to reauthorization.) Funded
by Congress, Pell grants are not dependent on the availability of funds at a
particular school, and qualified students who receive Pell grants may use
the money for study in any approved program at any eligible postsecondary
institution in the United States.
Federal Campus-Based Programs
These programs include the Federal Work-Study, Federal Supplemental
Educational Opportunity Grant, and Federal Perkins Loan programs. Schools
must apply annually for funding and are then responsible for awarding the
monies to eligible students, based on need. For this reason, if a student
receives outside funding (such as private scholarships), his or her award of
2Prior to the 1992 reauthorization, these programs were called the Pell Grant program,
Campus-Based Programs. and Guaranteed Student Loans. The reauthorization was passed late
in the deliberations of the panel. Discussion of the impact of the reauthorization on the quality
improvement areas considered by the panel is in Chapter 9.
OCR for page 38
38
QUALITY IN STUDENT FINANCIAL AID PROGRAMS
Federal Campus-Based program funds (and loans described in the next sec-
tion) is subject to change if the sum of all sources of aid exceeds calculated
need. The change may occur even after the student has begun attending the
school, because total aid cannot exceed the cost of attendance minus the
expected family contribution, described later in this chapter.
Federal Work-Study Programs This type of aid provides jobs for stu-
dents, paid for jointly by the federal government (which pays the major
portion of the student worker's wages) and the school or other employer.
Undergraduate and graduate students are eligible for this assistance. Schools
must pay undergraduates on an hourly basis, but they may pay graduate
students based on hours or salary.
Federal Work-Study employees must be paid at least minimum wage, as
determined by the Fair Labor Standards Act, but the actual wage rate will
vary. Some schools pay only the minimum wage for all Federal Work-
Study jobs; others vary the rate according to the job. The jobs may be
located on or off campus; the employer is often the school itself, a nonprofit
community agency, or a for-profit organization. While many schools try to
relate all jobs to the student's academic major, only jobs in the private, for-
profit sector are required to be academically relevant.
Federal Supplemental Educational Opportunity Grants These grants
are a need-based gift available only to undergraduates who have not yet
earned a baccalaureate or first professional degree. Pell grant recipients
must be given priority for these funds, which tend to be the smallest source
of student aid funds at an institution.
Federal Perkins Loans This program is available to undergraduate
and graduate or professional students; priority is given to those who demon-
strate exceptional financial need. Basic student eligibility for this program
is determined by federal law, but each school participating in the program
may distribute funds to those eligible as it sees fit. Because a school's
definition of exceptional need will relate to its mission and goals as well as
the unique characteristics of its student population, a student may meet one
school's definition of exceptional need, but not that of another school.
Federal Family Education Loans
The Federal Family Education Loan Program, formerly Guaranteed Student
Loans, encompasses three programs: Stafford loans, Supplemental Loans
for Students, and Parent Loans for Undergraduate Students. These loans
provide the largest amount of student aid funds administered by the federal
government and are classified as guaranteed because the lender is assured
of payment (by the federal government) should the borrower default, die, or
declare bankruptcy.
OCR for page 39
OVERVIEW OF STUDENT FINANCIAL AID PROGRAMS
39
Stafford Loans These loans provide more dollars of student aid than
any other single source. Banks or savings and loan associations lend money
to students, and a state or national guaranty agency insures the loans, which
are offered at a below-market rate. While a student is in school, the federal
government subsidizes the interest on the loan, paying the student's share of
the interest to the lender plus an additional percentage, which brings the
total interest paid up to market rates. Once out of school, the student
becomes responsible for repayment of the loan amount as well as interest
that has started to accrue.
Recent changes in the Higher Education Act added an unsubsidized
component to the Stafford Loan Program, for which financial need is not a
criterion. The loans are limited to Stafford limits and cannot exceed the
cost of attendance minus other aid. All Stafford eligibility criteria, except
financial need, apply. However, for this part of the student's Stafford bor-
rowing, there is no interest subsidy, and repayment of principal and interest
begin while the student is in school unless capitalized to be paid later.
