Order Code RL31618 CRS Report for Congress Received through the CRS Web Campus-Based Student Financial Aid Programs Under the Higher Education Act Updated April 21, 2005 David P. Smole Analyst in Social Legislation Domestic Social Policy Division Congressional Research Service ˜ The Library of Congress Campus-Based Student Financial Aid Programs Under the Higher Education Act Summary Three Higher Education Act (HEA) programs — The Federal Supplemental Educational Opportunity Grant (FSEOG) program, Federal Work-Study (FWS) program, and Federal Perkins Loan program — collectively are referred to as the campus-based programs. Funding authorization for the campus-based and other HEA programs was extended through FY2005 under the Higher Education Extension Act of 2004 (P.L. 108-366). Reauthorization of the HEA, including the campusbased programs, may be considered by the 109th Congress. Under the campus-based programs, federal funding is provided to institutions of higher education for the provision of need-based financial aid to students. Institutions participating in the programs are required to provide a match of approximately one-third of the federal funds they receive. The campus-based programs are unique among the need-based federal student aid programs in that the mix and amount of aid awarded to students is determined by each institution’s financial aid administrator according to institution-specific award criteria (which must be consistent with federal program requirements), rather than according to nondiscretionary award criteria, such as that applicable for Pell Grants and subsidized Stafford Loans. Each program provides students with a distinct type of aid. The FSEOG program provides grant aid only to undergraduate students. The FWS program provides undergraduate, graduate, and professional students the opportunity for paid employment in a field related to their course of study or in community service. The Perkins Loan program provides low-interest loans with favorable terms and conditions to undergraduate, graduate, and professional students. Funding is provided to institutions separately for each program according to formulas that take into account both the allocation institutions received in years past (their base guarantee) and their proportionate share of eligible students’ need that is in excess of their base guarantee (their fair share increase). From these funds, institutions’ financial aid administrators award aid to eligible students having financial need. The programs are among the oldest of the federal postsecondary aid programs; however, they now operate amidst a host of other aid programs and tax benefits, some of which are not need-based. At present, a relatively small proportion of all students receive campus-based financial aid. Over the past decade, the number of institutions participating in the programs has also declined. Among the issues likely to be considered during reauthorization are whether the campus-based programs provide types of aid to students that are not or cannot be provided via other postsecondary aid programs, and whether the current formulas for allocating funds to institutions for the operation of these programs are optimal. Provisions specific to each program, such as requirements for community service under FWS and terms and conditions of Perkins Loans also may be considered. Contents Current Program Descriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Federal Supplemental Educational Opportunity Grants . . . . . . . . . . . . . . . . 2 Allocation of Funds to Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Federal Work-Study Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 FWS Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 FWS Community Service Employment . . . . . . . . . . . . . . . . . . . . . . . . . 6 Job Location and Development Programs . . . . . . . . . . . . . . . . . . . . . . . 7 Federal and Non-Federal Shares of Compensation . . . . . . . . . . . . . . . . 7 Work Colleges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Allocation of Funds to Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Federal Perkins Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Award Procedures and Terms of Perkins Loans . . . . . . . . . . . . . . . . . 10 Deferment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Forbearance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Loan Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Allocation of Funds to Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Transfer of Funds Between Campus-Based Programs . . . . . . . . . . . . . . . . . 15 Administrative Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Funding and Program Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Funding for the Campus-Based Programs . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Institutional Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Students Served and Average Aid Amounts . . . . . . . . . . . . . . . . . . . . . . . . 19 FSEOG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 FWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Perkins Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Potential Issues for Reauthorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Continuation of the Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Procedures for Allocating Funds to Institutions . . . . . . . . . . . . . . . . . . . . . 25 Program-Specific Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 FSEOG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 FWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Perkins Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 List of Figures Figure 1. Institutions Participating in the Campus-Based Programs: Award Years 1984-1985 through 2004-2005 . . . . . . . . . . . . . . . . . . . . . . . 19 Figure 2. FSEOG: Number of Students Receiving Awards and Average Award Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Figure 3. FWS: Number of Students Receive Awards and Average Award Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Figure 4. Perkins Loans: Number of Students Receiving Awards and Average Award Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Figure 5. Institutions Receiving Campus-Based Program Allotments and Those with Adjusted Base Guarantees Greater Than Their Fair Share: Award Year 2004-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 List of Tables Table 1. FWS Requirements for Federal Share of Compensation . . . . . . . . . . . . 8 Table 2. Perkins Loan Cancellation Rates by Type of Service . . . . . . . . . . . . . . 13 Table 3. Administrative Cost Allowances for the Campus-Based Programs: Award Year 2002-2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Table 4. Campus-Based Program Funding: FY1999-2006 . . . . . . . . . . . . . . . . 17 Table 5. Aid Available to Students Under Campus-Based Programs . . . . . . . . . 18 Table 6. Number and Percent of Institutions Meeting FWS Community Service (CS) Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Table 7. Perkins and FFEL/DL Cohort Default Rates: 1996-2003 . . . . . . . . . . 