Order Code RL32775 CRS Report for Congress Received through the CRS Web The Campus-Based Financial Aid Programs: A Review and Analysis of the Allocation of Funds to Institutions and the Distribution of Aid to Students February 18, 2005 David P. Smole Analyst in Social Legislation Domestic Social Policy Division Congressional Research Service ˜ The Library of Congress The Campus-Based Financial Aid Programs: A Review and Analysis of the Allocation of Funds to Institutions and the Distribution of Aid to Students Summary The Federal Supplemental Educational Opportunity Grant, Federal Work-Study, and Federal Perkins Loan programs are collectively referred to as the campus-based financial aid programs largely because participating institutions play a central role in their operation, and because the aid they make available to students comprises federal funds matched in part with institutional funds. In recent years, the programs have been criticized because a large share of funding is allocated to institutions in proportion to the amount received in prior award years as opposed to being allocated exclusively according to aggregate student financial need. The programs also have been criticized because the current funding procedures allow institutions that receive proportionately greater funding on a per-student basis to provide larger awards to students with higher incomes than can be provided to lower-income students at institutions that receive less funding. Accordingly, proposals have been made to modify the funding procedures for the campus-based programs by gradually phasing out the practice of allocating funds on the basis of prior year allocations and requiring all funding to be allocated to institutions according to existing need-based formulas. This report describes and analyzes (a) the process through which federal funds are allocated to institutions under the campus-based programs, (b) the potential for allocating all campus-based funding according to the existing need-based formulas, and (c) the current distribution of aid to students. It will be updated to track legislative proposals addressing the campus-based allocation procedures. Major findings presented in the report include: ! ! ! ! ! ! Under each program, the majority of funds are allocated to institutions on the basis of amounts received in prior years, while only a modest amount are allocated according to aggregate student financial need as calculated according to “fair share” formulas. Under the need-based formulas, the cost of attendance at an institution is the dominant factor in determining institutional need. Much greater amounts of institutional need are calculated on a perstudent basis at high-cost institutions than at low-cost institutions. At low-cost institutions, institutional need comprises limited amounts of aggregate student need attributable to large numbers of predominately low-income students, while at high-cost institutions, it tends to comprise greater amounts of need attributable to a smaller number of mostly middle- and upper-income students. It is estimated that if the allocation procedures were to be modified so that funding was allocated entirely on the basis of institutions’ proportionate share of institutional need, more institutions would receive allocation increases than would receive allocation decreases. Larger proportions of students at higher-cost institutions receive campus-based aid, and receive larger awards, than do comparable students at lower-cost institutions; however, average awards at higher-cost institutions cover a smaller percentage of costs. Contents Overview of the Allocation Formulas for the Campus-Based Financial Aid Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Base Guarantee Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Fair Share Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Cost of Attendance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Expected Family Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Institutional Need . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Fair Share Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Total Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Analysis of the Allocation of Funds to Institutions Under the Campus-Based Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Institutional COA as a Unit of Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Base Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Fair Share Increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Average Student EFCs Used in Fair Share Formulas . . . . . . . . . . . . . 18 Average Need per Student . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Relationship Between Student Need and Maximum Award Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Tabulation of Institutional Need . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 FWS Self-Help Need . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Perkins Loan Adjusted Self-Help Need . . . . . . . . . . . . . . . . . . . . . . . . 27 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Consideration of Proposals to Phase Out Funding of Institutional Base Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 FSEOG Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 FWS Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Perkins Loan FCCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Distribution of Campus-Based Aid to Students . . . . . . . . . . . . . . . . . . . . . . . . . . 35 FSEOG Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 FWS Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Perkins Loan Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Combinations of Campus-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 List of Figures Figure 1. Summary of the Allocation Procedures for the Campus-Based Financial Aid Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Figure 2. Estimated Distribution of Dependent Students Who Applied for Federal Aid Across Income Categories in Table of EFCs: 2003-2004 . . . . 20 Figure 3. Estimated Distribution of Independent Students Who Applied for Federal Aid Across Income Categories in Table of EFCs: 2003-2004 . . . . 21 Figure 4. Average Amount of Need Calculated per Eligible Student According to the Fair Share Formulas, by COA Category:AY2004-2005 . . . . . . . . . . 22 Figure 5. Aggregate FSEOG Need Attributable to Eligible Students by Type and Income, by COA Category: AY 2004-2005 . . . . . . . . . . . . . . . . . . . . . 24 Figure 6. Aggregate FWS Self-Help Need Attributable to Eligible Students by Type and Income, by COA Category: AY2004-2005 . . . . . . . . . . . . . . . 27 Figure 7. Aggregate Perkins Loan Adjusted Self-Help Need Attributable to Eligible Students by Type and Income, by COA Category: AY2004-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Figure 8. Comparison of FSEOG Allocations to IHEs Under Current Procedures and Estimated Allocations with Elimination of Base Guarantees, by Groups of Institutions, ranked by COA:AY2004-2005 . . . 30 Figure 9. Comparison of FWS Allocations to IHEs Under Current Procedures and Estimated Allocations with Elimination of Base Guarantees, by Groups of Institutions, ranked by COA:AY2004-2005 . . . . . . . . . . . . . . . . 32 Figure 10. Comparison of Perkins Loan FCC Allocations to IHEs Under Current Procedures and Estimated Allocations with Elimination of Base Guarantees, by Groups of IHEs, ranked by COA:AY2004-2005 . . . . 34 List of Tables Table 1. Table of EFCs Used in the Campus-Based Allocation Procedures: AY2004-AY2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Table 2. Institutions Participating in the Campus-Based Programs, Categorized by COA and Sector: AY2004-2005 . . . . . . . . . . . . . . . . . . . . 12 Table 3. Institutions for Which the Base Guarantee Is Greater Than Its Fair Share Versus Institutions Receiving a Fair Share Increase; and Percent of Total Funding Allocated for Base Guarantees, by COA Category and State, by Program: (AY2004-2005) . . . . . . . . . . . . . . . . . . . 15 Table 4. Maximum Award Amounts by Program . . . . . . . . . . . . . . . . . . . . . . . . 23 Table 5. Counts of Institutions by COA Category According to Estimated Change in FSEOG Allocation With Elimination of Base Guarantee . . . . . 31 Table 6. Counts of Institutions by COA Category According to Estimated Change in FWS Allocation with Elimination of Base Guarantee . . . . . . . . 33 Table 7. Counts of Institutions by COA Category According to Estimated Change in Perkins Loan FCC Allocation with Elimination of Base Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Table 8. Distribution of FSEOG Aid to Students Attending Institutions Participating in the FSEOG Program, by Student Type and Income, by COA Category: AY2002-2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Table 9. Comparison of Pell Grant Awards and FSEOG Awards for Institutions Participating in the FSEOG program, by COA Category: AY2002-2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Table 10. Distribution of FWS Aid to Students Attending Institutions Participating in the FWS Program, by Student Type and Income, by COA Category: AY2002-2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Table 11. Distribution of Perkins Loan Aid to Students Attending IHEs Participating in the Perkins Loan Program, by Student Type and Income, by COA Category: AY2002-2003 . . . . . . . . . . . . . . . . . . . . . . . . . 41 Table 12. Participation of Institutions in the Campus-Based Financial Aid Programs (number and percent), by Institutional COA: AY2004-2005 . . . 43 Table 13. Distribution of Campus-Based Financial Aid to Students Attending Institutions Participating in All Three Campus-Based Programs, by Student Type and Income, by COA Category: (AY2002-2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 The Campus-Based Financial Aid Programs: A Review and Analysis of the Allocation of Funds to Institutions and the Distribution of Aid to Students Three need-based Federal Student Aid (FSA) programs authorized under the Higher Education Act of 1965, as amended (HEA)1 — the Federal Supplemental Educational Opportunity Grant (FSEOG) program, the Federal Work-Study (FWS) program, and the Federal Perkins Loan program — are collectively referred to as the campus-based financial aid programs. The programs are called the campus-based programs largely because participating institutions of higher education (IHEs) have a significant role in administering the programs and because they must use institutional funds to match the federal funds they receive for the operation of the programs. In contrast to other need-based FSA programs in which aid is awarded to students according to non-discretionary criteria, the financial aid administrators of participating IHEs have discretion in determining the mix and amount of aid individual students receive from funds made available under the programs. The FSEOG program allows IHEs to provide grant aid to undergraduate students who have not yet earned a first baccalaureate degree. The FWS program supports undergraduate and graduate students through subsidized part-time employment. Under the Perkins Loan program, IHEs use federal capital contributions (FCCs) to help establish revolving loan funds from which they make low-interest loans to undergraduate and graduate students. Over $3.2 billion in financial aid is awarded annually to students under the three programs. The programs are popular with many IHEs and financial aid administrators because of the flexibility they provide to tailor aid to meet the specific needs of students and for the ability to shift funds between programs. The programs have come to be criticized, however, for the way in which the majority of funding provided for the programs is allocated to institutions in proportion to the amount they received in previous award years, as opposed to being allocated entirely according to the aggregate financial need of the students attending each institution. The programs have also been criticized because the current distribution of funds allows institutions that receive proportionately more funding on a per-student basis to give 1 20 U.S.C.§§ 1001 et seq. Authorization to fund the programs expired at the end of fiscal year (FY) 2003; however, funding was provided for FY2004 under the extension in authorization to fund the programs provided under the General Education Provisions Act (GEPA), and was provided for FY2005 under the Higher Education Extension Act of 2004 (P.L. 108-366). It is expected that the statute authorizing the campus-based programs will be reviewed by the 109th Congress as part of an effort to reauthorize the HEA. CRS-2 larger campus-based awards to more students and to students with higher incomes than can be awarded at other institutions.2 Some have proposed modifying the campus-based programs’ funding procedures to gradually phase out the current practice of allocating the majority of funds to institutions on the basis of the amounts they received in prior years and to require that all funding eventually be provided in proportion to the aggregate financial need of students at participating institutions.3 Others have expressed concern that amending the allocation procedures without also providing increased funding for the campus-based programs overall might result only in making more aid available to needy students at some institutions at the expense of needy students at those institutions that would experience funding decreases.4 Legislation has been introduced in the 109th Congress to amend the campus-based allocation procedures to gradually phase out the allocation of funds on the basis of the amounts institutions’ received in prior years and to eventually allocate all funds to institutions on the basis of their aggregate student financial need.5 (Additional information on characteristics of the campus-based programs, including a history of appropriations and basic program data for each of the three programs, can be found in CRS Report RL31618, Campus-Based Student Financial Aid Programs Under the Higher Education Act.) This report describes and analyzes the process through which federal funds are currently allocated to IHEs under the campus-based programs and also examines the subsequent distribution of aid to recipients of awards provided under the programs. The report begins with a brief overview of the procedures used to allocate funds to IHEs under each of the three programs. This includes a discussion of the development of the allocation procedures and significant changes to them over the history of the programs. Next, the report analyzes the allocation of funds to IHEs according to the current allocation procedures, focusing on key aspects of these procedures that largely affect the distribution of funds to institutions. The report then discusses issues related to the campus-based programs that may be considered as the 109th Congress debates reauthorization of the HEA.6 In particular, it examines how 2 See, for example, Stephen Burd, “Unfair Advantage? Elite Private Colleges Say They Will Fight to Protect Federal Aid That Other Institutions Want for Needy Students,” The Chronicle of Higher Education, Aug. 15, 2003; and Greg Winter, “Rich Colleges Receiving Richest Share of U.S. Aid,” The New York Times, Nov. 9, 2003. 3 See for example, National Association of Student Financial Aid Administrators (NASFAA), Higher Education Act Reauthorization Recommendations, May 22, 2003, pp. 41-42, available at [http://www.nasfaa.org/Publications/2003/senaterecs052203.doc]. 4 Letter from Association of American Universities to Honorable John Boehner, Chairman, House Committee on Education and the Workforce, and Honorable Buck McKeon, Chairman, House Subcommittee on 21st Century Competitiveness, May 26, 2004, available at [http://www.aau.edu/education/HR4283ComLet.pdf]. 5 See H.R. 609, The College Access and Opportunity Act of 2005; and the Administration’s Department of Education FY2006 Budget Summary. A similar bill, H.R. 4283, The College Access and Opportunity Act of 2004, was introduced in the 108th Congress. 