Supplemental Loans for Students These loans are primarily available
to graduate and professional students and to undergraduate students who are
independent of their parents. The amount that a student may borrow is
limited to the smaller of (1) the difference between the cost of attending the
school and any other aid that the student is to receive, and (2) limits set by
legislation. These loans come from lending institutions and banks, and they
are insured by guaranty agencies in the event that the loan is not repaid due
to default, death, or permanent disability. There are, however, no interest
subsidies in this program, and repayment of principal and interest begins 60
days after the loan is disbursed, unless the borrower capitalizes interest for
later repayment.
Parent Loans for Undergraduate Students This program is similar to
the supplemental loan program above, but it is designed for parents rather
than students. The loan can be used to substitute for part or all of the
family contribution. The amount that may be borrowed is limited only to
the difference between the cost of attendance and the other financial aid the
student is expected to receive.
Brief Background on the Programs
These "generally available" types of student aid programs (excluding
student aid for veterans and Social Security recipients) are administered by
the Department of Education. Because the Federal Campus-Based Pro-
grams have not grown much in real terms since their inception in the mid-
1960s, the Federal Family Education Loans and the Federal Pelt grant pro-
gram have gradually become the main sources of federal student aid. Since
OCR for page 40
40
QUALITY IN STUDENT FINANCIAL AID PROGRAMS
1985, the Pell program has grown by 12 percent and Family Education
Loans by 20 percent in real terms, leading to the latter becoming the major
federal higher education financing mechanism (McPherson and Schapiro,
1991:27).
One factor related to the change in major financing mechanisms is that,
except for Federal Family Education Loans, these programs are not entitle-
ments (uncapped funds). Under an entitlement program, if a student meets
requirements and wants support, it will be provided. Under a nonentitlement
program, however, a student may meet eligibility criteria but may not re-
ceive the amount of funds he or she is "entitled" to because of the amount
allocated to the program and the number of students applying.
Federal Family Education Loans are funded so that all who apply and
are eligible may receive the full amount of aid allowed by law. Maximum
awards for other programs may be less than the law allows, as has usually
been the case with Pell grants. Also, in the Federal Campus-Based Pro-
grams, students who apply early have the best chance of receiving funds
before the monies allocated are exhausted.
In instances in which students with similar characteristics apply for aid,
the amount of the Pell grant awarded will be the same. With Campus-Based
funds, students with similar characteristics may be awarded different amounts,
as decided by the institution.
FEDERAL STUDENT FINANCIAL AID RECIPIENTS
Initially, the federal student aid programs were designed solely to pro-
vide funds for postsecondary education to students who could not otherwise
attend because of their parents' financial circumstances. Over the years,
programs and funding were expanded to broaden the goal to include choice
among the institutions offering the student's intended course of study. Thus,
students can select an institution based on the quality of the program of-
fered rather than their family's financial circumstances. In addition, stu-
dents should be provided reasonable assurance that if they reapply each
year in a timely manner and continue to meet program eligibility require-
ments, they will be provided the funds they need to complete their program
of study.
The targeting of federal student aid programs, across students and insti-
tutions, has varied considerably. When the programs were begun, most aid
recipients were full-time students in traditional colleges and universities
who were financially dependent on their parents. In recent years, however,
there has been rapidly increasing use by financially independent students,
many of them adults, who now make up the majority of applicants (Figure
3-21. In the 1988-89 academic year, for example, there were 3.4 million
independent and 3.1 million dependent recipients of federal student aid.
OCR for page 41
OVERVIEW OF STUDENT FINANCIAL AID PROGRAMS
3,600,000
3,400,000
en
3,200,000
Q
3,000,000
a)
E
7
2,800,000
2,600,000
2,400,00
41
,//
,,,"
if
o7
/
it Independent
-
Dependent
1 1 1 1 1
1984-85 1985-86 1986-87 1987-88 1988-89 1989-90
FIGURE 3-2 Applicants by dependency status. SOURCE: National Computer
Systems (1988-89, 1989-901.