23 Campus-Based Student Financial Aid Programs Under the Higher Education Act Three postsecondary student financial aid programs authorized under the Higher Education Act of 1965, as amended (HEA) — the Federal Supplemental Educational Opportunity Grant (FSEOG) program, the Federal Work-Study (FWS) program, and the Federal Perkins Loan program — collectively are referred to as the campus-based programs. The campus-based programs are unique among the need-based federal student aid programs in that federal funds are awarded to institutions according to formulas that take into account past institutional awards and the aggregate financial need of students attending the institutions. The mix and amount of aid students receive is determined by each institution’s financial aid administrator according to institution-specific award criteria, rather than according to non-discretionary award criteria, such as that applicable for Pell Grants and subsidized Stafford Loans.1 The campus-based programs last were amended under the Higher Education Amendments of 1998 (P.L. 105-244) which reauthorized the programs that are part of the HEA. While funding authorization for these programs expired at the end of FY2003, the General Education Provisions Act (GEPA) provided for an automatic one-year extension through FY2004. Funding authorization was further extended through FY2005 under the Higher Education Extension Act of 2004 (P.L. 108-366). Reauthorization of the HEA, including the campus-based programs, may be considered during the 109th Congress.2 This report begins by providing a brief description of each of the campus-based programs, including the terms under which financial aid is awarded to students and the procedures under which federal funds are allocated to institutions for that purpose.3 It then provides historical information on federal funds appropriated for each of the programs and an analysis of the number and types of students served. The report concludes with a discussion of topics that might be of issue as the 109th Congress considers reauthorization of the HEA. 1 Institutions are required to establish written procedures for selecting recipients of campusbased financial aid. These selection procedures must meet the requirements of each campus-based program, and must be kept on file at each institution. Consistent with the availability of funds, institutions must make campus-based aid reasonably available to all eligible students demonstrating financial need. 2 For further information on reauthorization of the HEA, see CRS Issue Brief IB10097, The Higher Education Act: Reauthorization Status and Issues, by Adam Stoll. 3 This report draws, in part, on earlier research by CRS specialist Deborah A. Santiago. CRS-2 Current Program Descriptions This part of the report provides a description of each of the three HEA campusbased financial aid programs — the FSEOG program, the FWS program, and the Federal Perkins Loan program. Program descriptions explain the purpose of each program and the terms under which aid is provided to students. They also include a brief explanation of how federal funds are allocated to institutions for the purpose of providing aid to students. Federal Supplemental Educational Opportunity Grants The FSEOG program authorizes the Secretary to grant funds to institutions of higher education for the purpose of providing financial assistance to undergraduate students with exceptional financial need to aid them in obtaining the benefits of postsecondary education. The FSEOG program is authorized by Title IV, Part A, Subpart 3 of the HEA. It first was incorporated into the HEA under the Education Amendments of 1972 (P.L. 92-318). Prior to authorization of the FSEOG program, Education Opportunity Grants, authorized under the HEA of 1965 (P.L. 89-329), served a similar purpose. From the funds allotted to them by the Secretary, institutions award FSEOGs to eligible students as part of their financial aid packages. Institutions are required to award FSEOGs first to students with exceptional financial need, according to the HEA need analysis provisions,4 with priority going to students receiving Pell Grants. Institutions may establish categories of students for purposes of packaging FSEOG awards. For example, “categories may be based on class standing, enrollment status, program, date of application, or a combination of factors.”5 Categorization of awards may not be used to arbitrarily deny FSEOG aid to students, for example by establishing a policy of awarding aid on a first-come, first-served basis. FSEOGs consist of a federal share, not to exceed 75% (except if the Secretary determines that a larger share is necessary to further the purpose of the program), and a non-federal share of at least 25%. The non-federal share is required to be funded through the institution’s resources, such as institutional grants and scholarships, tuition or fee waivers, state scholarships, and foundation or other charitable organization funds. ED has determined that all state scholarships and grants can be counted toward meeting the nonfederal share, except for funds provided under the 4 Per HEA Title IV, Subpart F — Need Analysis, a student’s financial need is calculated as the cost of attendance, minus the expected family contribution (EFC) — the amount that a student’s family is expected to contribute toward the student’s education, and minus the estimated financial assistance not received under HEA Title IV (this includes scholarships, grants, loans, veterans’ education benefits (Section 480(c)), national service educational awards, and post-service benefits under Title I of the National and Community Service Act of 1990. 5 U.S. Department of Education, Federal Student Aid Handbook, 2004-2005, vol. 3 — Calculating Awards & Packaging, pp. 3-84 through 3-85. (Hereafter cited as ED, FSA Handbook.) CRS-3 Leveraging Educational Assistance Partnership (LEAP) and the Special Leveraging Educational Assistance Partnership (SLEAP) programs.6 Unlike the other two campus-based programs, students are eligible to receive FSEOGs only during the period required to complete a first undergraduate baccalaureate course of study. The maximum FSEOG award amount per academic year is the lesser of the student’s financial need or $4,000. In the case of a student studying abroad, and if the cost of studying abroad exceeds the cost of studying at the student’s home institution, the FSEOG award may be increased to a maximum of $4,400. The minimum value of an FSEOG award is $100 per year. For students enrolled for less than a full academic year, the value of FSEOG awards are to be proportionately reduced. Institutions are required to award a “reasonable proportion” of FSEOG aid to independent students7 and to those who are enrolled less than fulltime if the institution’s allocation of FSEOG funds was based in part on the financial need of such students. (Students enrolled less than half-time are eligible for aid under each of the campus-based programs.) Students do not repay FSEOGs. Allocation of Funds to Institutions. FSEOG funds are allocated to institutions of higher education according to procedures prescribed in the authorizing statute.8 Institutions first are allocated funds in proportion to the amount they received in previous years, with priority going to institutions that participated in the program in FY1999 or earlier. Next funds are allocated to those institutions that began participating after FY1999, but which are not first- or second-time participants. Following this, funds are allocated to institutions that are first- or second-year participants. Provided that sufficient funds are appropriated, institutions that participated in the FSEOG program in FY1999 or earlier receive 100% of their FY1999 allocation. This is referred to as their base guarantee. Institutions that began participating after FY1999, but which are not first- or second-time participants receive a base guarantee that is the greater of 90% of the amount they received in their second year of participation, or $5,000. Institutions participating in the FSEOG program for their first or second year receive as their base guarantee, the greatest of $5,000, 90% of an amount proportional to that received by comparable institutions, or 90% of what the institution received in its first year of participation. However, if an institution began participating in FSEOG after FY1999 and received a larger allocation in its second year of participation than in its first, it is allocated 90% of the amount it received in its second year of participation. Institutions’ base guarantees are adjusted to be proportional to the ratio of total funds available for the FSEOG program to the 6 Ibid., pp. 7-2 through 7-3. 