6 For further information on reauthorization of the HEA, see CRS Issue Brief IB10097, The Higher Education Act: Reauthorization Status and Issues. CRS-3 the distribution of funds to institutions might be affected should the current allocation procedures for the programs be amended to phase out the allocation of funds on the basis of prior year allocations in favor of providing institutions with funding entirely on the basis of aggregate student need. The report concludes with a review and analysis of the distribution of campus-based financial aid to different types of students at participating IHEs and an examination of the role that the current allocation procedures may have in affecting the distribution of aid. Overview of the Allocation Formulas for the Campus-Based Financial Aid Programs Under each of the campus-based programs, the U.S. Department of Education (ED) allocates funds to participating IHEs according to a complex two-stage procedure. These allocation procedures are specified in the authorizing statute of each program. While there are slight differences between programs, the allocation procedures all share the same basic framework. In the first stage, an IHE that is a continuing participant in a program receives funding based on what it received in prior years. This is commonly referred to as the base guarantee. In general, an IHE’s base guarantee is equal to some portion of the funds it received in FY1999; however, there are also procedures for allocating a base guarantee to IHEs that began participating in a campus-based program after FY1999. In the second stage, any funds remaining after the allocation of base guarantees are allocated to IHEs according to need-based formula allocation procedures. Under the allocation formulas for the programs, each IHE receives funding in proportion to its share of the national total of institutional need that is in excess of the amount it received as its base guarantee. (Institutional need is a program-specific measure of the total financial need of all eligible students at an IHE). Under each of the formulas, ED determines the amount of funds each IHE would receive if the entire appropriation for the program were to be allocated in proportion to its share of the national total of institutional need (supposing that no funds were allocated for base guarantees). This amount is referred to as an institution’s fair share. If an IHE’s fair share is greater than its base guarantee, it has a shortfall in funding and is eligible to receive additional funding — a fair share increase — to help reduce its shortfall. An IHE’s total allocation is the sum of its base guarantee and its fair share increase. Figure 1 summarizes the allocation procedures for the campus-based programs. CRS-4 Figure 1. Summary of the Allocation Procedures for the Campus-Based Financial Aid Programs 1. Base guarantee allocation: a) base guarantee = institution specific amount based on allocation in previous years 2. Fair share allocation: a) fair share = [(institutional need) / (national total of institutional need)] x [funds appropriated] b) shortfall = [(fair share) – (base guarantee)] c) fair share increase = [(shortfall) / (national total of shortfalls)] x [(funds appropriated) – (national total of base guarantees)] 3. Total allocation: a) total allocation = [(base guarantee) + (fair share increase)] Sources: HEA §§413D, 442, and 462. The basic structure for allocating campus-based program funding to institutions — first for base guarantees, and then for fair share increases — can be traced back to procedures developed in the late 1970’s and first put into place for the 1979-1980 award year.7 Funding for the campus-based programs previously was allocated according to a different two-stage procedure in which funds first were apportioned on a state-by-state basis according to the student population in each state, and then sub-allocated to IHEs on the basis of the student need at institutions within each state according to a procedure called the panel review process. Under the panel review process, institutions would apply to receive a share of the funds allocated to their state based on the projected financial need of their students. A regional panel would then review the institutions’ applications and determine the amount of funding each IHE would receive. In the mid-1970s, the panel review process became subject to criticism for being too complex and time-consuming, and for leading to inequities in the distribution of aid to students.8 In response, the U.S. Office of Education convened a panel of experts to study and make recommendations on how to allocate 7 U.S. Department of Education, Office of Postsecondary Education, A Report on the State and Institutional Funding Process for Campus-Based Student Financial Assistance Programs, Dec. 12, 1983, pp. 4-5. 8 See, for example, General Accounting Office, Report to the Special Subcommittee on Education, House Committee on Education and Labor, Administration fo the Office of Education’s Student Financial Aid Program, Apr. 4, 1974, pp. 26-34. Available at [http://161.203.16.4/f0302/095923.pdf]. (Hereafter cited as GAO, Administration of the Office of Education’s Student Financial Aid Program.) CRS-5 funds to IHEs under the campus-based programs.9 The panel’s recommendations led to the implementation of new allocation procedures. Over time, these procedures have been modified slightly; however, the same basic structure remains. At the time the new allocation procedures were adopted, it was decided that in the first year of their implementation, IHEs would first be allocated funds in amounts comparable to what they had received in the past. Called the conditional guarantee, this was the precursor to the current base guarantee. Funds remaining after the allocation of conditional guarantees would be allocated according to the fair share formulas. In the first year of implementation, conditional guarantees were to be set at the greater of the amount of funds IHEs had expended in either the 1977-1978 or 1978-1979 award years. The next year, they were to receive 90% of that amount. In subsequent years, conditional guarantees were to be gradually reduced until ultimately all funds were allocated according to the fair share allocation procedures.10 Ultimately, however, conditional guarantees — now called base guarantees — were not phased out.11 The majority of the funds appropriated for each of the three campus-based programs continues to be allocated for institutional base guarantees. (It is important to note that as appropriations increase, a greater proportion of funding becomes available for fair share increases, while a decrease in appropriations results in proportionally more funding being allocated for base guarantees.) The capacity of an IHE to award campus-based aid to eligible students is directly related to the amount of funds is receives. The major factors determining each IHE’s allocation are its base guarantee, its cost of attendance (COA), the number of FSA applicants, and the expected family contributions (EFCs) of those students. The remainder of this first part of the report describes the major components of the campus-based allocation procedures.12 Base Guarantee Allocations Under each of the campus-based programs, all participating institutions are eligible to receive a base guarantee. Because most institutions’ base guarantees are 9 U.S. Office of Education, Final Report of the Panel of Experts to Design a New Funding Process to Commissioner Ernest L. Boyer, June 1979. (Hereafter cited as ED, Final Report of the Panel of Experts.) 10 Ibid., pp. 18, 22, and 78. 11 For a brief history of the campus-based allocation procedures, see Robert Purnell Huff, “The Evolution of the Process of Allocating Federal Campus-based Student Financial Aid to Postsecondary Education Institutions,” NASFAA Journal of Student Financial Aid, 34 no. 2, 2004, pp. 35-42. (Hereafter cited as Huff, The Evolution of the Process of Allocating Federal Campus-Based Student Financial Aid to Postsecondary Education Institutions.) Available at [http://www.nasfaa.org/Annualpubs/Journal/Vol34n2/Huff.pdf]. 12 The allocation procedures are specified at HEA §§413D, 442, and 462 (42 U.S.C. §§1070b-3, 2752, and 1087bb). Participating institutions are required to submit information used in the allocation of funds and to report their use of funds on the Fiscal Operations Report and Application to Participate (U.S. Department of Education, Office of Postsecondary Education, Campus-Based Operations, ED Form 646-1, OMB no. 18450030). CRS-6 equal to a portion of the amount of funds they received in prior award years, it is often stated that the procedures for determining base guarantees favors long-term participants over new entrants to the programs. More precisely, the base guarantee component of the allocation procedures gives a funding advantage to an institution with a base guarantee that is greater than its fair share. Base guarantees are determined according to the following procedures: ! ! ! First, from the funds appropriated for any of the programs, each IHE that participated in that particular program in FY1999 is allocated a base guarantee equal to 100% of the sum of (a) its FY1999 base guarantee and (b) its FY1999 pro rata, or proportional, share of the funds that remained after the allocation of all base guarantees.13 Next, those IHEs that began participation in the program after FY1999, but which are not first- or second-time participants, are allocated a base guarantee equal to the greater of $5,000, or 90% of the amount they received in their second year of participation (100% in the case of Perkins Loan FCCs). Finally, IHEs that are participating in the program for their first or second year receive a base guarantee equal to the greatest of (a) $5,000, (b) 90% of the per-pupil amount allocated to and used by comparable institutions14 in the second preceding fiscal year, multiplied by the number of students at the IHE, or (c) 90% of what the IHE received in its first year of participation. However, notwithstanding the second and third of these steps, if an institution began participating in the program after FY1999 and received a larger allocation in its second year of participation than in its first, its base guarantee is equal to 90% of the allocation it received in its second year of participation. In cases where the annual appropriation is insufficient to award IHEs their full base guarantee according to any one of the abovementioned steps, base guarantees that are to be allocated according to that step are proportionally reduced and no funds are to be allocated to institutions under any subsequent stages of the allocation procedures. Fair Share Allocations Under each of the programs, after the allocation of base guarantees, any funds remaining from the annual appropriation are allocated to IHEs for fair share increases 13 Prior to the enactment of the Higher Education Amendments of 1998 (P.L. 105-244), IHEs received base guarantees in each program equal to 100% of the total amount they were allocated for FY1985. They also received a pro rata share, which was an amount proportional to their base guarantee, allocated from one quarter of the funds that remained from the annual appropriation after the allocation of all base guarantees. A history of base guarantee funding can be found in Huff, The Evolution of the Process of Allocating Federal Campus-based Student Financial Aid to Postsecondary Education Institutions, pp. 40-41. 14 Each year, ED determines the amount allocated to comparable institutions by calculating the average federal program expenditures per enrolled student for each of the three programs for six types of institutions: cosmetology, business, trade and technical, art schools, other proprietary, and non-proprietary. CRS-7 according to formula-based procedures. The first step in the fair share allocation procedures involves determining each IHE’s institutional need. This is referred to as FSEOG need for the FSEOG program, self-help need for the FWS program, and adjusted self-help need for Perkins Loan FCCs. While the calculation of institutional need differs slightly across programs, in general it is an expression of the relationship between the average cost of attendance (COA) at an institution and the average expected family contributions (EFCs) of the students who are FSA applicants in attendance at that institution. The primary components of the formulas and how they enter into the calculation of institutional need are described below. Cost of Attendance. Under the formulas for each of the programs, an IHE’s COA is calculated by first dividing the total tuition and fees received by that institution over the course of the award year two years prior to the one for which funds are being allocated, by the total number of students in attendance at the institution at any time during that same year;15 and then adding to that amount a living cost allowance and an allowance for books and supplies. COA is calculated on the basis of a nine-month academic calendar. For award year (AY) 2004-2005, the living cost allowance is $6,105 and the allowance for books and supplies is $450. Adjustments are made to account for average time in attendance for IHEs with nontraditional calendars, although this adjustment does not take into account whether students attend on a full-time or part-time basis. COA also is calculated separately for undergraduate students and for graduate and professional students.16 Expected Family Contribution. Under the fair share formulas, composite EFCs are assigned to students according to their status as either undergraduate or graduate and professional students, their status as dependent or independent students (although no distinction is made between independent students with dependents other than a spouse, and those without), and where they fit within a series of income bands established by ED. These composite EFCs are used in lieu of the actual EFCs that are calculated for individual students on the basis of their completion of the Free Application for Federal Student Assistance (FAFSA).17 As part of the allocation procedures, each year ED calculates average EFCs for undergraduate dependent and independent students, and graduate and professional students in each income band using the FAFSA full applicant database. The Table of EFCs is shown in Table 1. 15 A simple headcount of students is used in calculating COA, as opposed to full-time equivalent (FTE) students. It thus represents the cost of attendance of the average student. In IHEs where there is a sizable part-time student population, this can result in the calculated COA being substantially less than the COA of a full-time student. 16 While the cost of tuition and fees is institution specific, the allowances for living costs and books and supplies are determined according to statutory provisions and are common for all participating IHEs The living cost allowance is determined according to HEA §413D(b)(3)(C), and adjusts from year to year. The allowance for books and supplies is statutorily set at $450. Each of these amounts is based on a nine-month academic year. 17 For a discussion of need analysis and EFCs, see CRS Report RL32083, Federal Student Aid Need Analysis: Background and Selected Simplification Issues, by Adam Stoll and James B. Stedman. CRS-8 Table 1. Table of EFCs Used in the Campus-Based Allocation Procedures: AY2004-AY2005 Undergraduate Dependent Independent Income category EFC Income category Automatic zero $0 Automatic zero $0 to $2,999 $537 $0 to $999 $3,000 to $5,999 $177 $1,000 to $1,999 $6,000 to $8,999 $168 $2,000 to $2,999 $9,000 to $11,999 $241 $3,000 to $3,999 $12,000 to $14,999 $312 $4,000 to $4,999 $15,000 to $17,999 $530 $5,000 to $5,999 $18,000 to $23,999 $993 $6,000 to $7,999 $24,000 to $29,999 $1,764 $8,000 to $9,999 $30,000 to $35,999 $2,727 $10,000 to $11,999 $36,000 to $41,999 $3,699 $12,000 to $13,999 $42,000 to $47,999 $4,733 $14,000 to $15,999 $48,000 to $53,999 $5,984 $16,000 to $17,999 $54,000 to $59,999 $7,435 $18,000 to $19,999 $60,000 and above $19,579 $20,000 and above Graduate & Professional (Independent) EFC $0 $46 $27 $30 $29 $30 $41 $264 $633 $925 $1,193 $1,374 $1,529 $1,690 $5,501 Income category EFC Automatic zero $0 $0 to $999 $317 $1,000 to $1,999 $382 $2,000 to $2,999 $384 $3,000 to $3,999 $407 $4,000 to $4,999 $498 $5,000 to $5,999 $519 $6,000 to $7,999 $826 $8,000 to $9,999 $1,456 $10,000 to $11,999 $2,072 $12,000 to $13,999 $2,686 $14,000 to $15,999 $3,221 $16,000 to $17,999 $3,640 $18,000 to $19,999 $4,083 $20,000 and above $11,835 Source: U.S. Department of Education, Office of Postsecondary Education, Campus-Based Programs Branch, Campus-Based Tentative Funding Levels. Attachment C: Expected Family Contribution Averages, CB-04-01, Jan. 23, 2004. Institutional Need. In general, institutional need is an expression of the relationship between an institution’s COA and the calculated EFCs of the students at that institution who have applied for FSA aid. It represents the aggregate financial need of students at the institution. Institutional need is obtained by performing a series of calculations involving the relationship between COA and EFC for each of the various categories of students, and then summing the results of these calculations to arrive at a figure representative of the aggregate financial need of all students at the IHE. The procedures used in calculating institutional need for each of the three programs are summarized below.18 FSEOG Need. The calculation of FSEOG need is based only on information reported about students eligible to participate in the program — undergraduate students who have not yet earned a first baccalaureate degree. For each participating IHE, institutional FSEOG need is calculated as follows: ! 