The applicant changes are also linked to changes in financial aid pat-
terns among various types of institutions. Currently, students at proprietary
vocational and technical institutions, most of which offer nondegree pro-
grams of less than two years and which enroll fewer than 7 percent of
undergraduate students, receive more than a quarter of all Pell grant funds.
That figure is up from only 11 percent in 1979-80 (McPherson and Schapiro,
1991:281. For a similar time period, the percentage of Stafford loans going
to proprietary schools increased fivefold, to about 30 percent (U.S. Depart-
ment of Education, l990b:19~.
ELIGIBILITY
In student financial aid programs, eligibility has a number of meanings,
depending on who or what is being considered. The most common use of
the word concerns student eligibility. Even if an individual meets the stu-
dent eligibility criteria, however, he or she must be enrolled in an eligible
program of study at an eligible institution in order to receive federal student
OCR for page 42
42
QUALITY IN STUDENT FINANCIAL AID PROGRAMS
financial aid. An institution's eligibility is certified by the Department of
Education. But the fact that an institution is eligible does not mean that all
of its academic programs are eligible. When the Department of Education
confirms an institution's eligibility, it also specifies which programs of the
institution are eligible. The institution's president or chief executive and
the Department of Education then sign a Program Participation Agreement,
which specifies the financial aid programs in which the institution may
participate.
Enrollment in an eligible program does not in and of itself mean that a
student may receive federal student aid. To receive student financial aid
administered by the Department of Education, a student must meet all of the
following criteria:
· be a U.S. citizen or eligible noncitizen
· be enrolled or accepted for enrollment on at least a half-time basis3
at an eligible institution in an eligible program of study
· if required, register with the Selective Service and file a statement
indicating Selective Service registration status
· file a Statement of Educational Purpose stating that all funds re-
ceived will be used solely for educational purposes
· maintain satisfactory academic progress in the program
· not be simultaneously enrolled in elementary or secondary school
· not have had federal benefits suspended or terminated as a result of a
conviction for a drug offense
· not be in default on a previous federal educational loan or owe a
repayment on a previous federal educational grant
· not have borrowed in excess of federal loan limits
Some federal aid programs have additional eligibility criteria that are spe-
cific to the particular program.
THE AID FORMULA
The awarding of Title IV aid, prior to the 1992 reauthorization of the
Higher Education Act, has been based on two formulas, one for Pell grant
awards (the Pell Grant Index), which go to lower income students, and one
(the Congressional Methodology) for other programs. With reauthorization,
only one formula, the Congressional Methodology, will be used. Basically,
using this formula, family resources available for educational costs are de-
termined, and student need is then calculated by subtracting the amount the
3 Recent changes in the Higher Education Act will permit undergraduate students to receive
Pell grants if eligible and attending less than half-time beginning in academic year 1993-94.
OCR for page 43
OVERVIEW OF STUDENT FINANCIAL AID PROGRAMS
43
student and family are expected to pay from the student's cost of attending
school.
Cost of attendance is an estimate of how much money the student will
need to cover tuition and fees, room and board, and miscellaneous ex-
penses, such as books, supplies, and transportation to and from home. Key
student choices must be made before financial aid administrators can deter-
mine the cost of attendance, including what institution to attend, whether to
live on campus or off, and for students living off campus, whether to live
with parents.
The expected family contribution, based on the family's ability to pay,
is driven by the premise that the student and parents have primary responsi-
bility for paying for the education. The family contribution is determined
by making allowances for family size and the number of family members in
college, in addition to considering the amount of federal, state, and local
taxes paid. A student's dependency status is also considered to determine
whether the family contribution should consist of a parental contribution
and a separately calculated student contribution.