7 An independent student is one who is not considered dependent upon his or her parent’s income for financial aid purposes. 8 The allocation procedures for each of the three campus-based programs are described in more detail in CRS Report RL32775, The Campus-Based Financial Aid Programs: A Review and Analysis of the Allocation of Funds to Institutions and the Distribution of Aid to Students, by David P. Smole. CRS-4 national total of institutions’ base guarantees. This amount is called an institution’s adjusted base guarantee.9 After allocating institutions their adjusted base guarantee, any remaining FSEOG funds are allocated to institutions proportionately according to their eligible amount of need that is in excess of their adjusted base guarantee. An institution’s eligible amount of need, or fair share, is calculated by subtracting the sum of aid provided under the Pell Grant and LEAP/SLEAP programs from the aggregate financial need of the institution’s undergraduate students. Undergraduate student financial need is determined through a formula that takes into account the cost of attendance (COA) at the institution and the expected family contribution (EFC) of a representative sample of students.10 Institutions with a fair share amount of need that is greater than their FSEOG adjusted base guarantee are considered to have an excess eligible amount of need. These institutions receive an allocation in excess of their base guarantee, which is called their fair share increase. Institutions’ total allotments are the sum of their adjusted base guarantee and their total fair share increase.11 Other FSEOG Funding Provisions. Institutions are provided flexibility to carryover up to 10% of their allocation for use in a succeeding fiscal year to carry out the FSEOG program. They also may carry-back funds to make grants to students prior to the beginning of the fiscal year, but after the end of the prior academic year. The Secretary is authorized to reallocate any excess funds returned by institutions. An institution returning more than 10% of its allocation will have its next year’s allocation reduced by the amount returned, unless the Secretary determines it would be contrary to the interest of the program. Finally, the Secretary is authorized under FSEOG to allocate up to 10% of funds appropriated in excess of $700,000,000 for the programs authorized under HEA Title IV, Part A,12 to institutions from which 50% or more of Pell Grant recipients either graduate or transfer to four-year institutions. 9 In instances where total funds available is greater than or equal to the national total of base guarantees, then the base guarantee and the adjusted base guarantee would be equal. 10 ED has calculated a table of EFCs used in the campus-based funding process. The table includes average EFCs within 14 income bands for dependent and independent undergraduates, and for graduate and first professional students. The EFC for students is based on information from the second preceding fiscal year. EFCs from this table, rather than the actual EFCs of students at a particular institution, are entered into the allocation formula. The table of EFCs for the 2004-2005 award year is available from ED at [http://www.ifap.ed.gov/dpcletters/attachments/CB0401EFC0405charts.xls]. 11 Institutions may receive both an initial fair share increase and an additional fair share increase, the latter being based on the reallocation of excess funds returned by other institutions (described in the next section). 12 HEA Title IV, Part A — Grants to Students in Attendance at Institutions of Higher Education, includes the following programs: Pell Grants, TRIO, GEAR-UP, Academic Achievement Incentive Scholarships, FSEOG, LEAP, Migrant and Seasonal Farmworker Programs, the Robert C. Byrd Honors Scholarship Program, Child Care Access Means Parents in School, and Learning Anytime Anywhere Partnerships. CRS-5 Federal Work-Study Programs13 The purpose of FWS is to provide part-time employment to undergraduate, graduate, and professional students in need of earnings to pursue their course of study; and to encourage student participation in community service activities. FWS programs are authorized under the HEA at Title IV, Part C. They first were authorized under the Economic Opportunity Act of 1964 (P.L. 88-452) and administered by the U.S. Department of Labor’s Office of Economic Opportunity. In 1968, under P.L. 90-575, authority for the Work-Study Programs was transferred to Title IV of the HEA. An institution’s financial aid administrator is responsible for awarding FWS aid to eligible students. Unlike the FSEOG and Perkins Loan programs in which aid is required to be awarded first to students with exceptional financial need, FWS aid may be provided to any student demonstrating financial need. Awards typically are based on factors such as each student’s financial need, the availability of FWS funds, and whether a student requests FWS employment and is willing to work.14 Students receive their award as compensation for the hours they have worked. Earnings from FWS employment are considered “excludable income” in determining a student’s financial need for the subsequent year. Awards are based on a combination of factors such as a student’s financial need, financial aid available from other sources, the wage rate, and how many hours per week the student can work. There is no maximum award amount. FWS Employment. FWS employment may consist of work for the higher education institution a student attends, for a private non-profit organization, for a federal, state, or local public agency, or for a private for-profit organization. Conditions applicable to all types of FWS employment include that it: (A) will not result in the displacement of employed workers or impair existing contracts for services; (B) will be governed by such conditions of employment as will be appropriate and reasonable in light of such factors as type of work performed, geographical regions, and proficiency of the employee; (C) does not involve the construction, operation, or maintenance of so much of any facility as is used or is to be used for sectarian instruction or as a place for religious worship; and 13 This report covers only FWS programs authorized under Part C of the HEA. The LEAP program provides federal funds that can be used by states to support state work-study programs (see CRS Report RS21183, Leveraging Education Assistance Partnership Program (LEAP): An Overview, by Laura L. Monagle). The Department of Veterans Affairs also administers the Veterans Administration Student Work-Study Allowance Program (VASWSAP) for veterans and eligible persons. Authorization for this program is codified at 38 U.S.C. §§ 3485 and 3537. 