18 Step 1: For each undergraduate student income category in the Table of EFCs (see Table 1), subtract EFC from 75% of the average The procedures used in allocating funds to institutions under the campus-based programs are specified in U.S. Department of Education, Office of Postsecondary Education, CampusBased Operations Branch, Dear Partner Letter CB-04-01, Campus-Based Tentative Funding Levels. Attachment A: Explanation of Worksheets, Jan. 23, 2004. Available at [http://www.ifap.ed.gov/dpcletters/CB0401.html]. CRS-9 ! ! ! undergraduate COA.19 Then take the greater of this amount, or $0. (The results are approximations of the financial need of students in each income category.) Step 2: For each undergraduate student income category, multiply the number of students in that income category by the corresponding results obtained in Step 1. Step 3: Sum the results of Step 2 across all undergraduate income categories. Step 4: Subtract the total amount of Pell Grant aid and Leveraging Education Assistance Partnership/Special Leveraging Education Assistance Partnership (LEAP/SLEAP) program aid received by students at the institution from the result obtained in Step 3. The resulting amount is FSEOG Need. FSEOG Need represents the aggregate financial need of the undergraduate FSA applicants at an institution who are eligible to participate in the FSEOG program. FSEOG Need is specific to the FSEOG program and is the difference between students’ estimated EFCs and 75% of their institution’s average undergraduate COA, summed across all students, minus the Pell Grant and LEAP/SLEAP aid available to students at the IHE. FSEOG Need thus shows the amount of aid that would need to be provided to students at an institution so that 75% of their cost of attendance, in the aggregate, could be met by the combination of their expected family contribution and federal grant aid (i.e, Pell Grants, LEAP/SLEAP, and FSEOG). The formula is based on the assumption that 25% of need would be met by other sources. Self-Help Need. Self-Help Need is used in the fair-share allocation formula for the FWS program. Its calculation is based on information reported for all students eligible to participate in the program. For each participating IHE, Self-Help Need is calculated as follows: ! ! ! ! 19 Step 1: Calculate 25% of the average undergraduate COA. Step 2: For each undergraduate student income category in the Table of EFCs (see Table 1), subtract EFC from the average undergraduate COA. Take the greater of this amount, or $0. Step 3: For each undergraduate student income category, multiply the number of students in that income category by the lesser of the results obtained in either Step 1 or Step 2 for the corresponding income category. Step 4: Sum the results obtained in Step 3 across all undergraduate student income categories. At the time the fair share allocation formulas were developed, data from a nationwide study showed that for undergraduates, approximately 70% of college costs were being met by a combination of EFC, scholarships, and grants, while approximately 30% of costs were being met by self-help aid (loans and employment). The panel of experts responsible for developing the formulas decided that to maintain consistency with these ratios, Supplemental Educational Opportunity Grants would provide grant aid up to the point of meeting 70% of college costs, while funding for the other two programs would provide aid to meet up to 30% of college costs. When the formulas were implemented, these percentages were revised to 75% and 25%, respectively. CRS-10 ! ! ! ! Step 5: For each graduate and professional student income category in the Table of EFCs (see Table 1), subtract EFC from the average graduate and professional COA. Take the greater of this amount, or $0. Step 6: For each graduate and professional student income category, multiply the number of students in that category by the corresponding results obtained in Step 5. Step 7: Sum the results obtained in Step 6 across all graduate and professional student income categories. Step 8: Sum the results obtained in Step 3 and Step 6. This amount is an institution’s Self-Help Need. Self-Help Need represents the aggregate financial need of all FSA applicants at an institution who are enrolled in programs eligible for campus-based aid. Self-Help Need is the lesser of either 25% of an institution’s average undergraduate COA, or the difference between undergraduate students’ estimated EFCs and their institution’s average undergraduate COA, summed across all undergraduate students; plus the difference between graduate and professional students’ estimated EFCs and their institution’s average graduate and professional student COA, summed across all graduate and professional students. Self-Help Need is a composite figure that expresses different characterizations of need for undergraduate students than it does for graduate and professional students. For undergraduate students, it shows the amount of aid that would need to be provided so that an amount up to 25% of undergraduate students’ cost of attendance, in the aggregate, could be met by the combination of their EFC and FWS aid. For graduate and professional students, it shows the amount of aid that would need to be provided so that the entire difference between students’ EFCs and their institution’s COA could be met by FWS aid. Adjusted Self-Help Need. Adjusted Self-Help Need is used in the formula for allocating FCCs to institutions under the Perkins Loan program. It is calculated similarly to Self-Help Need, except for being adjusted as indicated below. ! ! ! ! 20 Step 1 through Step 8: Same as for Self-Help Need. Step 9: Multiply the IHE’s collections on previously awarded Perkins Loans in the second year prior to the year in which funds are to be allocated by 1.21. Step 10: Subtract the result obtained in Step 9 from the result obtained in Step 8. Step 11: If the IHE has a cohort default rate20 that equals or exceeds 25%, then multiply the result obtained in Step 10 by 0; otherwise, The cohort default rate for an institution is defined as the percentage of current and former students entering repayment on Perkins Loans received for attendance at that institution who default on their loans before the end of the following award year. For institutions with less than 30 students entering repayment in any year, the cohort default rate is calculated over a three-year period. In general, a Perkins Loan is considered to be in default if the borrower has failed to comply with the terms of the promissory note or failed to make payments on a loan for 240 days (for a loan repayable monthly) or 270 days (for a loan repayable quarterly). CRS-11 multiply it by 1. This amount is an institution’s Adjusted Self-Help Need. Adjusted Self-Help Need expresses aggregate student need for IHEs that are participating in the Perkins Loan program and which are requesting FCCs in a similar manner as does Self-Help Need for the FWS program, except that it adjusts an institution’s need by accounting for collections that are expected to be made on outstanding Perkins Loans. It is noteworthy that for IHEs participating in both the FWS and Perkins Loan programs, Self-Help Need and Adjusted Self-Help Need, respectively, each measure what is essentially the ‘same’ student need. Fair Share Procedures. The calculations to determine an institution’s fair share of funding, its fair share shortfall, and its fair share increase are relatively straightforward compared with the calculation of institutional need. As was shown in Figure 1, for any of the campus-based programs, an institution’s fair share is the amount of the annual appropriation an institution would receive if all funds were allocated in the same proportion as the ratio of institutional need relative to the national total of the institutional need of all participating IHEs. An institution’s fair share shortfall is the difference between its fair share amount and the amount it received as a base guarantee. Funds remaining after the allocation of base guarantees are allocated as fair share increases. IHEs receive fair share increases in proportion to their share of the national total of shortfalls.21 Total Allocation. In general, an institution’s total allocation is the sum of its base guarantee and its fair share increase. However, subsequent to the allocation of base guarantees and fair share increases, small adjustments may be made to IHEs’ allocations. These include allocation reductions as a penalty for the underutilization of funds in prior award years and the reallocation of such funds to other IHEs with remaining funding shortfalls. Analysis of the Allocation of Funds to Institutions Under the Campus-Based Programs This part of the report analyzes the allocation of funds to IHEs according to the current campus-based allocation procedures. This analysis draws upon information from both the Fiscal Operations Report and Application to Participate (FISAP) and from 2004-2005 award year (FY2004) allocations data.22 The two major components of the allocation procedures are analyzed: the base guarantee and the fair share increase. The primary unit of analysis used throughout the remainder of the report is categories of institutions grouped by average COA. Cost of attendance is used as 21 Since some IHEs may request less than their fair share, funds may remain after the allocation of fair share increases. Any remaining funds are allocated to IHEs that continue to have a shortfall through a second iteration of the fair share procedures. Funds received through this second iteration are called additional fair share increases. 22 Allocations for AY2004-2005 are based on data from AY2002-2003 that were reported by IHEs on the FISAP. CRS-12 the primary unit of analysis because, as a variable in the fair share allocation formulas, COA has an important impact in affecting the allocation of funds to institutions. Later, it will be shown that there are also large differences among categories of institutions, grouped by COA, in the percentage of students awarded campus-based aid and in average award amounts. Institutional COA as a Unit of Analysis Categories of institutions grouped by COA are the primary unit of analysis used in this report. These categories were created by simply ranking all the IHEs that participate in one or more of the campus-based programs in descending order according to their average COA, and then grouping them into quintiles containing approximately equal numbers of institutions.23 The top quintile of IHEs was further subdivided into two subgroups, with the top subgroup containing the top 5% of IHEs ranked according to COA, and the other subgroup containing the next 15%. Table 2 shows the number and percent of IHEs in each COA category. It also shows the distribution of institutions within each category by sector. Table 2. Institutions Participating in the Campus-Based Programs, Categorized by COA and Sector: AY2004-2005 1. Low 2. Lower- 3. Middle cost mid cost cost Less than $7,500 to $9,000 to COA $7,500 $8,999 $11,499 Institutions 798 805 775 (% of total) 20.1% 20.3% 19.5% Distribution by sector Public 2-yr. 576 375 15 Public 4-yr. 9 148 272 Private 2-yr. 17 23 45 Private 4-yr. 8 18 138 Proprietary 188 241 305 Category 4 .Upper- 5. High 6. Very mid cost cost high cost $11,500 to $16,500 to $26,000 $16,499 $25,999 and above 792 605 194 20.0% 15.2% 4.9% 4 102 58 397 231 3 18 21 513 50 0 1 2 187 4 Total 3,969 100% 973 550 166 1,261 1,019 Sources: CRS calculations; U.S. Department of Education, Office of Postsecondary Education, FISAP data, Feb. 27, 2004. The relationship between institutional sector and COA is noteworthy. As might be expected, most public two-year IHEs are in the two lowest cost categories and the majority of private four-year IHEs are in the high-cost and very high-cost categories. 23 Each quintile contains approximately, but not exactly, the same number of institutions, because cut points between categories were rounded to the nearest hundred dollars for ease of presentation. Thus, each grouping consists of institutions with COAs falling within specified ranges. The number of IHEs within each COA category varies from program to program, because the various institutions have elected to participate in different combinations of programs (program participation by institutional COA category is shown in Table 12). Finally, since COA is calculated separately for undergraduate students and graduate and professional students, a weighted average of the two is used in this analysis. CRS-13 However, some private four-year IHEs are middle cost, and a few are low cost. Public four-year and proprietary institutions are distributed somewhat evenly across the lower-middle to upper-middle cost categories. Since the allocation formulas are based in large part on an institution’s COA, yet do not take into account its sector, it is expected that the use of COA as a unit of analysis will lead to more telling observations about how the allocation formulas affect the amount of funds IHEs receive and ultimately, the distribution of aid to students attending those institutions. Base Guarantee As explained earlier, under current law, IHEs participating in the campus-based programs receive a base guarantee that bears a direct relationship to the amount of funding they received in prior years. At the time the fair share allocation formulas were introduced, it was anticipated that base guarantees would eventually be phased out, and that this would be done gradually in a manner that would not result in wild fluctuations in the amount of funds institutions received. For the FSEOG program, provisions to phase out the base guarantee were even included as part of the authorizing statute for a period of time. Under the Higher Education Amendments of 1980 (P.L. 96-374), the allocation procedures were amended to call for a 20% decrease in each institution’s base guarantee for every $20 million appropriated for the program in excess of $400 million. However, the Higher Education Act Technical Amendments of 1982 (P.L. 97-301) prevented this provision from being implemented. Since then, base guarantees have remained a part of the allocation procedures for each of the campus-based programs.24 Under the Higher Education Amendments of 1986 (P.L. 99-498) the campusbased allocation procedures were amended to provide IHEs with base guarantees equal to 100% of their 1985 allocation. The revised allocation procedures also provided that after base guarantees were awarded, 25% of the funds remaining from each program’s appropriation were then allocated (as pro rata shares) to IHEs in amounts proportional to their base guarantees. Only 75% of the funds remaining after the allocation of base guarantees were allocated according to the fair share formulas. Under the Higher Education Amendments of 1998 (P.L. 105-244), the procedures for determining base guarantees were revised again. These procedures (described earlier in this report) remain in effect. Prior to the Higher Education Amendments of 1986, the campus-based allocation procedures had specified that funds would first be apportioned to states, primarily on the basis of the population in each state, prior to being allocated to IHEs. Thus, an IHE’s allocation depended in part on the state in which it was located. Since the 1986 Amendments, ED has allocated funds directly to IHEs and the state in which an institution is located has not played a direct role in funding allocations. However, the legacy of the base guarantee allocation procedures has had the effect of perpetuating the distribution of funds to IHEs in a manner that to an extent reflects the distribution of the student age population across states and IHE’s institutional 24 P.L. 97-301 effectively established base guarantees (at the time, referred to as conditional guarantees) set at the FY1981 funding level, for each of the three programs, for FY1983 through FY1985. CRS-14 need as they existed years ago. Given that institutions have grown at different rates, and so has the aggregate financial need of their students, some institutions’ base guarantees may be close to or even exceed their fair share of funds, while other’s base guarantees may represent only a fraction of their fair share. Often, IHEs have grown faster in some parts of the country than in others. Table 3 shows (a) the total number of IHEs participating in each of the campusbased programs, (b) the number of IHEs with base guarantees that are greater than their fair share, and (c) the number that are eligible to receive a fair share increase above their base guarantee allocation. The table also shows (d) the percentage of total program funding that is allocated for base guarantees. Totals are provided for each program, as well as by COA categories, and by state. The table shows that the majority of the funding provided for each of the campus-based programs is allocated to meet institutions’ base guarantees. In the FWS program, two-thirds of funding goes to base guarantees and for the Perkins Loan program, over 92% of funding is provided to meet base guarantees. There does not appear to be a strong relationship between institutional COA and whether IHEs receive funding only according to base guarantee procedures, or if they also receive a fair share increase. However, in each of the programs, middle-cost IHEs receive a somewhat greater proportion of their funding for base guarantees than do IHEs on average. Also, under the FSEOG program, very high-cost IHEs are allocated a much greater proportion of their funding for base guarantees than are IHEs on average. When examining the proportion of funds allocated for base guarantees by state, Table 3 shows wide variation in the FSEOG and FWS programs. In some states, more than 90% of funding goes toward meeting base guarantees, while in others base guarantees comprise less than half of total allocations. This degree of variation may have resulted in part because in some states, IHEs may have seen considerable growth in institutional need since the base guarantee procedures were implemented, whereas in others, base guarantee funding meets or exceeds total institutional need for most institutions. In the Perkins Loan program, more than 90% of funds are allocated for base guarantees in all but a few states. This is likely because, in contrast to the other two campus-based programs, appropriations for Perkins Loan FCCs have decreased substantially since the early 1980s. When appropriations decrease, base guarantees comprise a greater proportion of total