Under the Congressional Methodology, the expected parental contribu-
tion is calculated based on the parents' income and assets above specified
amounts. In what is called the simplified formula or application, assets are
not considered for applicants with income below specified levels ($15,000
pre-reauthorization and $50,000 subsequently). As income increases, so
does the expected parental contribution. To arrive at the expected parental
contribution, available income is calculated by subtracting allowances (in-
cluding such things as basic living expenses, taxes, and so on) from total
income, and then income supplements from assets are estimated to get an
adjusted available income, which is used to determine the proportion avail-
able for the parental contribution.
The Title IV legislation is a major factor in determining who gets what
amount of student aid. Based on established guidelines, financial aid ad-
ministrators must consider all sources of aid and determine a suitable and
accurate aid package for each student. The Fell grant award amount is the
first item considered. Any need beyond the Pell grant can be satisfied by a
combination of non-need-based aid obtained from outside organizations,
state grants, loans, federally funded campus-based aid, and institutional aid,
as detained by the school. At this point, some students still require aid,
and they often resort to higher interest loans.
THE AWARD PROCESS
As an introduction to the student financial aid process, the panel re-
viewed a flowchart of the Federal Family Education Loan Program. The
process diagram stretched from fingertip to fingertip of the outstretched
OCR for page 44
44
QUALITY IN STUDENT FINANCIAL AID PROGRAMS
Student/Family
· Decide to apply
· Determine which types:
Pell grant
Campus-based
Loan
Other nonfederal
Various versions of forms
are designed and/or
distributed by the Department
of Education and its data
entry contractors and by
lenders and institutions
| Institution |
May assist I
~Student/Family
_ Obtain appropriate forms
(Forms vary by program)
. ~
StudenVFamily at/
Complete application form(s)
/ ~
| Form input for Pell grants ~ \; Form input for campus-based programs |
| | and loans l
Corrections made
Central Processor
Edits and produces
Student Aid Report (SAR)
1
_ 1
Student Review of SAR
Makes corrections, if I If correct,
needed, and returns | send to
\~
Institution
· Validates data of selected applicants
· Determines eligibility
Determines cost of attendance
· Determines availability of campus-based program funds
Determines award package
Institution
Uses approved methods to determine
need; most schools use a processor
for this calculation
~ r
Department of Education/Lender . ,
Disburses funds to institution ~Institution
or student, as required by program Disburses funds to student
1
1!
Institution
Reconciles account
Independent Auditor ~ Department of Education
I Audits institution's records |
1
1 1
1
FIGURE 3-3 Basics of the Title IV award system
Loan
Originator
Takes loan
application
, ~
arms of the presenter. The presenter made the point, which the panel heard
many times from players in the system, that the system was very complex.
Although the detailed flowcharts for the Pell and Campus-Based programs
were less complex, the major and the subtle differences among the pro-
grams in determining program eligibility and in administrative policies and
practices posed a challenge for the panel in determining how to report on
OCR for page 45
OVERVIEW OF STUDENT FINANCIAL AID PROGRAMS
45
the quality of these activities. (It seems to be a problem for the Department
of Education too; the panel was cautioned that the charts, which were pro-
duced for the Department of Education by contractors, are outdated.J The
panel had two problems to overcome. First, reporting on all the detailed
differences would make the report tiresome to read. Second, correctly in-
corporating regulatory changes due to reauthorization that were being made
during the drafting of this report would be impossible. Thus, throughout
this report we discuss the system that awards financial aid according to its
basic form, which involves the activities of (a) applicants as they learn
about and complete appropriate forms and correspondence; (b) the Depart-
ment of Education's processing contractors as they input data, edit data,
request corrections from applicants, and try to predict applications that are
prone to error; (c' institutions as they labor to help students under tight time
frames and a myriad of activities; (d) lenders as they work with an addi-
tional application process; and (e) the Department of Education as it tries to
regulate activities. Figure 3-3 provides a greatly simplified view of the
process.
OCR for page 46
Representative terms from entire chapter:
aid programs
