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lality ID Stuctent Financial Aict Programs A New Approach an=, RONALD S. FECSO, Edtitror Panel on Quality Improvement in Student Financial Aid Programs BENJAMIN F. KING, Chair Committee on National Statistics Commission on Behavioral and Social Sciences and Education National Research Council NATIONAL ACADEMY PRESS Washington, D.C. 1993

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NATIONAL ACADEMY PRESS 2101 Constitution Ave., N.W. Washington, D.C. 20418 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This report has been reviewed by a group other than the authors according to procedures approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The National Academy of Sciences is a private, nonprofit, self-perpetuating society of dis- tinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce M. Alberts is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Robert M. White is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Kenneth I. Shine is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communi- ties. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. Robert M. White are chairman and vice chairman, respectively, of the National Research Council. The project that is the subject of this report was supported by the U.S. Department of Education under contract number LC90051001/C. Library of Congress Catalog Card No. 93-84866 International Standard Book Number 0-309-04877-X Additional copies of this report are available from: National Academy Press, 2101 Consti- tution Avenue, N.W., Box 285, Washington, D.C. 20055. Call 800-624-6242 or 202-334-3313 (in the Washington Metropolitan Area). B133 Copyright 1993 by the National Academy of Sciences. All rights reserved. Printed in the United States of America

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PANEL ON QUALITY IMPROVEMENT IN STUDENT FINANCIAL AID PROGRAMS BENJAMIN F. KING (Chair), College of Business, Florida Atlantic University THOMAS J. BOARDMAN, Department of Statistics, Colorado State University *JERRY S. DAVIS, Pennsylvania Higher Education Assistance Agency, Harrisburg, Pennsylvania NATALA K. HART, Office of Scholarships and Financial Aid, Indiana University-Purdue University at Indianapolis WILLIAM J. HILL, Allied-Signal, Inc., Buffalo, New York GARY A. LORDEN, Office of Student Affairs, California Institute of Technology REBECCA A. MAYNARD, Graduate School of Education, University of Pennsylvania ROBERT E. PAPILLA, Office of the President, Montgomery Community College, Rockville, Maryland THOMAS D. PARKER, The Education Resources Institute, Boston, Massachusetts S. JAMES PRESS, Department of Statistics, University of California, Riverside BRIAN ROWAN, School of Education, University of Michigan JUDITH M. TANUR, Department of Sociology, State University of New York at Stony Brook SHARON L. THOMAS PARROTT, Governmental Relations, DeVRY, Inc., Oakbrook Terrace, Illinois RONALD S. FECSO, Study Director LINDA INGRAM, Research Associate REBECCA L. HANCOCK, Project Assistant HELEN LOPEZ, Project Assistant MELISSA MARSDEN, Project Assistant SUBRAMANYAM KASALA, Consultant FREDRICA D. KRAMER, Consultant MARGARET WEIDENHAMER, Consultant * Served until May 1992 . . . 111

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COMMITTEE ON NATIONAL STATISTICS 1992-1993 BURTON H. SINGER (Chair), Department of Epidemiology and Public Health, Yale University NORMAN M. BRADBURN (Vice Chair), National Opinion Research Center, University of Chicago MARTIN H. DAVID, Department of Economics, University of Wisconsin, Madison JOHN F. GEWEKE, Department of Economics, University of Minnesota, Minneapolis NOREEN GOLDMAN, Office of Population Research, Princeton University LOUIS GORDON, Department of Mathematics, University of Southern California JOEL B. GREENHOUSE, Department of Statistics, Carnegie Mellon University ERIC A. HANUSHEK, Department of Economics, University of Rochester ROBERT M. HAWSER, Department of Sociology and Institute for Research on Poverty, University of Wisconsin, Madison JANET L. NORWOOD, The Urban Institute, Washington, D.C. DOROTHY P. RICE, Department of Social and Behavioral Sciences, School of Nursing, University of California, San Francisco JOHN E. ROLPH, The RAND Corporation, Santa Monica, California KEITH RUST, Westat, Inc., Rockville, Maryland DANIEL L. SOLOMON, Department of Statistics, North Carolina State University MIRON L. STRAP, Director SUSANNA MCFARLAND, Administrative Associate IV