funding. Through FY2004, funds remained available for Perkins Loan FCC base guarantees and fair share increases, despite declining appropriations, largely because a considerable number of institutions have ceased participation in the program. Had this not occurred, it is likely that funds would have been available only for the allocation of base guarantees. (No funds were appropriated for Perkins Loan FCCs for FY2005.) Given that more than half of funds appropriated for the campus-based programs are allocated for base guarantees, if base guarantees were to be reduced or phased out so that all funds were allocated according to the fair share formulas, there could be a noticeable shift in the distribution of funds allocated to IHEs. Any change in the distribution of funds to IHEs would be due to the application of the fair share formulas. The fair share formulas are analyzed in the next section. CRS-15 Table 3. Institutions for Which the Base Guarantee Is Greater Than Its Fair Share Versus Institutions Receiving a Fair Share Increase; and Percent of Total Funding Allocated for Base Guarantees, by COA Category and State, by Program: (AY2004-2005) FSEOG FWS Institutionsa Category Total COA Category 1. Low cost 2. Lower-mid cost 3. Middle cost 4. Upper-mid cost 5. High cost 6. Very high cost State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Pct. of total funding Base allocated Eligible for guarantee for base fair share Total b >= fair guarantees increase share 3,804 1,025 2,779 59.2% Perkins Loans (FCC) Institutionsa Pct. of total funding Base allocated Eligible for guarantee for base fair share Total b >= fair guarantees increase share 3,359 983 2,376 66.2% Institutionsa Pct. of total funding Base allocated Eligible for guarantee for base fair share Total b >= fair guarantees increase share 1,392 607 785 92.6% 784 798 755 735 562 170 282 204 199 181 123 36 502 594 556 554 439 134 52.5% 56.6% 60.4% 56.6% 59.8% 71.0% 640 623 614 703 592 187 159 164 225 224 180 31 481 459 389 479 412 156 61.1% 70.0% 76.9% 68.2% 60.3% 57.4% 42 137 270 344 436 163 24 55 123 153 179 73 18 82 147 191 257 90 96.0% 91.6% 94.6% 91.9% 92.3% 91.6% 63 7 59 45 401 62 54 9 13 157 109 11 4 17 15 97 15 16 1 4 34 12 52 3 42 30 304 47 38 8 9 123 97 53.7% 90.1% 48.0% 60.3% 53.0% 54.9% 70.4% 70.6% 55.3% 44.7% 41.8% 61 6 45 40 343 54 44 8 12 130 109 20 4 10 22 64 11 10 1 0 25 25 41 2 35 18 279 43 34 7 12 105 84 75.7% 94.7% 69.8% 87.0% 55.9% 64.5% 65.3% 83.9% 36.1% 49.7% 56.6% 14 0 14 12 125 29 14 1 7 34 21 5 N/A 3 7 52 14 6 1 2 8 5 9 N/A 11 5 73 15 8 0 5 26 16 87.9% N/A 85.3% 97.5% 92.5% 95.8% 91.2% 100.0% 81.4% 73.2% 92.3% CRS-16 FSEOG FWS Institutionsa Category Total Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota 17 11 152 62 72 60 51 59 32 62 124 92 90 34 85 21 36 13 24 87 22 263 120 21 Pct. of total funding Base allocated Eligible for guarantee for base fair share b >= fair guarantees increase share 8 9 90.6% 7 4 74.6% 42 110 52.4% 10 52 58.3% 20 52 60.2% 27 33 83.4% 11 40 45.6% 18 41 51.2% 19 13 95.3% 16 46 66.1% 51 73 85.0% 33 59 69.3% 30 60 77.7% 9 25 65.6% 16 69 55.7% 5 16 58.1% 10 26 71.2% 1 12 40.9% 7 17 80.2% 24 63 57.9% 13 9 76.6% 64 199 49.4% 26 94 66.8% 11 10 93.5% Perkins Loans (FCC) Institutionsa Total 13 11 135 56 58 53 37 39 27 59 103 86 82 33 81 21 30 11 22 57 21 245 119 21 Pct. of total funding Base allocated Eligible for guarantee for base fair share b >= fair guarantees increase share 4 9 94.7% 2 9 75.0% 29 106 52.1% 12 44 59.4% 20 38 64.7% 29 24 85.0% 23 14 76.8% 14 25 78.8% 16 11 95.8% 19 40 68.5% 42 61 83.1% 29 57 67.8% 37 45 77.3% 13 20 85.7% 19 62 62.3% 11 10 93.0% 9 21 73.6% 0 11 54.0% 9 13 82.2% 19 38 68.4% 12 9 88.1% 70 175 55.0% 28 91 68.4% 11 10 95.4% Institutionsa Total 3 6 57 37 33 26 32 16 16 22 56 26 41 10 40 7 16 4 15 16 10 115 42 14 Pct. of total funding Base allocated Eligible for guarantee for base fair share b >= fair guarantees increase share 3 0 100.0% 5 1 99.4% 21 36 90.8% 21 16 93.2% 20 13 95.6% 21 5 96.9% 14 18 93.8% 7 9 96.2% 8 8 98.5% 9 13 91.1% 22 34 93.3% 16 10 98.0% 25 16 93.4% 3 7 98.4% 16 24 91.0% 3 4 98.5% 8 8 98.9% 0 4 90.8% 5 10 95.8% 7 9 91.7% 6 4 93.8% 35 80 88.8% 20 22 94.7% 6 8 95.4% CRS-17 FSEOG FWS Institutionsa Category Total Ohio Oklahoma Oregon Pennsylvania Puerto Rico Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming Outlying Areas 137 61 49 191 60 17 58 21 99 205 19 22 95 69 33 61 9 9 Pct. of total funding Base allocated Eligible for guarantee for base fair share b >= fair guarantees increase share 25 112 54.7% 23 38 66.4% 26 23 87.9% 30 161 55.6% 8 52 48.3% 5 12 58.0% 7 51 49.8% 11 10 87.6% 30 69 50.4% 47 158 50.1% 11 8 66.4% 16 6 93.7% 18 77 57.7% 19 50 84.5% 13 20 69.3% 30 31 88.4% 2 7 55.4% 0 9 22.4% Perkins Loans (FCC) Institutionsa Total 117 53 44 168 56 13 54 22 95 168 17 22 87 67 30 56 9 9 Pct. of total funding Base allocated Eligible for guarantee for base fair share b >= fair guarantees increase share 21 96 65.2% 22 31 75.7% 18 26 82.7% 30 138 62.1% 15 41 82.1% 4 9 68.0% 15 39 73.9% 14 8 95.2% 26 69 62.4% 44 124 67.8% 7 10 71.1% 12 10 88.0% 31 56 68.5% 17 50 77.7% 13 17 86.6% 20 36 80.8% 2 7 66.9% 3 6 89.3% Institutionsa Total 68 15 29 87 6 9 22 11 33 49 11 10 36 26 17 30 2 0 Pct. of total funding Base allocated Eligible for guarantee for base fair share b >= fair guarantees increase share 28 40 89.7% 5 10 97.2% 15 14 93.5% 25 62 90.9% 4 2 98.3% 3 6 87.8% 10 12 95.4% 8 3 99.0% 19 14 91.5% 22 27 95.4% 9 2 97.9% 4 6 95.2% 14 22 91.0% 9 17 93.9% 4 13 96.7% 23 7 96.9% 1 1 95.4% N/A N/A N/A Source: CRS calculations; U.S. Department of Education, Office of Postsecondary Education, Campus-Based Programs Allocation Data, Apr. 2, 2004. Note: N/A. Not applicable. a. Includes only those institutions for which information necessary for the calculation of COA has been reported. Institutions for which this information is not available are generally first or second year program participants. b. Institutional base guarantee as a percentage of total institutional funding allocations prior to allocation reductions for the underutilization of funds and the reallocation of underutilized funds from prior award years. CRS-18 Fair Share Increases Under the fair share formulas, IHEs are eligible to receive fair share increases to help reduce the shortfall between their base guarantee and their fair share of funds. Earlier in this report, it was shown that an institution’s fair share is the amount of funds it would receive if the total appropriation were allocated entirely on the basis of institutional need. It was also explained that institutional need is an expression of the relationship between the average cost of attendance (COA) at an institution and the average expected family contributions (EFCs) of the FSA applicants who are students at that institution. This section examines the relationship between COA and EFC in detail and shows how this affects the amount of funds IHEs receive for fair share increases. Average Student EFCs Used in Fair Share Formulas. When the fair share formulas were developed, a uniform methodology was adopted in which average EFCs are calculated for categories of students grouped by income bands and dependency status, in lieu of using actual EFCs of the students at each institution.25 This procedure was adopted, in part, because it could be administratively burdensome for institutions to collect and report EFCs for each student in attendance and because it is presumed that students with the same dependency status and with comparable incomes will have similar EFCs.26 In implementing the fair-share formulas, ED calculates average EFCs for students categorized into 14 income bands. Students who have received an automatic zero EFC based on the information reported in their FAFSA, are assigned an EFC of $0.27 (The Table of EFCs is shown in Table 1). The income bands used in the Table of EFCs are determined administratively by ED and have been adjusted only a few times since the formulas were first implemented. The last revision to the income bands occurred in 1994 for the 1995-1996 award year, when the highest income bands were raised to $60,000 and above for dependent students, and to $20,000 and above for independent students; and some lower income bands were consolidated.28 25 U.S. Office of Education, Final Report of the Panel of Experts, pp. 72-74. 26 Presumably it might now be feasible for IHEs to collect and report information on students’ actual EFCs. However, the current practice of determining campus-based funding allocation prior to the start of each award year still necessitates that fair share allocations be based on the characteristics of the students that attended participating IHEs in prior award years. 27 At present, a dependent student receives an automatic zero EFC if neither the student nor his or her parents were required to file an IRS Form 1040 and the parents’ combined adjusted gross income or earned income is less than $15,000. An independent student with dependents other than a spouse receives an automatic zero EFC if the student (and his or her spouse, if applicable) was not required to file an IRS Form 1040 and the student’s (and spouse’s) combined adjusted gross income or earned income is $15,000 or less. The FISAP data analyzed in this report includes eligible students attending participating institutions in AY2002-2003, in which the income cut-off to receive an automatic zero was $13,000. 28 U.S. Department of Education. Dear Financial Aid Administrator Letter. CB-94-9. May 1994. Previously, the highest income band was $45,000 and above for undergraduate dependent students, and $15,000 and above for undergraduate independent students, and for (continued...) CRS-19 Since the relationship between an institution’s COA and students’ average EFCs determines its institutional need, it is important that the average EFCs for each income band reflect as closely as possible the actual EFCs of students at participating institutions. It appears, however, that with the growth in incomes that has occurred over the years, the current income bands used in the fair share formulas may no longer be as reliable a proxy of actual student EFCs for upper-income students as they once were because so many students are in the highest income category. At many institutions — particularly high-cost institutions — students in the highest income category often comprise the largest group of students. At low-cost IHEs, students in the higher-income categories do not contribute to the tabulation of institutional need because their composite EFC is typically greater than the IHE’s COA. However, at high-cost institutions, the need calculated for students in the upper income bands often constitutes the majority of institutional need. The table of EFCs also does not take into account whether independent students have their own dependents. (In general for FSA purposes, independent students with dependents and those without are categorized separately.) Since slightly more than half of undergraduate students are classified as independent for FSA purposes, and with the significant effect that having dependents typically has on lowering students’ EFCs, calculating average EFCs for independent students without taking into account whether they have their own dependents may result in average EFCs that mask or cancel out the differences in EFCs that exist for independent students with dependents and those without dependents. This could affect the calculation of institutional need if independent students with dependents and those without dependents are unevenly distributed across institutions. For example, if independent students with dependents attend certain institutions in greater (or lower) proportions than do independent students without dependents, then the practice of combining all independent students as a single group could result in lower (or higher) amounts of institutional need being calculated for them than otherwise might occur if independent students were treated separately.29 Figure 2 shows estimates based on data from the 2004 National Postsecondary Student Aid Survey (NPSAS) of the number of undergraduate dependent students in each of the income bands of the Table of EFCs used in the campus-based formulas.30 The distribution of students is concentrated at the middle- and upper-income categories, with the most students in the highest income band. This distribution 28 (...continued) graduate and professional students 29 Analysis of NPSAS 2004 data shows that within some of the income categories used in the Table of EFCs, the proportion of undergraduate independent students with dependents versus the proportion of undergraduate independent students without dependents differs across institutional sectors. 30 NPSAS 2004 data presented in Figure 2 and Figure 3 are filtered to include only students who applied for federal aid. This represents an approximation of the population that completed a FASFA, which is the population used by ED in preparing the Table of EFCs. This is a larger population than that of students who attend institutions participating in the campus-based programs. Since not all FAFSA filers ultimately attend a postsecondary institution, there may be differences between the NPSAS sample and the complete FAFSA database. CRS-20 suggests that a more accurate reflection of upper-income students EFCs could be obtained if additional income bands were added for dependent students from families with incomes above $60,000. Figure 2. Estimated Distribution of Dependent Students Who Applied for Federal Aid Across Income Categories in Table of EFCs: 2003-2004 $0 to $2,999 $3,000 to $5,999 $6,000 to $8,999 $9,000 to $11,999 Income Category $12,000 to $14,999 $15,000 to $17,999 $18,000 to $23,999 $24,000 to $29,999 $30,000 to $35,999 $36,000 to $41,999 $42,000 to $47,999 $48,000 to $53,999 $54,000 to $59,999 $60,000 and above 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 Students Source: U.S. Department of Education. National Center for Education Statistics. NPSAS 2004. Undergraduate Students. Figure 3 shows estimates of the number of independent undergraduate students, and graduate and professional students in each of the income bands used in the Table of EFCs (Table 1). However, unlike the Table of EFCs, it also distinguishes between independent students with dependents (both undergraduate, and graduate and professional) and those without. Figure 3 shows that independent students are concentrated in the highest income band. It also shows that independent students with dependents and those without dependents are distributed unevenly across income bands. Similar to the case with dependent students, it appears that more accurate calculations of average EFCs might be obtained for independent students if the top income band were broken up into multiple categories. In addition, given the uneven distribution of independent students with and without dependents across the various income bands, it appears that better approximations of students’ actual EFCs could be made if average EFCs were calculated separately for independent students with and without dependents. CRS-21 Figure 3. Estimated Distribution of Independent Students Who Applied for Federal Aid Across Income Categories in Table of EFCs: 2003-2004 $0 to $999 Undergrad. Indep. w/o Dependent $1,000 to $1,999 Undergrad. Indep. with Dependent Grad./Prof. w/o Dependent $2,000 to $2,999 Grad./Prof. with Dependent* $3,000 to $3,999 Income Category $4,000 to $4,999 $5,000 to $5,999 $6,000 to $7,999 $8,000 to $9,999 $10,000 to $11,999 $12,000 to $13,999 $14,000 to $15,999 $16,000 to $17,999 $18,000 to $19,999 $20,000 and above 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 Students Source: U.S. Department of Education. National Center for Education Statistics. NPSAS 2004. Undergraduate Students; and Graduate and First Professional Students. Note: *Too small to be reported for all categories except $12,000 to $13,999, and $20,000 and above. Average Need per Student. While at any particular institution, students with the lowest incomes may be the primary recipients of campus-based aid, the amount of institutions’ allocations as determined under the campus-based fair share formulas, by design, is based on the aggregate need of all students eligible for FSA aid at the institution. In the current postsecondary education environment in which college costs have been rising rapidly in recent years, it is not uncommon under the fair share formulas for institutional need at higher-cost IHEs to be comprised largely of the financial need of middle- and upper-income students, whereas at lower-cost IHEs, institutional need is comprised primarily of the financial need of lower- and middleincome students. In many instances, students attending high-cost institutions who are from upper-income families have more financial need than students attending lower-cost institutions who are from lower-income families. Institutional need is the sum of the financial need of the students attending any particular IHE. The critical factor in the calculation of institutional need is the relationship between institutional COA and students’ composite EFCs. At lower-cost IHEs, upper-income students’ composite EFCs are often so high relative to COA that under the formulas, they do not contribute to institutional need. However at highercost IHEs, the relationship between the EFC assigned to students in the highest- CRS-22 income band and COA often still results in financial need being calculated for those