14 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, D.C., 2000), p. 57. CRS-6 (D) will not pay any wage to students employed ... [through the FWS program] that is less than the current federal minimum wage as mandated by Section 6(a) of the Fair Labor Standards Act of 1938.15 Students working for private for-profit organizations must be employed in jobs that are academically relevant to their pursuits. Furthermore, such students cannot be employed under FWS if they otherwise would have been employed by the organization. Students employed by proprietary institutions that they also attend either must be employed on-campus in jobs that, in addition to the abovementioned requirements, also provide student services directly related to the student’s education; or in community service jobs. Proprietary institutions cannot employ FWS students in jobs that involve the solicitation of other students to attend the institution. Employment by private for-profit organizations must be arranged between the sponsoring institution and the for-profit organization. FWS Community Service Employment. Since FY2000, institutions participating in FWS have been required to use at least 7% of their FWS allocation to compensate students employed in community service jobs, including 100% of any excess FWS funds they receive through reallocation of other institutions’ unspent FWS funds.16 In meeting the 7% requirement, institutions are required to ensure that they are operating at least one tutoring or family literacy project in service to the community. Institutions may use up to 10% of the funds they receive for administrative expenses under section 489 of the HEA for the operation of their FWS community service programs. The HEA defines community service as follows: COMMUNITY SERVICES. — For purposes of this part, the term “community services” means services which are identified by an institution of higher education, through formal or informal consultation with local nonprofit, governmental, and community-based organizations, as designed to improve the quality of life for community residents, particularly low-income individuals, or to solve particular problems related to their needs, including: (1) such fields as health care, child care (including child care services provided on campus that are open and accessible to the community), literacy training, education (including tutorial services), welfare, social services, transportation, housing and neighborhood improvement, public safety, crime prevention and control, recreation, rural development, and community improvement; (2) work in a project, as defined in Section 101(20) of the National and Community Service Act of 1990 (42 U.S.C. § 12511(20)); (3) support services to students with disabilities, including students with disabilities who are enrolled at the institution; and (4) activities in which a student serves as a mentor for such purposes as — 15 16 HEA, Section 443(b)(1) (42 U.S.C. § 2753(b)(1)). From FY1994 through FY1999, institutions were statutorily required to use 5% of their FWS allocation to compensate students employed in community service jobs. CRS-7 (A) tutoring; (B) supporting educational and recreational activities; and (C) counseling, including career counseling.17 Tutoring and family literacy projects include those that employ students as reading tutors of children who are of preschool age or who are in elementary school, or in family literacy projects. In many instances, FWS jobs in tutoring and family literacy projects count toward an institution’s 7% community service requirement. However, this may not always be the case. For instance, ED has determined that if FWS students are employed as tutors in an institution’s daycare center and the center is not open and accessible to the community, then the job could not be counted toward satisfying the institution’s 7% community service requirement.18 Job Location and Development Programs. Institutions may use up to the lesser of 10% of their FWS allocation or $50,000 to establish or expand a job location and development program operated either by the institution or jointly with another institution. The program must locate and develop jobs, including community service jobs, for currently enrolled students. Jobs located and developed should be compatible with students’ scheduling needs and compliment their educational and vocational goals. The federal share of funds used to operate the program cannot exceed 80%. Job location and development programs cannot be used to find jobs at the institution, nor should they be used to find jobs for students after graduation. Federal and Non-Federal Shares of Compensation. Under the FWS program, students are compensated with a combination of federal funding and a matching amount provided either by the institution or the employer. The share of compensation that may be provided through federal funding varies according to the type of FWS employment. For most FWS jobs, the maximum federal share of compensation is 75%; however, in certain instances, the federal share may be higher (see Table 1). For employment in the private for-profit sector, the federal share of compensation is limited to 50%. An institution’s matching share of compensation may come from any source (other than FWS), and may be paid in the form of services, such as tuition, room, board, or books provided by the institution. Table 1 highlights the maximum federal share of compensation for the various types of FWS employment. 17 HEA, Section 441(c) (42 U.S.C. § 2751(c)). 18 ED, FSA Handbook, vol. 6 — Campus-Based Programs, pp. 6-27 through 6-29, and 6-40. CRS-8 Table 1. FWS Requirements for Federal Share of Compensation Type of FWS employment Maximum federal share Specific requirements FWS — In general 75% General requirement Private non-profit or government agency other than the institution May exceed 75%, but not exceed 90%, consistent with regulations Employer selected for student on case-by-case basis and otherwise would be unable to afford cost of employment; and no more than 10% of the institution’s FWS students are employed in jobs for which the federal share exceeds 75% Regulatory exceptiona 100% Determination by the Secretary that federal share in excess of 75% is necessary to further the purpose of the FWS program Private for-profit sector 50% Employing for-profit organization must provide non-federal share of compensation Tutoring and Literacy Projects 100% Priority given to employment of students in projects funded under the Elementary and Secondary Education Act (ESEA) Work Colleges 50% Separate funding authorization; institution must match dollar-for-dollar with non-federal funds Source: HEA, Sections 443, 444, 447, 448 (42 U.S.C. §§ 2753, 2754, 2756a, 2756b); and ED, FSA Handbook, vol. 6 — Campus-Based Programs, pp. 6-11 through 6-12. a. Applicable for schools designated as eligible schools under the Developing Hispanic Serving Institutions Program, the Strengthening Institutions Program, the American Indian Tribally Controlled Colleges and Universities Program, the Alaska Native and Native Hawaiian-Serving Institutions Program, the Strengthening Historically Black Colleges and Universities Program. Work Colleges. FWS authorizes funding to support comprehensive worklearning programs at select institutions called “work colleges.” Work colleges are institutions that make work-learning an integral part of their educational programs. For an institution to qualify for the Work Colleges program, all resident students must be required by the institution to participate in a work-learning program that is an integral part of its educational philosophy. For purposes of the program, work colleges can only be public or private nonprofit institutions and must have a commitment of service to the community. Activities authorized under the Work Colleges program include those generally authorized under FWS grants, including job location