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Preface The Panel on Quality Improvement in Student Financial Aid Programs first convened on September 27, 1991. The U.S. Department of Education had asked the National Academy of Sciences to form a panel, under the Committee on National Statistics, to provide guidance in answering the following questions: 1. Given the nature of Title IV programs, what are realistic goals for determining whether the system is performing well or poorly? 2. Does the current system of quality control generate accurate and timely information with which to measure performance? Are all relevant aspects of certification error measured in a fair, accurate, and reliable man- ner? 3. Does the information generated provide management at all levels with appropriate information with which to target error reduction strategies? 4. Are the reviews, oversight, and incentives currently employed to detect errors sufficient to ensure accountability and effectiveness in pro- gram administration? 5. What changes, if any, are needed to reduce errors in program admin- istration without detracting from basic program goals? Where is more in- formation needed about promising alternatives, and how should this infor- mation be acquired? The reader will see that in our response we often make recommenda- tions that call for sweeping revisions of the present system. If this suggests the phrase reinventing government, although I can only speak for myself, I think that most of the panel members would be happy to be identified with that movement. While our prescriptions contain quite a heavy dose of total quality management, this emphasis is not the result of merely following a v

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Vl PREFACE current fad. I would describe the individual attitudes toward TQM at our first meeting as running from a to zapathetic to zealous perhaps due to the wide diversity of the panelists' backgrounds. There are in addition to statisticians from both university and industry school financial aid admin- istrators, policy analysts, college officers, and education finance experts. As the details of the postsecondary student financial aid system and issues of quality were revealed, however, the panel became unanimous in its belief that a TQM approach is appropriate because (1) customer needs were not being adequately met; (2) there should be greater focus on actions that affect fundamental problems with the system rather than overreacting to special instances that are not part of the natural process but are assignable, perhaps, only to specific circumstances; and (3) management must dedicate itself, from the top down, to continuous quality improvement in the system. The panel met face-to-face 5 times, and those meetings spanned a pe- riod of only 13 months an extremely efficient operation. Panel members performed a great deal of research and legwork between meetings inter- viewing participants in the student financial aid process, drafting parts of the report, contributing background notes, and reviewing and editing the work of the staff. They are all to be commended for their outstanding efforts, and I hope that they received as much pleasure from this experience as I did in working with them. On the panel's behalf, I would like to acknowledge and thank all of the people who assisted us in various ways. We were fortunate to find so many people willing to share their time and expertise. While everyone's input was appreciated, some individuals deserve identification for contributions of exceptional value to our effort. Thanks go to the staff from financial aid offices at various institu- tions Sherwood Johnson at the State University of New York at Stony Brook, David S. Levy at the California Institute of Technology, James Lockwood at Montgomery College, Patricia McWade at Georgetown University, Olga Moas at Florida Atlantic University, Michael O' Grady at George Mason University, and Robin Robinson at American University. Special thanks go to G. Kay Jacks and the staff at Colorado State University for assistance in arranging a very informative meeting with staff from Metropolitan State College, the University of Colorado at Boulder, and the Colorado Institute of Art. The Department of Education's technical contact for this study, Daniel Goldenberg, was especially helpful. Many staff members from the depart- ment gave freely of their time to assist the panel, especially Ernest Becker, Robert Biehl, Stephen Carter, Karen Chauvin, Donald Conner, Victoria Edwards, Brian Fitzgerald, David Goodwin, John Haines, Clarence M. Hicks, Paul Hill, Molly Hockman, Gerald Malitz, Drew Malizio, Maureen A. McLaughlin, Barbara Mroz, former assistant secretary of education Carolyn Reid-Wallace,