students. Combined with the even greater need calculated for lower-income students, this can result in very high amounts of institutional need being calculated for highcost IHEs. Figure 4 shows the average amount of need calculated under the fair share formulas for each program, by category of institution, on a per-student basis. Figure 4. Average Amount of Need Calculated per Eligible Student According to the Fair Share Formulas, by COA Category: AY2004-2005 $12,000 Need per Eligible Student $10,000 $8,000 $6,000 $4,000 $2,000 $0 1. Low cost FSEOG* FWS** 2. Lower-mid cost Perkins Loans*** 3. Middle cost 4. Upper-mid cost 5. High cost 6. Very high cost COA Category Sources: CRS calculations; U.S. Department of Education. Office of Postsecondary Education. FISAP data (Feb. 27, 2004). Notes: *FSEOG need; **Self-help need; ***Adjusted self-help need. Figure 4 demonstrates that on a per-student basis, the largest amounts of need are calculated for IHEs with the highest COAs. While it is not surprising that students with any given EFC will have more need if they attend institutions with high COAs than if they attend lower-cost institutions, the effect that this has on the distribution of aid to institutions and the subsequent availability of aid to students attending these institutions is striking. This is especially so, because as will be shown later in this report, low- and middle-income students constitute the greatest proportion of students at low-cost institutions, and upper-income students make up the greatest proportion of those attending high-cost institutions. The design of the fair share formulas, however, results in significantly greater amounts of need being calculated for students at high-cost institutions than for students at low-cost institutions. In many instances, significantly more need is calculated for upperincome students at high-cost institutions than for students with very low EFCs who attend low-cost institutions. This highlights a very important point about need-based financial aid — need is relative to the COA at the institution a student attends. Relationship Between Student Need and Maximum Award Amounts. The fair share allocation procedures were developed to ensure that CRS-23 campus-based funding would be allocated to IHEs objectively on the basis of need. However, since COAs are so high at some institutions, the amount of need calculated on a per-student basis at higher-cost institutions often far exceeds the maximum amount authorized to be awarded to students under the FSEOG and Perkins Loan programs (see Table 4). (There is no specific maximum award amount in the FWS program.) Thus, if sufficient federal funding were to be made available to provide institutions with allocations equal to their institutional need, some conceivably would be unable to distribute it all as campus-based aid to students because of statutory limitations on maximum award amounts and because of the requirement that federal funds must be matched with institutional funds (generally according to a 3:1 ratio). Table 4. Maximum Award Amounts by Program Perkins Loansb Program Maximum Award FSEOGa $4,000 FWS student’s unmet need Undergraduate $4,000 Grad./Prof. $6,000 Sources: HEA, §§413B, 413C, 443,463, 464. a. Maximum award may be increased to $4,400 for students studying abroad. b. Maximum award may be increased by 20% for students studying abroad. Tabulation of Institutional Need. It was just shown that there are stark differences between institutions with high and low COAs in the amount of need calculated on a per-student basis. This section shows that there are also significant differences between categories of IHEs in how the aggregate financial need of different types of students contributes to the tabulation of institutional need. The tabulation of institutional need is examined for each of the three campus-based programs below. FSEOG Need. Figure 5 shows for each of the categories of IHEs grouped by COA how FSEOG Need is the aggregate financial need attributable to different types of students. It also shows the effect that subtracting total Pell Grant and LEAP/SLEAP aid awarded to students has in the determination of FSEOG need. Each column represents the aggregate financial need of students attending IHEs in each category. Shaded areas within each column represent the portion of aggregate financial need attributable to different types of students. The checkered area in the negative portion of the graph represents Pell Grant and LEAP/SLEAP aid awarded to students at IHEs in each category. Total aggregate FSEOG need per category is indicated by the black bars. (This shows the result of subtracting Pell Grant and LEAP/SLEAP aid from aggregate student financial need.) The table at the bottom of the figure shows dollar amounts of aggregate financial need attributable to different types of students, as well as total Pell Grant and LEAP/SLEAP aid. Upon examination, it is evident that undergraduate independent students, particularly those with incomes of less than $16,000, have the greatest amount of need in the aggregate and that the need calculated for these students represents the greatest portion of total need at the lowest-cost institutions. It is also apparent that CRS-24 significant amounts FSEOG need are calculated for undergraduate dependent students in the highest income band only at institutions with the highest COAs. In each successively higher-cost group of institutions, greater amounts of need are calculated for students in the higher income bands, while lesser amounts are calculated for students in the lower income bands. Figure 5. Aggregate FSEOG Need Attributable to Eligible Students by Type and Income, by COA Category: AY 2004-2005 $10,000,000,000 $8,000,000,000 Aggregate FSEOG Need $6,000,000,000 $4,000,000,000 $2,000,000,000 $0 -$2,000,000,000 -$4,000,000,000 1. Low cost 2. Lower-mid cost 3. Middle cost 4. Upper-mid cost 5. High cost 6. Very high cost Dependent: $60,000 and above $1,000 $0 $12,000 $0 $688,000 $492,974,000 Dependent: $42,000 to $59,999 $30,361,000 $112,463,000 $403,001,000 $690,803,000 $1,065,276,000 $647,746,000 $567,870,000 $859,644,000 $1,307,349,000 $1,312,269,000 $1,326,693,000 $699,869,000 Dependent: $24,000 to $41,999 Dependent: $0 to $24,000 Independent: $16,000 and above $1,396,792,000 $1,565,210,000 $1,976,237,000 $1,495,904,000 $1,128,341,000 $424,657,000 $967,098,000 $1,188,269,000 $1,531,803,000 $958,191,000 $577,506,000 $137,128,000 Independent: $0 to $15,999 $3,028,352,000 $3,282,656,000 $3,293,847,000 $2,358,378,000 $1,113,979,000 $236,192,000 Pell Grant & LEAP/SLEAP aid -$2,570,180,000 -$3,144,642,000 -$2,942,074,000 -$1,733,552,000 -$787,798,000 -$224,527,000 Aggregate FSEOG need COA Category Sources: CRS calculations; U.S. Department of Education. Office of Postsecondary Education. FISAP data (Feb. 27, 2004); U.S. Department of Education. Office of Postsecondary Education. Campus-Based Programs Allocation Data (Apr. 2, 2004). Figure 5 also shows how the amount of need calculated for students is offset by the amount of the Pell Grant and LEAP/SLEAP aid students receive. (Nearly all CRS-25 of the aid shown in the Pell Grant and LEAP/SLEAP category is Pell Grant aid). With Pell Grants serving as the foundation of need-based aid for low-income students, it is not surprising that Pell Grants are received in the greatest amounts by students attending the lowest-cost IHEs, which are attended by low-income students in the greatest proportions.31 With few students at high-cost schools receiving Pell Grants, FSEOG need at these IHEs is affected only slightly by the subtraction of Pell Grant aid. The comparatively small amount of LEAP/SLEAP aid is distributed relatively evenly across categories of IHEs and FSEOG need is not disproportionately affected by its subtraction in any category of institutions. As previously mentioned, the formula for calculating FSEOG need was designed with the presumption that 75% of college costs would be met through the combination of students’ EFC, scholarships, and grants (in the current formula, EFC and federal grants). Pell Grant and LEAP/SLEAP aid are subtracted from the amount of aggregate student need calculated in the formula to ensure that FSEOG funding is provided to supplement Pell Grant and other gift aid, but not duplicate it. Since the time when the formulas were last amended, higher education tax benefits (e.g., the Hope and Lifetime Learning Tax Credits, and the Higher Education Deduction) have evolved as a new type of federal financial assistance that shares an essential characteristic with gift aid — namely, that students’ (or their parents’) receipt of the credits is not conditioned on any non-academic obligation (e.g., repayment of funds, or a service requirement). Gift aid and tax benefits may be referred to as obligationfree aid.32 The FSEOG need formula, however, does not contain any provision that would account for the receipt of higher education tax benefits by eligible students. The different treatment of the various types of obligation-free aid could be of concern when considering their effect on the calculation of FSEOG need. Pell Grants are targeted to low-income students who disproportionately attend low-cost institutions, while the Hope and Lifelong Learning higher education tax credits are primarily beneficial to middle- and upper-income students. Since Pell Grants (and LEAP/SLEAP aid) are subtracted from the student need computed under the FSEOG need formula and Hope and Lifelong Learning tax credits are not, this may affect how closely FSEOG need, as calculated, represents actual aggregate student need. While it appears that subtracting out tax credit aid might make the FSEOG need formula more equitable than it currently is in determining aggregate student need — especially when distinguishing between institutions attended by students with different incomes — there does not appear to be any easy way for IHEs to gather and report the value of tax credits on the FISAP for use in the allocation of funds. 31 The actual number of eligible applicants by income and dependency status is shown for each category of IHEs in Table 8, which appears later in this report. 32 For a more thorough discussion of obligation-free aid, especially the Hope and Lifelong Learning higher-education tax credits, see CRS Report RL31484, Higher Education Tax Credits: Targeting, Value, and Interaction with Other Federal Student Aid, by Adam Stoll and James B. Stedman; and CRS Report RL31129, Higher Education Tax Credits and Deduction: An Overview of the Benefits and Their Relationship to Traditional Student Aid, by Adam Stoll, James B. Stedman, and Linda Levine. CRS-26 FWS Self-Help Need. In the FWS program, the aggregate amount of institutional self-help need tabulated for different types of students differs noticeably between categories of IHEs. Figure 6 shows that in the category of institutions with the lowest COAs, more than 80% of all self-help need is attributable to either undergraduate independent students or to undergraduate dependent students who are from families with incomes below $24,000. Conversely, in the category of IHEs with the highest COAs, less than 8% of self-help need is attributable to these types of students, while more than 80% is attributable to either dependent undergraduate students from families with incomes above $60,000 or to graduate and professional students. (For purposes of comparison, it is important to note that the two highest cost categories of IHEs account for the top 5% and 15% of IHEs, respectively, based on COA, while the other four categories each account for 20% of IHEs.) Figure 6 clearly shows that at high-cost IHEs very little self-help need is attributable to undergraduate independent students and lower-income dependent students, while the vast majority of self-help need is attributable to upper-income dependent and graduate and professional students. A major reason why such large amounts of self-help need are calculated for the highest-cost IHEs has to do with the treatment of graduate and professional students in the formula for calculating self-help need. For undergraduate students, self-help need is calculated by multiplying the number of students in each income band by the minimum of either (a) 25% of the IHE’s average undergraduate COA or (b) the difference between undergraduate COA and the EFC taken from the Table of EFCs for students in that income band. However, for graduate and professional students, self-help need is calculated exclusively by multiplying the number of students in each income band by the difference between graduate and professional student COA and the EFC taken from the Table of EFCs for students in each respective income band. For undergraduate students, 25% of COA is often the lesser of the two amounts and thus serves to limit the amount of self-help need calculated for undergraduate students. For graduate and professional students, the difference between COA and EFC is often quite large — especially at higher-cost IHEs. With higher-cost IHEs often having large graduate programs, this characteristic of the self-help need formula contributes to high-cost institutions having large amounts of institutional need. This in turn provides them with higher funding allocations. CRS-27 Figure 6. Aggregate FWS Self-Help Need Attributable to Eligible Students by Type and Income, by COA Category: AY2004-2005 $6,000,000,000 $5,000,000,000 Aggregate Self-Help Need $4,000,000,000 $3,000,000,000 $2,000,000,000 $1,000,000,000 $0 1. Low cost 2. Lower-mid cost 3. Middle cost 4. Upper-mid cost 5. High cost 6. Very high cost $14,860,000 $219,336,000 Dependent: $60,000 and above $1,000 $0 $6,000 $2,164,000 $733,978,000 $1,359,643,000 Dependent: $42,000 to $59,999 $129,992,000 $286,524,000 $587,040,000 $576,741,000 $588,864,000 $298,772,000 Dependent: $24,000 to $41,999 $371,362,000 $500,474,000 $666,352,000 $599,161,000 $543,180,000 $267,951,000 Dependent : $0 to $24,000 $494,980,000 $549,338,000 $680,729,000 $516,458,000 $390,230,000 $196,715,000 Independent: $16,000 and above $900,099,000 $545,364,000 $70,260,000 $412,642,000 $86,922,000 Graduate & Professional Independent: $0 to $15,999 $1,243,370,000 $1,615,625,000 $2,454,459,000 $2,621,633,000 $1,195,242,000 $1,004,470,000 $1,041,760,000 $1,065,246,000 $1,127,628,000 $1,126,203,000 $846,602,000 COA Category Sources: CRS calculations; U.S. Department of Education. Office of Postsecondary Education. FISAP data (Feb. 27, 2004); U.S. Department of Education. Office of Postsecondary Education. Campus-Based Programs Allocation Data (Apr. 2, 2004). Perkins Loan Adjusted Self-Help Need. In the tabulation of institutional need for the Perkins Loan program, Figure 7 shows that similar to the FWS program, there is also wide variation across categories of IHEs in the amount of institutional need attributable to different categories of students. However, in the Perkins Loan program, an even greater proportion of adjusted self-help need is accounted for by students attending higher-cost IHEs than is in the FWS program. (This occurs in part because, as was shown in Table 1, relatively few low-cost IHEs participate in the CRS-28 Figure 7. Aggregate Perkins Loan Adjusted Self-Help Need Attributable to Eligible Students by Type and Income, by COA Category: AY2004-2005 5,000,000,000 Aggregate Adjusted Self-Help Need 4,000,000,000 3,000,000,000 2,000,000,000 1,000,000,000 0 -1,000,000,000 1. Low cost 2. Lower-mid cost 3. Middle cost 4. Upper-mid cost 5. High cost 6. Very high cost 4,060,000 167,735,000 1,043,433,000 1,449,347,000 2,153,209,000 2,464,611,000 Dependent: $60,000 and above 0 0 1,000 376,000 666,250,000 1,250,956,000 Dependent: $42,000 to $59,999 12,692,000 121,220,000 478,729,000 468,934,000 507,457,000 274,378,000 Dependent: $24,000 to $41,999 33,536,000 204,252,000 519,568,000 457,763,000 457,046,000 246,772,000 Dependent: $0 to $23,999 42,920,000 224,717,000 474,995,000 359,644,000 316,951,000 181,138,000 Independent: $16,000 and above 83,445,000 582,835,000 591,738,000 645,650,000 447,350,000 65,383,000 Independent: $0 to $15,999 100,626,000 414,279,000 700,356,000 516,678,000 324,038,000 79,646,000 -8,436,000 -81,613,000 -369,182,000 -385,257,000 -441,700,000 -382,276,000 Graduate & Professional Projected collections Aggregate adjusted self-help need COA Category Sources: CRS calculations; U.S. Department of Education. Office of Postsecondary Education. FISAP data (Feb. 27, 2004); U.S. Department of Education. Office of Postsecondary Education. Campus-Based Programs Allocation Data (Apr. 2, 2004). ^Estimated. (Does not include allocation reductions and the reallocation of underutilized funds). Perkins Loan program.) Mirroring the FWS program, the majority of institutional need tabulated at high-cost IHEs is attributable to upper-income undergraduate students and graduate and professional students. The provision for adjusting selfhelp need by subtracting projected collections has a somewhat greater impact on middle- and higher-cost IHEs than on low-cost IHEs, largely because middle- and higher-cost institutions have larger loan portfolios. CRS-29 Summary In this second part of the report, it was shown that the majority of the funding provided for the campus-based programs currently is allocated to institutions on the basis of their base guarantees, while a comparatively smaller, but still significant, portion of funding is allocated for fair share increases. Depending on the degree to which the number of students