and development. In addition, Work Colleges program funds may be used to provide payments or credits to students participating in work-learning programs, to promote and administer work-learning, and for the study of worklearning programs. Funding for the Work Colleges program is authorized separately from the remainder of the FWS program. Institutions may transfer funds from the FWS and Perkins Loan programs to the Work Colleges program. Allocation of Funds to Institutions. Similar to the FSEOG program, FWS funds are allocated to institutions of higher education according to a statutorily prescribed procedures. Funds first are allocated to institutions based on previous CRS-9 year’s allocations, with priority going to institutions that participated in the program in FY1999. These institutions are eligible to receive 100% of their FY1999 allocation as their base guarantee.19 Institutions that began participating after FY1999, but which are not first- or second-time participants receive a base guarantee that is the greater of 90% of the amount they received in their first year of participation, or $5,000. Institutions participating in the FWS program for their first or second year receive as their base guarantee, the greatest of $5,000, 90% of an amount proportional to that received by comparable institutions, or 90% of what the institution received in its first year of participation. However, if an institution began participating in FWS after FY1999 and received a larger allocation in its second year of participation than in its first, it is allocated 90% of the amount it received in its second year of participation. If sufficient funds are not appropriated, then institutions’ awards are reduced proportionately, resulting in an amount called their adjusted base guarantee. Funds in excess of the amount required to meet institutions’ base guarantee are allocated according to institutions’ proportionate share of excess eligible need. For the FWS program, excess eligible need is the amount by which an institution’s share of self-help need (fair share) exceeds its base guarantee. Self-help need is calculated separately for undergraduate students, and graduate and professional students according to formulas that take into account the cost of attendance at the institution and the approximate EFCs of students attending the institution. Institutions whose grants are based in part on the need of independent students or those attending less than full-time are required to assist these students through FWS employment with a reasonable portion of the FWS grant. The Secretary is authorized to allocate up to 10% of funds appropriated for FWS that are in excess of $700,000,000 to institutions from which 50% or more of Pell Grant recipients either graduate or transfer to fouryear institutions. Institutions are provided flexibility to carryover up to 10% of their FWS funds for use in a succeeding fiscal year to carry out the FWS program. If an institution neither uses funds in the year for which they were granted, nor carries them over to the next fiscal year, the Secretary may, in the next succeeding fiscal year, reallocate them to other institutions within the same state. Up to 10% of an institution’s allocation may be granted by the Secretary for the purpose of making grants to students prior to the beginning of the fiscal year, but after the end of the prior academic year. The Secretary also is required to reallocate any excess funds returned by institutions to eligible institutions that in the previous fiscal year used at least 5% of their FWS allocation to compensate students employed in tutoring in reading or family literacy activities. Reallocated funds must be distributed to such institutions according to their excess eligible need. Institutions returning more than 10% of their allocation may, at the discretion of the Secretary, have their next year’s allocation reduced by the amount returned. 19 This is equal to the sum of its FY1999 (award year 1999-2000) base guarantee, plus its initial award year 1999-2000 pro rata increase, plus the additional FWS funds the institution received from the $17 million set aside for that year. These funds were awarded according to criteria described below, to institutions that certified that they graduated or transferred at least 50% of their Pell Grant recipients. CRS-10 Federal Perkins Loans The Federal Perkins Loan program authorizes the allocation of federal funds to institutions of higher education to assist them in capitalizing revolving loan funds for the purpose of making low-interest loans to students with exceptional financial need. The Federal Perkins Loan program is authorized under the HEA at Title IV, Part E. It supersedes Title II — Loans to Students in Institutions of Higher Education, of the National Defense Education Act of 1958 (P.L. 85-864), which was incorporated into the HEA through the Education Amendments of 1972 (P.L. 92-318). Previously, these loans were known as National Defense Student Loans (Defense Loans) and National Direct Student Loans (NDSLs). Institutions capitalize revolving loan funds created under the Perkins Loan program with a combination of federal and institutional capital contributions (FCCs and ICCs, respectively). Institutions apply to ED for FCC funds which are allocated according to procedures similar to those used for the FSEOG and FWS programs. Each institution’s ICC must be equal to one-third of the FCC. After making loans, institutions recapitalize their loan funds by depositing the principal and interest repaid by students who borrowed under the program, as well as any other charges or earnings associated with the operation of the program. Award Procedures and Terms of Perkins Loans. Institutions are required to establish written selection procedures for awarding Perkins Loans to eligible students and to keep these on file at the institution. Loans must be made reasonably available to all eligible students, to the extent that funds are available, and priority must be given to students with exceptional financial need. Institutions’ selection procedures may include individuals’ willingness to repay the loan. Undergraduate students (including those seeking an additional undergraduate degree, if they are otherwise eligible), and graduate and professional students are eligible to borrow from the institutions they attend under the Perkins Loan program. Students studying abroad in programs approved for academic credit by participating institutions also may receive Perkins Loans. Under the terms of the program, the maximum amount a student may borrow per academic year is $4,000 for undergraduate students, and $6,000 for graduate and professional students. The maximum aggregate amount that a student may borrow is limited to $20,000 in unpaid principal for undergraduate students who have completed two years of study, but who have not completed their baccalaureate degree; $40,000 for graduate and professional students; and $8,000 for any other students. Both the annual and aggregate loan limits may be increased by up to 20% for students studying abroad in approved programs. If the amount of an institution’s FCC is based in part on independent students or those studying less than full-time, then these students must be provided with a reasonable portion of the Perkins Loans made by the institution. Interest on Perkins Loans is fixed at a rate of 5% per year.20 However, no interest accrues prior to a student beginning repayment, nor while repayment is 20 Loans made prior to July 1, 1981 were at 3%; loans made between July 1, 1981 and Sept. 30, 1981 were at 4%; and loans