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PREFACE . . V11 Jack C. Reynolds, Jeanne B. Saunders, Angela Torrvella, Anne Tuccillo, Nina Winkler, and Steven Zwillinger. Other individuals who provided valuable assistance to the panel include Paul Biemer, Maurice O. Brice, Ann Coles, Stephen Dienstfrey, Judith Fernandez, Wayne Gardner, Stanley Johnson, Graham Kalton, Walter L. Kaszuba, Arnold Kling, Anita Lancaster, Dallas Martin, Elizabeth Martin, Geri Mooney, Pedro Saavedra, Joan Sander, Richard Sigman, Monroe G. Sirken, and Jaki Stanley. Advice from several consultants and the background papers prepared for the panel were highly valued. The panel expresses its thanks to William Adams, Urton Anderson, Mary Batcher, Daniel Carr, Subramanyan Kasala, Fredrica D. Kramer, Leda Kydoniefs, Mark Reiser, Paulette Sewell, Clifton Sutton, Marie van Melis-Wright, and Margaret Weidenhamer. We wish to thank the members of the Committee on National Statistics whose critical and constructive comments on the draft report were invalu- able to the panel. Miron Straf, director of the Committee on National Statistics, and Susanna McFarland, administrative associate, ensured the smooth functioning of our operation. Thanks are also due to Eugenia Grohman, associate director for reports of the Commission on Behavioral and Social Sciences and Education, and to her technical staff for their editorial work. Special thanks go to the panel staff: Linda Ingram, research associate, and Rebecca Hancock, Helen Lopez, and Melissa Marsden, project assis- tants. Their dedication to the substantive and administrative details of the project provided a much-needed backdrop to the panel's work. Finally, I know that the members of the panel enthusiastically join me in thanking Ronald S. Fecso, the project's study director, for his unstinting devotion to this project. Through the Intergovernmental Personnel Act, Ron was "on loan" from the National Agricultural Statistics Service of the U.S. Department of Agriculture, where, as senior research statistician, he serves as an expert on sample surveys and has contributed to the development of quality improvement efforts within that agency. This report would not have materialized if it were not for Ron's diligent efforts in background research and writing. In addition, he is to be especially commended for his ingenu- ity and skills of persuasion in commissioning the technical papers included in the appendix. We sincerely appreciate the support of the late Charles E. Caudill and his management team at the National Agricultural Statistics Service, who made it possible for Ron to assist us. Benjamin King, Chair Panel on Quality Improvement in Student Financial Aid Programs

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Contents SUMMARY OF MAJOR CONCLUSIONS AND RECOMMENDATIONS PART I BACKGROUND INTRODUCTION The Federal Student Financial Aid System, 21 Purpose and Scope of Study, 24 Organization of the Report, 25 2 CONTINUOUS IMPROVEMENT: THE NEW QUALITY MANAGEMENT PHILOSOPHY Improving Quality, 28 Identifying Customer Needs, 28 Emphasizing Systems Thinking, 29 Making Data-Based Decisions, 30 Accepting Change, 31 Working Together, 31 Understanding Variation, 32 Understanding the Organization's Aims and Purposes, 33 Fostering Top Management Leadership, 34 19 21 26

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x OVERVIEW OF STUDENT FINANCIAL AID PROGRAMS Types and Sources of Student Aid, 35 Federal Student Financial Aid Recipients, 40 Eligibility, 41 The Aid Formula, 42 The Award Process, 43 PART II "QUALITY" IN THE STUDENT FINANCIAL AID PROGRAMS 4 CURRENT QUALITY CONTROL PROCEDURES Error Defined, 49 The Quality Control Process, 51 Processing Activities, 53 Audits and Program Reviews, 64 5 ALTERNATIVE PERSPECTIVES ON QUALITY IN STUDENT FINANCIAL AID PROGRAMS Surveys of Error, 83 The Applicant's View, 99 Postsecondary Institutions, 109 6 FINANCIAL AID DATA SYSTEMS The Management Information System, 1 18 Student Loan Data, 120 Problems With the Data System, 121 A Proposed Solution, 122 PART III TOWARD AN IMPROVED DELIVERY SYSTEM 7 QUALITY CONTROL IN OTHER MONETARY DISTRIBUTION SYSTEMS Federal Need-Based Benefit Programs, 128 Private Sector Monetary Distribution Systems, 143 Lessons for Student Financial Aid Programs, 144 8 A NEW STRATEGY FOR THE DEPARTMENT OF EDUCATION The Institutional Quality Control Project, 150 Summary of the Panel's Review of the IQC Project, 160 CONTENTS 35 47 49 83 117 125 127 149

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CONTENTS 9 FURTHER INITIATIVES FOR IMPROVEMENT IN THE SYSTEM Reauthorization of the Higher Education Act, 163 Toward a New Applicant Processing System, 165 Student Loans, 172 Top Management Leadership, 173 REFERENCES AND BIBLIOGRAPHY APPENDIXES A A Review of the Methodology Used in the Integrated Quality Control Measurement Project Mark Reiser B The Taxpayer as Customer Mary Batcher and Paulette Sewell Applying for Federal Student Financial Aid for 1992-93 Margaret Weidenhamer Laboratory Methods and Document Redesign Leda Kydoniefs and Marie van Melis-Wright The IRS Experience With Cognitive Labs and Forms Design Mary Batcher Alternative Approaches to Audit and Program Review for Student Financial Aid Programs Urton Anderson Biographical Sketches of Panel Members and Staff Xl 163 177 185 194 197 215 221 225 243

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