attending any particular institution and the COA at that institution have changed since the current base guarantees were established, base guarantee funding may be greater than, less than, or equal to that IHE’s fair share of the nationwide total of funds available for allocation. Since proposals have been made to phase out base guarantees and require all campus-based funding to be allocated to IHEs on the basis of institutional need, the tabulation of institutional need was analyzed. This analysis has shown that the per-student amount of institutional need calculated for IHEs depends to a large extent on their COA. Significantly, on a per-student basis, greater amounts of institutional need are calculated for high-cost institutions than for low-cost institutions. This occurs despite higher-cost IHEs also generally having student bodies with higher EFCs. Consideration of Proposals to Phase Out Funding of Institutional Base Guarantees It has just been shown that at present, the majority of funding provided for the campus-based programs is allocated for base guarantees. Slightly more than 40% of funding is available for allocation according to fair share criteria for the FSEOG program, one-third for the FWS program, and less than 8% for Perkins Loan FCCs. With most funding being devoted to meeting institutional base guarantees, it might be expected that should the funding of base guarantees be phased out so that all funds would be allocated through the fair share formulas, shifts in the distribution of funds across institutions would occur. This part of the report estimates and analyzes the prospect of eliminating base guarantees in favor of allocating all campus-based funding according to the existing fair share formulas. This is done for each of the three campus-based programs following the framework used throughout this report — categories of institutions grouped by COA.33 33 The following assumptions are made in this analysis: (a) only IHEs that requested funds for the 2004-2005 award year and that reported information on the FISAP necessary for the calculation of fair share increases are included; (b) estimates are based on each institution’s request for funds for the 2004-2005 award year, even if it would have been eligible for a fair share increase that would bring its total allocation above the amount it requested; (c) the estimation of allocations to institutions also does not take into account any allocation reductions for an IHE’s underutilization of funds, nor allocation increases due to the reallocation of such funds; and (d) no attempt has been made to adjust for any changes that might occur in future award years in COAs, EFCs, the mix of students attending institutions, changes in aggregate Pell Grants and LEAP/SLEAP aid (for the FSEOG program), or changes in projected collections or default rates (for the Perkins Loan program). CRS-30 FSEOG Allocations Figure 8 shows a comparison of current FSEOG allocations and estimates of what IHEs might receive under the FSEOG program if all FSEOG funding were to be allocated according to fair share procedures. A comparison with the information presented in Figure 5 on institutional need by COA category shows that, in the aggregate, current allocations and estimated allocations based entirely on fair share procedures both roughly follow the distribution of aggregate institutional need across categories of IHEs. However, Figure 8 shows that there would be some redistribution of funds across categories of IHEs. Most notably, if funding for base guarantees were to be eliminated, middle-cost institutions (category 3) as a group would receive almost $5 million less in funding, while upper middle-cost institutions (category 4) would receive almost $3 million in additional funding. It is estimated that smaller changes in funding levels would occur for other categories of IHEs. Since approximately 40% of FSEOG funding is currently provided for fair share increases and because these fair share increases are designed to close any gaps that exist between the amount of funding an IHE receives for its base guarantee and the amount it would be entitled to receive if all funding were allocated according to fair share procedures, it may not be surprising that the elimination of base guarantees would result in only a modest redistribution of funds across categories of institutions. Figure 8. Comparison of FSEOG Allocations to IHEs Under Current Procedures and Estimated Allocations with Elimination of Base Guarantees, by Groups of Institutions, ranked by COA: AY2004-2005 $35,000 $30,000 $150,000,000 $25,000 $20,000 $100,000,000 $15,000 $10,000 $50,000,000 $5,000 $0 1. Low cost 2. Lower-mid cost 3. Middle cost 4. Upper-mid cost 5. High cost 6. Very high cost FSEOG: current procedures^ $88,439,000 $110,758,000 $165,064,000 $170,765,000 $151,239,000 $83,438,000 FSEOG: no base guarantee* $88,751,000 $111,887,000 $160,232,000 $173,510,000 $152,454,000 $83,621,000 $7,068 $8,078 $10,134 $13,413 $19,893 $29,523 784 798 755 735 562 170 Median COA Institutions Institutions Grouped by COA Category Sources: CRS calculations; U.S. Department of Education. Office of Postsecondary Education. FISAP data (Feb. 27, 2004); and U.S. Department of Education. Office of Postsecondary Education. Campus-Based Programs Allocation Data (Apr. 2, 2004). Notes: Does not include allocation reductions and the reallocation of underutilized funds. ^Actual. *Estimated. $0 Median COA FSEOG Allocations to Institutions (aggregate by group) $200,000,000 CRS-31 A cursory look at Figure 8 might suggest that eliminating base guarantees in favor of allocating all FSEOG funding according to fair share procedures would not have a significant effect on the distribution of funds. However, looking only at categories of institutions may mask the effects of changes in the allocation procedures on individual institutions. When examining the number of IHEs in each category that would experience a change in funding and the direction of that change, it is found that a considerable amount of churning would likely occur across all categories of IHEs. Table 5 shows estimates of the number of IHEs in each category that would experience an increase, no change, or a decrease in funding. Perhaps of most significance is that if funding for base guarantees were eliminated, vastly more institutions in each COA category would experience an increase in funding than would experience a decrease. However, the number of IHEs that would experience a decrease in funding is greatest in the low-cost category, and declines across categories as COA increases. Since more institutions would experience funding increases than decreases, this also means that on average, funding increases would be less for those institutions receiving more funds than would be funding decreases for those institutions losing funds. (Estimations of potential funding changes for individual institutions are beyond the scope of this report.) Table 5. Counts of Institutions by COA Category According to Estimated Change in FSEOG Allocation With Elimination of Base Guarantee 1. Low 2. Lower- 3. Middle cost mid cost cost Less than $7,500 to $9,000 to COA $7,500 $8,999 $11,499 Increase 442 510 472 No change 74 95 98 Decrease 268 193 185 Total 784 798 755 Category 4. Upper- 5. High 6. Very mid cost cost high cost $11,500 to $16,500 to $26,000 $16,499 $25,999 and above 481 415 131 85 37 5 169 110 34 735 562 170 Total 2,451 394 959 3,804 Sources: CRS calculations; U.S. Department of Education, Office of Postsecondary Education, FISAP data, Feb. 27, 2004; and U.S. Department of Education, Office of Postsecondary Education, Campus-Based Programs Allocation Data, Apr. 2, 2004. Note: In most instances where institutions would receive no change in their allocation, this is because the amount requested is less than the institution would be entitled to receive according to fair share criteria. These institutions likely would receive increased funding if requested. FWS Allocations Under the FWS program, approximately two-thirds of the funds available are allocated for base guarantees and one-third for fair share increases. With a somewhat greater percentage of funding currently allocated for base guarantees than under the FSEOG program, it might be expected that if base guarantees were to be eliminated, there would be a more noticeable shift than estimated for the FSEOG program in the distribution of funds. Figure 9 shows a comparison across COA categories of current FWS allocations and estimates of what IHEs might receive if all FWS funding were to be allocated according to fair share procedures. The figure shows CRS-32 that overall, middle-cost (category 3) and upper middle-cost (category 4) IHEs would experience sizable decreases in funding, while very high-cost (category 6) IHEs would experience a sizable funding increase. (Smaller changes in funding would occur in the other categories.) Given that two-thirds of FWS funding is currently allocated for base guarantees, it might be expected that there could also be a greater degree of churning within each category in the amount of funds estimated to be received than was found for the FSEOG program. Table 6 shows estimates of the number of IHEs in each category that would experience an increase, no change, or a decrease in funding if base guarantees were to be eliminated. The table shows that in each category, while more IHEs would experience an increase than a decrease in funding, the numbers are not as skewed as for the FSEOG program. Still, greater proportions of high-cost and very high-cost IHEs would experience funding increases if base guarantees were eliminated than would IHEs in any of the other categories. Figure 9. Comparison of FWS Allocations to IHEs Under Current Procedures and Estimated Allocations with Elimination of Base Guarantees, by Groups of Institutions, ranked by COA: AY2004-2005 $35,000 $250,000,000 $25,000 $150,000,000 $20,000 $15,000 $100,000,000 $10,000 $50,000,000 $5,000 $0 2. Lower-mid cost 3. Middle cost 4. Upper-mid cost 5. High cost 6. Very high cost $141,174,000 $206,203,000 $189,278,000 $195,583,000 $157,975,000 $138,814,000 $194,628,000 $184,565,000 $197,653,000 $172,600,000 $7,111 $8,041 $10,205 $13,543 $19,944 $29,562 640 623 614 703 592 187 1. Low cost FWS: current procedures^ $103,501,000 FWS: no base guarantee* $105,952,000 Median COA Institutions Institutions Grouped by COA Category Sources: CRS calculations; U.S. Department of Education. Office of Postsecondary Education. FISAP data (Feb. 27, 2004); and U.S. Department of Education. Office of Postsecondary Education. Campus-Based Programs Allocation Data (Apr. 2, 2004). Notes: Does not include allocation reductions and the reallocation of underutilized funds. ^Actual. *Estimated. $0 Median COA FWS Allocations to Institutions (aggregate by group) $30,000 $200,000,000 CRS-33 Table 6. Counts of Institutions by COA Category According to Estimated Change in FWS Allocation with Elimination of Base Guarantee Category COA Increase No change Decrease Total 1. Low 2. Lower- 3. Middle cost mid cost cost Less than $7,500 to $9,000 to $7,500 $8,999 $11,499 355 343 293 145 138 117 140 142 204 640 623 614 4. Upper- 5. High 6. Very mid cost cost high cost $11,500 to $16,500 to $26,000 $16,499 $25,999 and above 367 357 127 130 94 39 206 141 21 703 592 187 Total 1,842 663 854 3,359 Sources: CRS calculations; U.S. Department of Education, Office of Postsecondary Education, FISAP data, Feb. 27, 2004; and U.S. Department of Education, Office of Postsecondary Education, Campus-Based Programs Allocation Data, Apr. 2, 2004. Note: In most instances where institutions would receive no change in their allocation, this is because the amount requested is less than it would be entitled to receive according to fair share criteria. These institutions likely would receive increased funding if requested. Perkins Loan FCCs Under the Perkins Loan program, more than 92% of funding for FCCs is currently allocated for institutional base guarantees. Since only a small amount is allocated for fair share increases, it should be expected that if base guarantees were to be eliminated, the redistribution of FCC allocations would be greater than for the other two programs. Figure 10 shows a comparison across categories of institutions of current FCC allocations and estimated FCC allocations based on the elimination of the base guarantee. If base guarantees were to be eliminated, it is estimated that in the aggregate, lower middle-cost IHEs (category 2) and very high-cost IHEs (category 6) would experience increases in funding, while across the other categories, aggregate funding would decrease. Table 7 shows estimates of the number of IHEs in each category that would experience an increase, no change, or a decrease in allocations for FCCs if base guarantees were to be eliminated. Unlike the other two programs, the number of IHEs that would experience funding increases relative to the number that would experience decreases is not as great, and in one category — low-cost IHEs — more institutions would experience a decrease than an increase. Consistent with the other two programs, across COA categories, the greatest proportions of institutions that would experience allocation increases are high-cost and very high-cost IHEs. CRS-34 Figure 10. Comparison of Perkins Loan FCC Allocations to IHEs Under Current Procedures and Estimated Allocations with Elimination of Base Guarantees, by Groups of IHEs, ranked by COA: AY2004-2005 $35,000 $30,000 $25,000,000 $25,000 $20,000,000 $20,000 $15,000,000 $15,000 Median COA Perkins Loan FCC Allocations to Institutions (aggregate by group) $30,000,000 $10,000,000 $10,000 $5,000,000 $5,000 $0 1. Low cost 2. Lower-mid cost 3. Middle cost 4. Upper-mid cost 5. High cost 6. Very high cost FCC: current procedures^ $1,794,000 $8,086,000 $21,947,000 $20,427,000 $24,444,000 $19,436,000 FCC: no base guarantee* $1,304,000 $9,193,000 $19,051,000 $19,899,000 $24,163,000 $22,230,000 $6,989 $8,412 $10,144 $13,807 $20,360 $29,371 42 137 270 344 436 163 Median COA Institutions $0 Institutions Grouped by COA Category Sources: CRS calculations; U.S. Department of Education. Office of Postsecondary Education. FISAP data (Feb. 27, 2004); and U.S. Department of Education. Office of Postsecondary Education. Campus-Based Programs Allocation Data (Apr. 2, 2004). Notes: Does not include allocation reductions and the reallocation of underutilized funds. ^Actual. *Estimated. Table 7. Counts of Institutions by COA Category According to Estimated Change in Perkins Loan FCC Allocation with Elimination of Base Guarantee Category COA Increase No change Decrease Total 1. Low 2. Lower- 3. Middle cost mid cost cost Less than $7,500 to $9,000 to $7,500 $8,999 $11,499 16 78 149 3 5 5 23 54 116 42 137 270 4. Upper- 5. High 6. Very mid cost cost high cost $11,500 to $16,500 to $26,000 $16,499 $25,999 and above 195 266 94 5 11 4 144 159 65 344 436 163 Total 798 33 561 1,392 Sources: CRS calculations; U.S. Department of Education, Office of Postsecondary Education, FISAP data, Feb. 27, 2004; and U.S. Department of Education, Office of Postsecondary Education, Campus-Based Programs Allocation Data, Apr. 2, 2004. Note: In most instances where institutions would receive no change in their allocation, this is because the amount requested is less than the institution would be entitled to receive according to fair share criteria. These institutions likely would receive increased funding if requested. CRS-35 Summary In this part of the report, estimates were presented of shifts that might occur in the distribution of campus-based funding allocations across categories of IHEs should changes be made to phase out base guarantee funding in favor of allocating funding entirely according to fair share criteria. These estimates showed that since it is often higher-cost IHEs that currently receive less than their “fair share” as calculated according to the allocation procedures, these institutions in the aggregate would receive increased allocations if funding were to be allocated solely according to existing fair share procedures. Since the fair share formulas calculate greater amounts of need on a per-student basis for IHEs with high costs than low costs, this is not surprising. The estimates presented in this part were based on the prospect of eliminating base guarantees in favor of allocating all funding according to the existing fair share formulas. In general, it is estimated that this would result in more IHEs experiencing allocation increases than decreases, although across categories of institutions, highercost IHEs would experience allocations increases in the greatest proportions. If proposals were also made to modify the calculation of institutional need in some way, this could also affect the distribution of funds. For example, if the amount of FSEOG need or adjusted self-help need calculated on a per-student basis under fair share formulas were to be limited to the federal share of FSEOG or Perkins Loan awards, respectively, the amount of institutional need calculated on a per-student basis would vary significantly less across IHEs based on their cost of attendance. Additionally, more accurate calculations of aggregate student need might also be obtained if the income categories used in the Table of EFCs were revised upward to better reflect the incomes current FSA applicants. Thus, more significant changes in the distribution of funds across institutions could be brought about by both phasing