made on or after Oct. 1, 1981 are at 5%. CRS-11 suspended during deferment (described below). Borrowers must begin repaying Perkins Loans nine months after they no longer are enrolled at least half-time, and must complete repayment within 10 years after beginning repayment. Institutions may establish incentive repayment programs in which they may reduce the interest rate by up to one percentage point in instances where a student makes 48 consecutive payments. In addition, if a student repays a Perkins Loan in full prior to the end of the repayment period, an institution may discount the loan balance owed by up to 5% at the time the repayment is made. However, institutions may not use either federal or institutional funds from the Perkins revolving loan fund to absorb the costs of incentive repayment programs and must reimburse the fund on a quarterly basis for any lost income. Deferment. In general, deferment is a period during which a borrower is not required to make payments on the loan balance and during which interest does not accrue. Borrowers are not required to make payments on principal or interest while they are enrolled at least half-time at an eligible institution, nor while they are pursuing a graduate fellowship or rehabilitation training program approved by the Secretary. They also may not be required to make payments while they are seeking, but unable to find, full-time employment, or while experiencing economic hardship (for up to a maximum of three years in each instance). In addition, borrowers are eligible for concurrent deferment during any period while they are engaged in types of service which make them eligible for loan cancellation (discussed later). Borrowers are not required to request deferment in writing, but must provide the institution with information necessary to document their deferment status. They also are not required to resume making payments until six months following the completion of any of the periods described above for which they are exempted from making payments. Time in deferment does not count toward the 10-year repayment period. Forbearance. In general, forbearance is a temporary suspension or postponement of payments during which interest continues to accrue. A borrower may be granted forbearance from paying principal and interest or of principal only if the borrower’s debt burden due to HEA student financial assistance loans is greater than or equal to 20% of the borrower’s gross income, or if the institution determines that forbearance should be granted for other reasons. Examples include services in AmeriCorps or for reasons due to a “national military mobilization or other national emergency.”21 Borrowers are required to request forbearance in writing. Forbearance may be granted for a period of up to one year at a time, and may be renewed for a total period of up to three years. Cancellation. Individuals who have engaged in the following types of public service are eligible to have their loans cancelled.22 ! elementary or secondary school teacher at a public or private school eligible for federal aid under Title I-A of the ESEA and in which 21 ED, FSA Handbook, vol. 6 — Campus-Based Programs, p. 6-71. 22 HEA, Section 465(a) (20 U.S.C. § 1087ee(a)). CRS-12 ! ! ! ! ! ! ! ! low-income students are more than 30% of the school’s enrollment;23 full-time staff member in a Head Start program; full-time special education teacher or a professional provider of Individuals with Disabilities Education Act (IDEA) early intervention services; member of the U.S. Armed Forces in an area of hostilities; Peace Corps Americorps*VISTA volunteer; full-time federal, state, or local law enforcement or corrections officer (including prosecuting attorneys, but not public defenders); full-time teacher of mathematics, science, foreign languages, bilingual education, or other shortage subject area; full-time nurse or medical technician; or full-time employee of a public or private nonprofit agency serving high-risk children from low-income communities and their families. Perkins Loan cancellation is based both on the number of years of service an individual has completed and a rate of cancellation applicable to the particular type of service. Table 2 presents the percentage of the principal of Perkins Loans that is cancelled for each year of service in an activity eligible for Perkins Loan cancellation. The terms of the program prescribe that the amount of principal and interest cancelled for public service shall not be considered as income for purposes of the Internal Revenue Code (IRC) of 1986. 23 Teacher cancellations may be granted only to individuals teaching in a school serving children from low-income families and which is listed in the Directory of Designated LowIncome Schools for Teacher Cancellation Benefits. CRS-13 Table 2. Perkins Loan Cancellation Rates by Type of Service Percent of Perkins Loan principal cancelled per year of service Type of service 1st and 2nd years 3rd and 4th years 5th year and later Elementary or secondary school teacher in designated ESEA Title I-A school 15% 20% 30% 100% Staff member in Head Start program 15% 15% 15% 100% Special education teacher/IDEA professional provider 15% 20% 30% 100% Armed Forces in area of hostilities 12½% 12½% N/A 50% Peace Corps or Americorps*VISTA volunteer 15% 20% N/A 70% Law enforcement or corrections officer 15% 20% 30% 100% Full-time teacher in shortage subject area 15% 20% 30% 100% Nurse or medical technician 15% 20% 30% 100% Employee of provider of services to high-risk children and families 15% 20% 30% 100% Max. total Source: HEA, Section 465 (20 U.S.C. § 1087ee). The Secretary is required to reimburse institutions for Perkins Loans cancelled for students engaged in public service. Funds for reimbursing institutions for loan cancellations may not come from the appropriation designated for FCCs. Each year, the Secretary is required (to the extent feasible), to reimburse institutions within three months after they file their applications for campus-based funds. Borrowers’ liability to repay Perkins Loans also is cancelled upon death or becoming permanently and totally disabled, as determined according to regulations issued by the Secretary. However, institutions are not reimbursed by the Secretary for loans cancelled due to death or disability. Loan Default. 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). 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 CRS-14 of the following award year.24 For institutions with less than 30 students entering repayment in any year, the cohort default rate is calculated over a three-year period. A borrower who has defaulted on a loan may rehabilitate the loan by making 12 consecutive on-time payments. Rehabilitated borrowers are returned to regular repayment status, begin a new 10-year repayment schedule, and have the default remove from their credit history. A borrower may rehabilitate a loan only once. In certain instances where a school has followed due diligence procedures and is unable to collect payments on a loan in which the amount owed is $25 or more, the school may assign a Perkins Loan (or NDSL) for collection to Federal Student Aid (FSA) Collections at ED. Upon accepting a loan, ED acquires all rights in the loan and any payments made to the lending institution must be forwarded to ED.25 Any Perkins Loan collections received by ED are returned to the U.S. Treasury. Allocation of Funds to Institutions. Under the Perkins Loan program, funds are allocated to institutions according to procedures using a two-stage process somewhat similar to that used for the FSEOG and FWS programs — funds first are allocated according to institutions’ previous year’s allocations (base guarantee), and any remaining funds are allocated according to institutions’ share of excess eligible amounts of student need (fair share increase). Unlike the formulas for the FSEOG and FWS programs, however, the Perkins Loan allocation formulas also include a default penalty applicable to institutions with large proportions of borrowers defaulting on their Perkins Loans. The default penalty is used to limit the awarding of Perkins Loan FCCs only to institutions with cohort default rates below a maximum threshold. Institutions with a cohort default rate of less than 25% are assigned a default penalty of 1 and those with a default rate of 25% or greater are assigned a default penalty of 0. According to the allocation formulas, FCC funds first are allocated to institutions according to their previous year’s allocations with priority going to institutions that participated in the Perkins program in FY1999. These institutions are eligible to receive 100% of their FY1999 allocation.26 Institutions that began participating in the Perkins Loan program after FY1999, but which are not first- or second-time participants, are eligible to receive 100% of the amount they received in their first year of participation. Those institutions that began participating after FY1999, and which are first or second time participants, generally are eligible to be awarded either 90% of the amount they received in the previous year or 90% of the amount awarded to comparable institutions on a per-capita basis. However, if an institution began participating in the Perkins Loan program after FY1999 and received a larger allocation in its second year of participation than in its first, it is allocated 90% of the amount it received in its second year of participation if this is 24 HEA, Section 462(g) (42 U.S.C. § 1087bb(g)). 25 ED, FSA Handbook, vol. 6 — Campus-Based Programs, pp. 6-114 through 6-115. 26 According to the Department of Education’s Explanation of Worksheet 2004-2005 Award Period for the campus-based programs, this is equal to the institution’s award year 19992000 conditional guarantee, multiplied by its award year 1999-2000 cohort default penalty factor, multiplied by a 60.77% reduction factor. CRS-15 a larger amount than it would otherwise receive. The minimum grant amount is $5,000. Any institution with a default penalty of 0, however, has its FCC allotment reduced to 0. After allocating funds according to institutions’ previous year’s allocations, any remaining FCC funds are allocated based on each institution’s fair share of excess eligible student need. This is the amount by which an institution’s share of eligible self-help need exceeds the amount already allocated to it according to its base guarantee. Like in the FWS program, self-help need is calculated separately for undergraduate students, and graduate and professional students according to formulas that take into account the institution’s COA and the approximate EFCs of students attending the institution. However, for the Perkins program, an institution’s eligible amount of need is the amount of the institution’s self-help need, minus the institution’s collections (defined as the amount the institution collected in the second year prior to the award year, multiplied by 1.21), multiplied by its cohort default penalty (either 1 or 0). The Secretary is authorized to reallocate any excess Perkins Loan funds returned by institutions. Eighty percent of these funds must be reallocated to institutions according to their excess eligible amounts of student need, while the remaining 20% can be reallocated according to regulation established by the Secretary. An institution returning more than 10% of its allocation will have its subsequent year’s allocation reduced by the amount returned, unless waived by the Secretary as contrary to the interest of the program. Transfer of Funds Between Campus-Based Programs Institutions are afforded flexibility in being able to transfer funds between the campus-based programs in which they participate. They may transfer a total of 25% of their allotment under the Perkins Loan program for use in the FSEOG or FWS programs, or both. Institutions also may transfer up to 25% of their allotment under the FWS program for use in the FSEOG program. However, no funds may be transferred out of the FSEOG program. Institutions generally have used their transfer authority to move funds to the FSEOG program, primarily from FWS. For award year 2002-2003, based on data reported to ED, 1,501 institutions participating in the FWS program transferred a total of $104.1 million to the FSEOG program. In that same year, 197 institutions transferred $7.2 million from Perkins to FSEOG and 66 institutions transferred $945,000 from Perkins to FWS.27 27 U.S. Department of Education, Office of Postsecondary Education, Federal CampusBased Programs Data Book 2004. Available at [http://www.ed.gov/finaid/prof/resources/ data/databook2004/index.html]. (Hereafter cited as ED, Federal Campus-Based Programs Data Book, 2004.) CRS-16 Administrative Costs Institutions participating in the campus-based programs are entitled to an administrative cost allowance to cover the expenses of administering the programs. Administrative cost allowances are determined according to the following schedule: ! ! ! 5% of the institution’s first $2,750,000 in expenditures; plus 4% of the institution’s expenditures greater than $2,750,000 and less than $5,500,000; plus 3% of the institution’s expenditures in excess of $5,500,000. In calculating administrative costs, institutions include both federal and institutional expenditures.28 Institutions have some discretion in determining how to allocate administrative costs across the three campus-based programs. Administrative cost allowances as claimed for the campus-based programs are shown in Table 3. Table 3. Administrative Cost Allowances for the Campus-Based Programs: Award Year 2002-2003 Campus-based program FSEOG Administrative cost allowance $13,929,538 FWS 59,421,145 Perkins Loans 72,615,388 Total 145,966,071 Source: U.S. Department of Education, Office of Postsecondary Education, Federal Campus-Based Programs Data Book 2004. Funding and Program Data This section presents budget information on past funding levels for the campusbased programs, and also program information including the number of institutions participating in each program, the number of students awarded aid and average award amounts, and the distribution of campus-based aid according to student and institutional characteristics. Funding for the Campus-Based Programs The share of postsecondary student financial aid provided through the campusbased programs has decreased steadily over the past 30 years. According to the College Board, whereas in the 1971-1972 award year, 19.7% of total federal student 28 HEA, Section 489 (20 U.S.C. § 1096); ED, FSA Handbook, vol. 6 — Campus-Based Programs, pp. 6-23 through 6-24. CRS-17 aid was provided through the campus-based programs, only 3.9% was in academic year 2003-2004.29 Now the greatest proportion of student aid is provided through federal loans (other than Perkins Loans) and an increasing amount is provided through higher education tax benefits. Over the past several years, funding has increased modestly for the FSEOG program, while funding for the FWS and Perkins Loan programs (FCCs and loan cancellations) has decreased. For FY2005, no funding was provided for Perkins FCCs. Annual funding levels for each of the campus-based programs, beginning with FY1999 (the first year since the