out the funding for institutional base guarantees and by reexamining and modifying the fair share allocation procedures. Distribution of Campus-Based Aid to Students This last part of the report explores the distribution of aid to students under the campus-based programs. The framework developed earlier in the report — participating IHEs grouped into categories based on their average COA — is used to show the differences that exist between IHEs in the proportion of students with different incomes and dependency status that receive campus-based awards and the value of their awards. The distribution of awards is shown and briefly described for each of the three programs, and for combined aid awarded through all the programs. FSEOG Aid The distribution of FSEOG aid awarded to students is presented in Table 8. The table shows for all students combined and for categories of students grouped by income bands and dependency status, the total number of eligible aid applicants, the number and percent awarded FSEOG aid, and average award amounts. This information is presented for each COA category of IHEs. Very high-cost IHEs award CRS-36 FSEOG grants averaging $2,460 to 20.0% of students who applied for federal aid. This compares with low-cost IHEs which provide 12.2% of federal aid applicants with FSEOG aid; however, grants at these IHEs average only $432, or less than onefifth of the average amount provided to students at very high-cost institutions. When viewed as a percentage of median COA by category, FSEOG grants at very high-cost IHEs cover 8.3% of COA, while grants at low-cost IHEs cover 6.1% of COA. Table 8. Distribution of FSEOG Aid to Students Attending Institutions Participating in the FSEOG Program, by Student Type and Income, by COA Category: AY2002-2003 COA category 1. Low cost $7,068 784 2. Lower- 3. Middle 4. Upper- 5. High 6. Very mid cost cost mid cost cost high cost $8,078 $10,134 $13,413 $19,893 $29,523 798 755 735 562 170 Median COA Institutions All students Total FSEOG aid $99 mil. $135 mil. $219 mil. $224 mil. $204 mil. $149 mil. Aid applicants 1,917,279 2,214,390 2,241,813 1,551,039 867,656 302,927 Aid recipients 230,780 288,291 345,943 269,201 156,455 60,637 Pct. received aid 12.0% 13.0% 15.4% 17.4% 18.0% 20.0% Average award $432 $469 $633 $832 $1,304 $2,460 Undergraduate dependent: $60,000 and above Aid applicants 146,660 299,293 621,887 512,090 390,453 181,135 Aid recipients 475 844 3,141 4,293 3,892 2,538 Pct. received aid 0.3% 0.3% 0.5% 0.8% 1.0% 1.4% Average award $346 $597 $906 $930 $1,183 $2,010 Undergraduate dependent: $42,000 to $59,999 Aid applicants 121,411 174,826 234,444 172,203 114,466 40,056 Aid recipients 2,722 5,679 15,878 18,976 19,999 9,778 Pct. received aid 2.2% 3.2% 6.8% 11.0% 17.5% 24.4% Average award $419 $556 $787 $896 $1,262 $2,266 Undergraduate dependent: $24,000 to $41,999 Aid applicants 211,284 245,844 264,586 179,284 106,635 36,010 Aid recipients 17,214 29,113 54,661 57,816 50,233 22,767 Pct. received aid 8.1% 11.8% 20.7% 32.2% 47.1% 63.2% Average award $435 $495 $773 $922 $1,356 $2,494 Undergraduate dependent: $0 to $23,999 Aid applicants 284,411 271,887 276,056 155,879 77,372 26,504 Aid recipients 45,749 60,857 86,665 66,895 39,166 18,031 Pct. received aid 16.1% 22.4% 31.4% 42.9% 50.6% 68.0% Average award $456 $497 $707 $936 $1,522 $2,735 Undergraduate independent: $16,000 and above Aid applicants 541,142 651,623 389,988 287,262 100,507 8,194 Aid recipients 52,869 64,198 51,078 34,926 12,313 1,224 Pct. received aid 9.8% 9.9% 13.1% 12.2% 12.3% 14.9% Average award $406 $447 $503 $661 $849 $1,791 Total $9,905 3,804 $1.03 bil. 9,095,104 1,351,307 14.9% $763 2,151,518 15,183 0.7% $1,134 857,406 73,032 8.5% $1,112 1,043,643 231,804 22.2% $1,045 1,092,109 317,363 29.1% $895 1,978,716 216,608 10.9% $515 CRS-37 1. Low 2. Lower- 3. Middle 4. Upper- 5. High 6. Very Total cost mid cost cost mid cost cost high cost Median COA $7,068 $8,078 $10,134 $13,413 $19,893 $29,523 $9,905 Institutions 784 798 755 735 562 170 3,804 Undergraduate independent: $0 to $15,999 Aid applicants 612,371 570,917 454,852 244,321 78,223 11,028 1,971,712 Aid recipients 111,751 127,600 134,520 86,295 30,852 6,299 497,317 Pct. received aid 18.2% 22.4% 29.6% 35.3% 39.4% 57.1% 25.2% Average award $434 $455 $554 $742 $1,165 $2,165 $593 COA category Sources: CRS Calculations; ED, FISAP data, Feb. 27, 2004. Table 8 also shows that as institutional COA increases, IHEs are able to give larger FSEOG awards to greater proportions of students across almost all income bands. Perhaps what is most striking, however, is that at very high-cost IHEs, a greater percentage of undergraduate dependent students from families with incomes as high as between $42,000 and $60,000 receive FSEOG aid than do students in any income range in the two lowest-cost categories of IHEs. The average FSEOG awards provided to students at the highest-cost IHEs are also approximately four times as great as the amount received by students at low-cost IHEs. These findings are particularly noteworthy because IHEs are required to award FSEOG aid first to students with exceptional financial need (defined as having the lowest EFCs at the institutions), with priority going to recipients of Pell Grants.34 Thus, at some highercost IHEs, even after awarding FSEOG aid to all eligible Pell Grant recipients, there often remain sufficient funds to allow FSEOG aid to be provided to eligible students higher up the income ladder. At lower-cost IHEs, this typically is not the case. Given that at each participating institution, priority in the awarding of FSEOG aid must go to Pell Grant recipients, it may be interesting to see how the distribution of FSEOG aid compares with the distribution of Pell Grant aid. Table 9 shows for both programs, the total amount of aid awarded, the number of aid recipients, and average award amounts, by COA category. In the Pell Grant program, the largest amounts of total aid are awarded to the largest numbers of students at lower- and middle-cost IHEs. Less than 10% of Pell Grant aid goes to students attending IHEs in the high-cost and very high-cost categories. Average Pell Grant award amounts increase slightly across categories of IHEs as COA increases. 34 HEA, §413C(c)(2)(A) [20 U.S.C. §1070b-2(c)(2)(A)]. CRS-38 Table 9. Comparison of Pell Grant Awards and FSEOG Awards for Institutions Participating in the FSEOG program, by COA Category: AY2002-2003 COA category 1. Low cost $7,068 784 2. Lower- 3. Middle 4. Upper- 5. High 6. Very mid cost cost mid cost cost high cost $8,078 $10,134 $13,413 $19,893 $29,523 798 755 735 562 170 Total Median COA $9,905 Institutions 3,804 Pell Grants Total aid $2.51 bil. $3.04 bil. $2.74 bil. $1.66 bil. $0.75 bil. $0.21 bil. $10.91 bil. Recipients 1,157,431 1,323,866 1,108,451 683,267 302,572 81,515 4,657,102 Avg. award $2,172 $2,297 $2,471 $2,424 $2,467 $2,593 $2,342 FSEOG awards Total aid $0.10 bil. $0.14 bil. $0.22 bil. $0.22 bil. $0.20 bil. $0.15 bil. $1.03 bil. Recipients 230,780 288,291 345,943 269,201 156,455 60,637 1,351,307 Avg. award $432 $469 $633 $832 $1,304 $2,460 $763 Sources: CRS Calculations; U.S. Department of Education, Pell Grant recipient data file, Sept. 10, 2004; and ED, FISAP data, Feb. 27, 2004. In the FSEOG program, the greatest number of aid recipients are at middle-cost institutions. However, both the number of students receiving FSEOG aid relative to the number receiving Pell Grants and average FSEOG award amounts increase steadily with average COA. At low-cost IHEs, one-fifth as many students receive FSEOG awards as receive Pell Grants, and the average award amount is approximately one-fifth the amount of the average Pell Grant. At very high-cost IHEs, approximately three-fourths as many students receive FSEOG awards as receive Pell Grants, and average award amounts are approximately 95% of the amount of the average Pell Grant. The data in Table 9 show that under the Pell Grant program, a relatively even amount of aid is awarded to eligible students, largely irrespective of the institution they attend (although Pell Grant recipients tend to be concentrated in low- and middle-cost IHEs). In contrast under the FSEOG program, the proportion of students awarded grants and the average grant amount tend to vary according to the COA of the institution the students attend, with students at very high-cost institutions receiving the largest awards. FWS Aid Information on the distribution of FWS aid to students is presented in Table 10. Undergraduate students receive FWS award amounts that range on average between $1,093 and $1,673, varying by institutional COA and student dependency and income categories. In many instances, graduate and professional students receive substantially greater award amounts than undergraduates receive, especially at very high-cost IHEs where awards average $2,961. When examining the distribution of aid to different types of students — both within and across categories of institutions — Table 10 shows that average aid per student differs only modestly (the exception being for graduate and professional students), while the proportion of students receiving awards varies widely. CRS-39 Table 10. Distribution of FWS Aid to Students Attending Institutions Participating in the FWS Program, by Student Type and Income, by COA Category: AY2002-2003 COA category 1. Low cost $7,111 640 2. Lower- 3. Middle 4. Upper- 5. High 6. Very Total mid cost cost mid cost cost high cost $8,041 $10,205 $13,543 $19,944 $29,562 $10,669 623 614 703 592 187 3,359 Median COA Institutions All students Total FWS aid $102 mil. $143 mil. $216 mil. $213 mil. $228 mil. $191 mil. $1.09 bil. Aid applicants 1,915,336 2,206,169 2,488,661 1,819,092 1,110,771 444,114 9,984,143 Aid recipients 67,535 94,776 151,529 146,290 177,409 120,053 757,592 Pct. received aid 3.5% 4.3% 6.1% 8.0% 16.0% 27.0% 7.6% Average award $1,517 $1,511 $1,426 $1,459 $1,287 $1,590 $1,445 Graduate and professional students Aid applicants 2,781 70,161 248,726 236,627 220,284 135,279 913,858 Aid recipients 30 1,406 6,978 8,797 15,166 15,423 47,800 Pct. received aid 1.1% 2.0% 2.8% 3.7% 6.9% 11.4% 5.2% Average award $1,026 $2,067 $2,344 $2,545 $2,301 $2,961 $2,557 Undergraduate dependent: $60,000 and above Aid applicants 144,574 299,936 626,589 515,999 392,868 183,685 2,163,651 Aid recipients 1,093 4,187 18,143 27,498 59,944 50,432 161,297 Pct. received aid 0.8% 1.4% 2.9% 5.3% 15.3% 27.5% 7.5% Average award $1,404 $1,368 $1,267 $1,205 $1,093 $1,289 $1,202 Undergraduate dependent: $42,000 to $59,999 Aid applicants 120,636 174,732 234,904 172,955 115,126 40,354 858,707 Aid recipients 3,653 8,886 23,748 27,272 35,217 19,584 118,360 Pct. received aid 3.0% 5.1% 10.1% 15.8% 30.6% 48.5% 13.8% Average award $1,397 $1,488 $1,354 $1,317 $1,164 $1,407 $1,309 Undergraduate dependent: $24,000 to $41,999 Aid applicants 210,013 244,791 263,074 179,381 107,246 36,227 1,040,732 Aid recipients 9,670 17,592 34,448 33,276 33,974 18,507 147,467 Pct. received aid 4.6% 7.2% 13.1% 18.6% 31.7% 51.1% 14.2% Average award $1,388 $1,517 $1,377 $1,377 $1,225 $1,483 $1,373 Undergraduate dependent: $0 to $23,999 Aid applicants 282,098 268,561 270,813 154,691 77,958 26,576 1,080,697 Aid recipients 14,636 21,282 33,954 26,216 20,186 12,414 128,688 Pct. received aid 5.2% 7.9% 12.5% 16.9% 25.9% 46.7% 11.9% Average award $1,301 $1,410 $1,339 $1,445 $1,341 $1,549 $1,389 Undergraduate independent: $16,000 and above Aid applicants 547,601 591,592 397,647 306,461 112,702 9,862 1,965,865 Aid recipients 10,806 11,033 7,318 5,418 2,986 686 38,247 Pct. received aid 2.0% 1.9% 1.8% 1.8% 2.6% 7.0% 1.9% Average award $1,589 $1,449 $1,496 $1,640 $1,246 $1,354 $1,507 CRS-40 1. Low 2. Lower- 3. Middle 4. Upper- 5. High 6. Very Total cost mid cost cost mid cost cost high cost Median COA $7,111 $8,041 $10,205 $13,543 $19,944 $29,562 $10,669 Institutions 640 623 614 703 592 187 3,359 Undergraduate independent: $0 to $15,999 Aid applicants 607,633 556,396 446,908 252,978 84,587 12,131 1,960,633 Aid recipients 27,647 30,390 26,940 17,813 9,936 3,007 115,733 Pct. received aid 4.5% 5.5% 6.0% 7.0% 11.7% 24.8% 5.9% Average award $1,669 $1,602 $1,513 $1,653 $1,459 $1,673 $1,595 COA category Sources: CRS Calculations; ED, FISAP data, Feb. 27, 2004. Compared with the distribution of FSEOG awards, there is significantly less variation across categories of IHEs in the value of FWS awards provided to students and somewhat greater variation in the proportion of students receiving FWS aid. The modest variation across IHEs in award amounts is likely due in large part to the nature of the program being that aid is provided as compensation for part-time employment and because award amounts are dependent upon the number of hours worked and the hourly wage rate. A national study of the FWS program found that during the 1997-1998 award year, students receiving FWS awards worked an average of 11 hours per week and earned an average wage of $6.10 per hour. Approximately one-third earned the minimum wage of $5.15 per hour and only 30% earned more than $6.00 per hour. The study found only small variations across institutions when controlling for institution type and control, and for institution size and location.35 The percentage of students receiving FWS aid increases across COA categories, while the proportion of the COA the award covers declines. At low-cost IHEs, while only 3.5% of eligible students received FWS aid, the average award of $1,517 covered 21.3% of median COA. At very high-cost IHEs, 27.0% of eligible applicants received awards; however, the average award of $1,590 covered only 5.4% of median COA. Perkins Loan Aid The distribution of Perkins Loan aid to students is presented in Table 11. Across student types and categories of IHEs, the distribution of aid is quite similar to that for the FWS program. Award amounts vary only slightly across COA categories for any student type. Graduate and professional students are awarded substantially larger loans, consistent with the maximum loan amount being higher for graduate and professional students than it is for undergraduates. For any of the various student types, much higher proportions of students attending high-cost and very high-cost IHEs are awarded Perkins Loan aid than are students at low- to middle-cost IHEs. This pattern becomes readily apparent when making comparisons 35 U.S. Department of Education, Office of the Under Secretary, Planning and Evaluation Service, Postsecondary, Adult, and Vocational Education Division, The National Study of the Operation of the Federal Work-Study Program: Summary Findings from the Student and Institutional Surveys (Washington, DC., 2000), pp. 16, C-17, C-50. CRS-41 across both COA categories and student types — 20.6% of undergraduate dependent students attending very high-cost institutions who are from families with incomes of $60,000 and above receive Perkins Loan aid, a proportion greater than in any of the income bands shown for the low-, lower middle-, and middle-cost categories of IHEs. Still, for Perkins Loan recipients who attend low-cost IHEs, their awards cover, on average, 25.4% of median COA, whereas for Perkins Loans awarded to students attending very high-cost IHEs, the average award covers only 8.4% of median COA. Table 11. Distribution of Perkins Loan Aid to Students Attending IHEs Participating in the Perkins Loan Program, by Student Type and Income, by COA Category: AY2002-2003 COA category 1. Low cost $6,978 83 2. Lower- 3. Middle 4. Upper- 5. High 6. Very Total mid cost cost mid cost cost high cost $8,374 $10,158 $13,754 $20,170 $29,609 $13,807 220 366 439 492 184 1,784 Median COA Institutions All students Total Loan aid $11 mil. $81 mil. $331 mil. $349 mil. $380 mil. $301 mil. $1.45 bil. Aid applicants 342,970 1,200,052 2,145,517 1,516,997 1,027,186 444,549 6,677,271 Aid recipients 6,254 42,469 177,029 192,924 185,522 121,001 725,199 Pct. received aid 1.8% 3.5% 8.3% 12.7% 18.1% 27.2% 10.9% Average award $1,770 $1,902 $1,873 $1,811 $2,050 $2,484 $2,004 Graduate and professional students Aid applicants 3,333 62,466 236,465 220,392 210,381 137,135 870,172 Aid recipients 16 3,610 21,434 20,532 27,750 29,192 102,534 Pct. received aid 0.5% 5.8% 9.1% 9.3% 13.2% 21.3% 11.8% Average award $3,132 $2,405 $2,788 $2,688 $3,335 $3,796 $3,189 Undergraduate dependent: $60,000 and above Aid applicants 22,826 172,317 598,035 476,872 370,259 183,153 1,823,462 Aid recipients 105 1,799 16,941 25,492 46,656 37,817 128,810 Pct. received aid 0.5% 1.0% 2.8% 5.3% 12.6% 20.6% 7.1% Average award $1,766 $1,680 $1,650 $1,707 $1,735 $1,982 $1,790 Undergraduate dependent: $42,000 to $59,999 Aid applicants 21,846 94,153 219,058 152,651 107,096 40,170 634,974 Aid recipients 273 3,431 25,926 30,664 34,812 17,983 113,089 Pct. received aid 1.2% 3.6% 11.8% 20.1% 32.5% 44.8% 17.8% Average award $1,716 $1,742 $1,738 $1,783 $1,814 $2,073 $1,827 Undergraduate dependent: $24,000 to $41,999 Aid applicants 41,640 129,322 238,516 151,936 98,166 36,035 695,615 Aid recipients 420 5,053 35,329 39,617 35,529 18,085 134,033 Pct. received aid 1.0% 3.9% 14.8% 26.1% 36.2% 50.2% 19.3% Average award $1,741 $1,775 $1,756 $1,762 $1,857 $2,122 $1,835 Undergraduate dependent: $0 to $23,999 Aid applicants 66,237 136,395 227,737 121,856 69,397 26,400 648,022 Aid recipients 546 3,998 24,898 28,335 20,040 11,922 89,739 Pct. received aid 0.8% 2.9% 10.9% 23.3% 28.9% 45.2% 13.8% Average award $1,836 $1,796 $1,772 $1,739 $1,915 $2,169 $1,848 CRS-42 1. Low 2. Lower- 3. Middle 4. Upper- 5. High 6. Very Total cost mid cost cost mid cost cost high cost Median COA $6,978 $8,374 $10,158 $13,754 $20,170 $29,609 $13,807 Institutions 83 220 366 439 492 184 1,784 Undergraduate independent: $16,000 and above Aid applicants 81,975 346,454 288,432 216,495 99,649 9,792 1,042,797 Aid recipients 2,049 9,537 17,887 19,635 7,782 1,776 58,666 Pct. received aid 2.5% 2.8% 6.2% 9.1% 7.8% 18.1% 5.6% Average award $1,820 $1,869 $1,750 $1,534 $1,875 $2,250 $1,731 Undergraduate independent: $0 to $15,999 Aid applicants 105,113 258,945 337,274 176,795 72,238 11,864 962,229 Aid recipients 2,845 15,041 34,614 28,649 12,953 4,226 98,328 Pct. received aid 2.7% 5.8% 10.3% 16.2% 17.9% 35.6% 10.2% Average award $1,724 $1,936 $1,771 $1,631 $1,910 $2,210 $1,791 COA category Sources: CRS Calculations; ED; FISAP data (Feb. 27, 2004). Combinations of Campus-Based Awards Institutions may participate in any or all of the three campus-based programs. The largest number of IHEs participate in the FSEOG program, followed by the FWS program. Approximately half as many IHEs participate in the Perkins Loan program as in the other two. Table 12 shows the number of institutions participating in the various combinations of programs across categories of IHE, grouped by COA. Across all COA categories, more than three-quarters of IHEs participate in both the FSEOG and FWS programs. Within the two highest-cost categories of institutions, more than three quarters participate in all three programs. Eligible students may receive campus-based awards under any of the campus-based programs in which their institution participates (however, only undergraduate students pursuing a first baccalaureate course of study may receive FSEOG aid). Thus, students attending institutions participating in all three programs have the advantage of being able to access a larger pool of campus-based aid. This tends to favor students attending higher-cost institutions. In this section, the combinations of campus-based aid awarded to students under the three programs is analyzed according to institutional COA. Only institutions participating in all three campus-based programs are included in the analysis so that comparisons can be made between IHEs that would be able to award aid to students under each of the three programs, consistent with applicable program requirements. (Higher-cost institutions participate in all three programs in the greatest percentages — see Row g. in Table 12.) Information on the number of eligible applicants, the number receiving campus-based awards, and the percent receiving aid and average award amounts by program are presented in Table 13 for each COA category. CRS-43 Table 12. Participation of Institutions in the Campus-Based Financial Aid Programs (number and percent), by Institutional COA: AY2004-2005 Category COA a. FSEOG only b. FWS only c. Perkins only d. FSEOG & FWS e. FSEOG & Perkins f. FWS & Perkins g. FSEOG, FWS & Perkins h. Total 1. Low cost 2. Lower- 3. Middle 4 .Uppermid cost cost mid cost 5. High cost 6. Very high cost Less than $7,500 to $9,000 to $11,500 to $16,500 to $26,000 $7,500 $8,999 $11,499 $16,499 $25,999 and above 150 166 144 60 10 3 18.8% 20.6% 18.6% 7.6% 1.7% 1.5% 13 7 14 37 15 2 1.6% 0.9% 1.8% 4.7% 2.5% 1.0% 1 0 2 4 2 3 0.1% 0.0% 0.3% 0.5% 0.3% 1.5% 552 412 251 256 88 5 69.2% 51.2% 32.4% 32.3% 14.5% 2.6% 7 16 15 25 1 1 0.9% 2.0% 1.9% 3.2% 0.2% 0.5% 0 0 4 16 26 19 0.0% 0.0% 0.5% 2.0% 4.3% 9.8% 75 204 345 394 463 161 9.4% 25.3% 44.5% 49.7% 76.5% 83.0% 798 805 775 792 605 194 100% 100% 100% 100% 100% 100% All IHEs 533 13.4% 88 2.2% 12 0.3% 1,564 39.4% 65 1.6% 65 1.6% 1,642 41.4% 3,969 100% Source: CRS calculations; U.S. Department of Education, Office of Postsecondary Education, FISAP data, Feb. 27, 2004. This analysis shows that among students attending IHEs participating in all three campus-based programs, at low-cost institutions, only 15.3% of students received any type of campus-based aid with the average total award being $1,086. At very highcost institutions, 44.0% of students received campus-based aid, with total awards averaging $3,228. When examining all students as a group, both the proportion of students receiving aid and average aid amounts increased steadily with COA across categories of institutions. At low-cost institutions, the average award covered 15.4% of the median COA, while at very high-cost institutions, the average combined award covered 10.9% of the median COA. Graduate and professional students, who may receive aid only under the FWS and Perkins Loan programs, received larger awards on average than did undergraduate students in any category. Both the percentage of students receiving aid and average award amounts increase consistently with institutional COA. In the very high-cost category of institutions, 37.2% of undergraduate dependent students from families with incomes of $60,000 and above receive some form of campusbased aid, with the average total award being $2,127. Both the percentage of students receiving aid and the average award amount are greater for students in this category than for any undergraduate student category in both the low-cost and lower middle-cost categories of IHEs. CRS-44 Table 13. Distribution of Campus-Based Financial Aid to Students Attending Institutions Participating in All Three Campus-Based Programs, by Student Type and Income, by COA Category: (AY2002-2003) Group: 1. Low cost 2. Lower-mid cost 3. Middle cost 4. Upper-mid cost 5. High cost 6. Very high cost Median COA: $7,068 $8,082 $10,142 $13,508 $19,939 $29,669 Institutions: 75 204 345 394 463 161 All students 340,761 1,105,650 2,130,945 1,480,253 1,008,646 429,251 Aid applicantsa CBFA award recipients 51,967 186,182 423,964 362,530 331,653 188,704 Aid by program recipients avg. award recipients avg. award recipients avg. award recipients avg. award recipients avg. award recipients avg. award 11.9% $540 13.1% $548 13.4% $738 15.9% $926 17.9% $1,339 20.0% $2,465 FSEOGb FWS 4.5% $1,575 4.9% $1,616 6.3% $1,435 8.6% $1,426 16.4% $1,262 27.0% $1,551 Perkins Loans 1.8% $1,769 3.8% $1,903 8.2% $1,869 12.8% $1,800 17.8% $1,992 26.9% $2,430 Total (unduplicated) 15.3% $1,086 16.8% $1,286 19.9% $1,656 24.5% $1,947 32.9% $2,281 44.0% $3,228 Graduate and Professional 2,511 62,466 232,159 211,829 191,995 121,940 Aid applicantsa CBFA award recipients 40 4,634 24,894 24,450 26,763 29,425 Aid by program recipients avg. award recipients avg. award recipients avg. award recipients avg. award recipients avg. award recipients avg. award N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A FSEOGb FWS 1.1% $997 2.0% $2,049 2.7% $2,389 3.4% $2,625 5.6% $2,361 9.6% $2,979 Perkins Loans 0.5% $2,510 5.7% $2,396 8.6% $2,830 9.1% $2,630 11.2% $3,225 19.5% $3,829 Total (unduplicated) 1.6% $1,451 7.4% $2,402 10.7% $2,871 11.5% $2,846 13.9% $3,552 24.1% $4,284 Undergraduate dependent: $60,000 and above 22,797 171,132 597,268 470,539 370,230 183,150 Aid applicantsa CBFA award recipients 377 4,871 31,704 44,316 86,463 68,126 Aid by program recipients avg. award recipients avg. award recipients avg. award recipients avg. award recipients avg. award recipients avg. award 0.3% $533 0.3% $622 0.5% $937 0.8% $989 1.0% $1,182 1.4% $2,011 FSEOGb FWS 1.1% $1,594 1.8% $1,413 2.9% $1,274 5.5% $1,200 15.7% $1,092 27.4% $1,290 Perkins Loans 0.5% $1,766 1.0% $1,677 2.8% $1,649 5.4% $1,706 12.6% $1,735 20.6% $1,982 Total (unduplicated) 1.7% $1,641 2.8% $1,552 5.3% $1,659 9.4% $1,758 23.4% $1,721 37.2% $2,127 CRS-45 Group: 1. Low cost 2. Lower-mid cost 3. Middle cost 4. Upper-mid cost 5. High cost 6. Very high cost Median COA: $7,068 $8,082 $10,142 $13,508 $19,939 $29,669 Institutions: 75 204 345 394 463 161 Undergraduate dependent: $42,000 to $59,999 21,819 93,563 218,620 149,673 107,089 40,160 Aid applicantsa CBFA award recipients 1,420 10,512 48,288 51,061 57,946 28,673 Aid by program recipients avg. award recipients avg. award recipients avg. award recipients avg. award recipients avg. award recipients avg. award 2.5% $480 3.6% $572 6.7% $818 11.3% $931 18.1% $1,270 24.5% $2,267 FSEOGb FWS 3.8% $1,459 6.2% $1,579 10.3% $1,365 16.8% $1,302 31.6% $1,163 48.5% $1,409 Perkins Loans 1.3% $1,716 3.6% $1,738 11.8% $1,738 20.4% $1,781 32.5% $1,814 44.8% $2,073 Total (unduplicated) 6.5% $1,357 11.2% $1,614 22.1% $1,813 34.1% $2,009 54.1% $2,192 71.4% $3,030 Undergraduate dependent: $24,000 to $41,999 41,568 128,593 237,856 148,337 98,161 36,023 Aid applicantsa CBFA award recipients 5,260 25,464 82,620 77,127 66,945 30,644 Aid by program recipients avg. award recipients avg. award recipients avg. award recipients avg. award recipients avg. award recipients avg. award 7.4% $527 12.3% $556 20.3% $814 32.7% $975 48.6% $1,378 63.5% $2,495 FSEOGb FWS 5.8% $1,350 8.7% $1,635 13.4% $1,388 20.1% $1,349 33.0% $1,221 51.1% $1,485 Perkins Loans 1.0% $1,743 3.9% $1,780 14.8% $1,755 26.5% $1,761 36.2% $1,857 50.2% $2,122 Total (unduplicated) 12.7% $1,070 19.8% $1,411 34.7% $1,754 52.0% $2,026 68.2% $2,552 85.1% $3,994 Undergraduate dependent: $0 to $23,999 66,074 135,523 227,053 118,076 69,389 26,378 Aid applicantsa CBFA award recipients 13,492 40,557 86,870 60,756 43,345 21,506 Aid by program recipients avg. award recipients avg. award recipients avg. award recipients avg. award recipients avg. award recipients avg. award 14.5% $563 25.2% $578 30.2% $787 42.5% $1,033 51.0% $1,574 68.5% $2,739 FSEOGb FWS 7.2% $1,207 9.4% $1,558 13.0% $1,356 18.9% $1,410 27.1% $1,338 46.8% $1,551 Perkins Loans 0.8% $1,836 2.9% $1,804 11.0% $1,772 23.8% $1,740 28.9% $1,915 45.2% $2,169 Total (unduplicated) 20.4% $898 29.9% $1,151 38.3% $1,580 51.5% $2,170 62.5% $2,740 81.5% $4,377 CRS-46 Group: 1. Low cost 2. Lower-mid cost 3. Middle cost 4. Upper-mid cost 5. High cost 6. Very high cost Median COA: $7,068 $8,082 $10,142 $13,508 $19,939 $29,669 Institutions: 75 204 345 394 463 161 Undergraduate independent: $16,000 and above 81,590 267,393 284,403 210,751 99,587 9,777 Aid applicantsa CBFA award recipients 9,937 32,850 43,590 36,570 16,691 2,656 Aid by program recipients avg. award recipients avg. award recipients avg. award recipients avg. award recipients avg. award recipients avg. award 9.8% $511 9.9% $515 11.3% $608 11.1% $753 12.0% $882 15.0% $1,804 FSEOGb FWS 2.0% $1,846 1.8% $1,533 2.0% $1,476 1.9% $1,604 2.6% $1,195 6.8% $1,365 Perkins Loans 2.5% $1,822 3.4% $1,869 6.2% $1,751 9.1% $1,529 7.8% $1,868 18.2% $2,250 Total (unduplicated) 12.2% $1,073 12.3% $1,135 15.3% $1,311 17.4% $1,421 16.8% $1,612 27.2% $2,667 Undergraduate independent: $0 to $15,999 104,402 246,980 333,586 171,048 72,195 11,823 Aid applicantsa CBFA award recipients 21,441 67,294 105,998 68,250 33,500 7,674 Aid by program recipients avg. award recipients avg. award recipients avg. award recipients avg. award recipients avg. award recipients avg. award 18.2% $544 22.8% $539 26.7% $679 35.0% $849 39.9% $1,212 57.7% $2,187 FSEOGb FWS 5.1% $1,945 6.2% $1,694 6.6% $1,523 8.1% $1,600 12.3% $1,427 24.6% $1,693 Perkins Loans 2.7% $1,725 6.0% $1,939 10.3% $1,770 16.5% $1,633 17.8% $1,903 35.7% $2,209 Total (unduplicated) 20.5% $1,185 27.2% $1,246 31.8% $1,427 39.9% $1,694 46.4% $2,063 64.9% $3,602 Sources: CRS Calculations; ED, FISAP data, Feb. 27, 2004; ED, Campus-Based Programs Allocation Data, Apr. 2, 2004. a. Students eligible for financial need under one or more of the campus-based programs, including graduate and professional students. b. FSEOG students receiving FSEOG aid as a percentage of only those undergraduate students eligible for FSEOG aid. CRS-47 Summary and Conclusions The procedures currently used to allocate funds to institutions under the campusbased programs were developed several decades ago in response to concerns that had been raised about the inequitable distribution of funds. When these procedures were developed, it was envisioned that funds would be allocated according to a series of formulas designed to provide each institution with funding in proportion to its fair share of aggregate student need. To ease the transition to the new formula-based fair share method of allocating funds, for a limited period, IHEs were to receive a conditional or base guarantee of funding proportional to the amount they had received in a base year. However, instead of being phased out over time, base guarantees remain the primary method for allocating the majority of the funds appropriated for the campus-based programs. In recent years, proposals again have been made to phase out funding for base guarantees and to transition to the allocation of funds to institutions entirely on the basis of their fair share of aggregate student need. To facilitate an understanding of the potential consequences of modifying the current procedures for allocating funds to institutions, this report has set out to explain in detail the functioning of the current allocation procedures and the resulting distribution of aid to students. Throughout the report, the distribution of funding to institutions and the distribution of aid to students was explored by grouping institutions into categories in rank order of their costs of attendance. It was shown that under each of the campus-based programs the majority of funding is currently allocated to institutions on the basis of their institutional base guarantees. In each of the programs, there is only modest variation across categories of institutions in the proportion of total funding allocated to institutions on the basis of their base guarantees, while there is somewhat more variation across institutions grouped by states. Most of the funding provided for the FSEOG and FWS programs is allocated according to institutional base guarantees, and nearly all is for the Perkins Loan program. An analysis of the calculation of institutional need has shown that institutional COA plays a critical role in determining the amount of aggregate need calculated under the fair share formulas for any particular IHE. Since COA varies widely across institutions, vastly different amounts of need can be calculated on a per-student basis depending on the characteristics of the institution. In many instances, for high-cost institutions the average amount of need calculated on a per-student basis greatly exceeds the maximum award amount, and exceeds the federal share by an even greater amount. When examined in the aggregate for categories of institutions, it was shown that at low-cost institutions, institutional need is largely the aggregate need of undergraduate independent students and low-income dependent students; whereas at higher-cost institutions, institutional need is largely the aggregate need of upperincome undergraduate dependent students and graduate and professional students. It was also noted that for the FSEOG program, aggregate student need is offset by Pell Grant aid (which is targeted primarily at low-income students), while no adjustments are made for higher education tax benefits (which are beneficial primarily to middle- and upper-income students). CRS-48 The prospect of eliminating the allocation of funds for institutional base guarantees in favor of providing all funding on the basis of fair share criteria was also examined. It was found that in the FSEOG program, there would only be a modest redistribution of funds across categories of IHEs based on COA. Nonetheless, there would be a considerable amount of churning in the allocation of funds within categories, and more institutions would receive an increase in funding than a decrease. For the FWS and Perkins Loan programs, if funds were to be allocated entirely on the basis of the fair share formulas, very high-cost IHEs, as a category, would receive a funding increase, due to the high aggregate need of their student bodies. Overall, however, more IHEs would receive allocation increases than decreases if base guarantees were eliminated. Analysis of the distribution of aid to students revealed that despite there being a strong correlation between a student’s family income and the cost of attendance of the institution a student attends, larger proportions of students at high-cost institutions receive campus-based aid than students at low-cost institutions. In the FSEOG program, award amounts are larger at high-cost IHEs than at low-cost ones, while in the FWS and Perkins Loan programs, awards tend to be of similar values across institutions and student groups. Higher-cost institutions are more likely to participate in all three campus-based programs than are lower-cost institutions. However, even when examining only institutions that participate in all three programs, it is revealed that higher-cost institutions are able to give larger awards to a higher proportion of their students than are lower-cost institutions. The findings presented in this report highlight an important characteristic of need based financial aid — that student financial need is relative to the COA at the institution a student attends. A middle- or upper-income student attending a highercost institution may have financial need, whereas a similarly situated student attending a low-cost institution might have no financial need. Under the campusbased programs, this has resulted in higher-cost institutions having greater institutional need, on a per-student basis, than lower-cost institutions. In turn, this has allowed higher-cost IHEs to provide larger awards — even to students with higher incomes — than could be provided by lower-cost IHEs. Still, at higher-cost IHEs, these substantially larger campus-based awards typically cover a much smaller portion of COA than do awards at lower-cost IHEs.