HEA last was reauthorized), are presented in Table 4. Table 4. Campus-Based Program Funding: FY1999-2006 ($000s) Fiscal year funding FSEOG FWS PerkinsFCC Perkins loan cancellations 1999 Appropriation $619,000 $870,000 $100,000 $30,000 2000 Appropriation 631,000a 934,000 100,000 30,000 2001 Appropriation 691,000 1,011,000 100,000 60,000 2002 Appropriation 725,000 1,011,000 100,000 67,500 2003 Appropriation 760,028 1,004,428 99,350 67,061 2004 Appropriation 770,455 998,502 98,764 66,665 2005 Appropriation 778,720 990,257 0 66,132 2006 Budget requestb 778,720 990,257 0 0 Sources: U.S. Department of Education, Fiscal Year 2005 Justification of Appropriation Estimates to the Congress, Volume II; U.S. Department of Education, Budget Service, Department of Education Budget Tables, FY2005 Congressional Action. a. Includes $10 million Emergency Appropriation for victims of Hurricanes Dennis and Floyd. b. As part of its FY2006 budget request, the Administration has proposed terminating the Perkins Loan program. Under each of the campus-based programs federal funds are required to be matched by the participating institution (or the employer under FWS, if other than the institution). As previously described, under each of the programs, the institutional match generally is one-third the amount of the federal share (however, in the FWS program, the required match can be as high as one-half of the federal share or as low as zero, depending on the type of employment). Because of the matching requirements, the campus-based programs leverage federal funding to provide an amount of student financial aid that is greater than the amount of federal funds appropriated for each program. 29 The College Board, Trends in Student Aid 2004 (Washington, D.C., 2004), pp. 6, 18. Accessible at [http://www.collegeboard.com/prod_downloads/press/cost04/ TrendsinStudentAid2004.pdf]. CRS-18 Table 5 compares the amount of funds appropriated for each of the campusbased programs with the amount of aid made available to students. It does this for FY2002 (award year 2002-2003 — the last year for which final program data are available) and prospectively for FY2006 (award year 2006-2007 and the current budget cycle). During award year 2002-2003, the amount of aid provided under the FSEOG program (including funds transferred from FWS and Perkins Loans) was 42.6% greater than the amount of federal funds provided, while aid provided through FWS was 8.6% greater. Aid provided through Perkins loans was more than eight times greater than the amount of federal funds provided.30 The table also shows the amount of campus-based financial aid that is expected to be made available to students during award year 2006-2007 based on the administration’s FY2006 budget request. Table 5. Aid Available to Students Under Campus-Based Programs ($000s) Appropriation (FY2002) Aid available to students: AY2002-2003 (actual)a FSEOG $725,000 $1,033,811 $778,720 $985,722 FWS 1,011,000 1,097,497 990,257 1,184,229 167,500b 1,460,207 0 0 1,903,500 3,591,515 1,769,977 2,169,951 Campus-based program Perkins Loans Total Aid available to students: AY2006-2007 (estimated)a Budget request (FY2006) Sources: ED, Federal Campus-Based Programs Data Book, 2004; and Office of Management and Budget, Budget of the United States: Fiscal Year 2006 — Appendix: Department of Education, p. 362. a. Aid available includes budget authority, institutional or employer matching funds, transfers across programs as authorized, and the subtraction of administrative costs. b. Includes FCCs and reimbursements for loan cancellations. Institutional Participation In fall 2002, 6,508 postsecondary institutions participated in HEA Title IV financial aid programs.31 During award year 2002-2003, approximately 57% of Title IV eligible institutions participated in the FSEOG program, while approximately 50% 30 It is important to note that the amount of student aid provided under the Perkins loan program is so much greater than the amount appropriated because, as a revolving loan fund, repayments from previously made loans (capitalized largely with federal dollars), in addition to funds from the FCC, ICC, and federal reimbursement for loan cancellations, are used to capitalize new ones. 31 U.S. Department of Education, National Center for Education Statistics, Postsecondary Institutions in the United States: Fall 2002 and Degrees and Other Awards Conferred: 2001-2002. Oct. 2003. CRS-19 participated in FWS. However, only approximately 27% of Title IV institutions participated in the Perkins Loan program. While fewer institutions of all types participate in Perkins Loan program than in either FSEOG or FWS, far fewer twoyear and proprietary participate in the Perkins Loan program than the other two programs.32 It is possible that these lower levels of participation are due to factors such as the administrative burden of administering a revolving loan fund and the generally higher cohort default rates of students who attend these types of institutions. Figure 1. Institutions Participating in the Campus-Based Programs: Award Years 1984-1985 through 2004-2005 5,000 Institutions 4,000 3,000 2,000 1,000 20 04 -2 0 05 04 03 20 03 -2 0 20 02 01 20 FWS -2 0 02 01 -2 0 00 20 00 -2 0 99 19 FSEOG -2 0 99 98 19 98 -1 9 97 19 97 -1 9 96 19 95 19 Award Year -1 9 96 95 -1 9 94 19 94 -1 9 93 19 93 -1 9 92 19 -1 9 92 91 19 91 -1 9 90 19 89 19 -1 9 90 89 -1 9 88 19 88 -1 9 87 19 -1 9 87 86 -1 9 86 19 85 19 19 84 -1 9 -1 9 85 - Perkins Sources: ED, Federal Campus-Based Programs Data Book, 2003;and ED, Federal Campus-Based Programs Data Book, 2004. Over the past decade, there has been a slight increase in the number of institutions participating in the FSEOG and FWS programs. Institutional participation in the Perkins Loan program, however, has continued a pattern of decline that has occurred over the past two decades. Figure 1 displays the number of institutions participating in each of the campus-based programs since the 19841985 award year. Students Served and Average Aid Amounts This section presents information on the number of students being served and the average award amounts for each of the three campus-based programs based on program data from ED. To facilitate comparison of student award amounts over 32 ED, Federal Campus-Based Programs Data Book, 2004. CRS-20 time, these data have been adjusted to 2002 dollars according to the consumer price index for all urban consumers (CPI-U).33 FSEOG. FSEOG program data on the number of students granted awards and the average award amount since 1980 (in constant 2002 dollars) are presented in Figure 2. Once the smallest of the three campus-based programs in terms of the number of students served, the FSEOG program has grown steadily since its inception in the 1967-1968 award year to become the largest today. Since award year 1989-1990, it has served more students annually than either of the other two campusbased programs. The number of students receiving FSEOG awards increased considerably during the 1990s, reaching 1.35 million in 2002-2003 (over twice as many students as received awards in 1982-1983). The average amount of aid provided per student under the FSEOG program is the lowest among the three campus-based programs. As increasing numbers of students have been served through FSEOG over the past two decades, the average FSEOG award amount has decreased (in real terms) by 23%, from $997 in 1982-1983 (2002 dollars) to $763 in 2002-2003, though it has increased in current dollars. Figure 2. FSEOG: Number of Students Receiving Awards and Average Award Amounts FSEOG Awards Granted 1,250,000 $2,500 $2,000 1,000,000 $1,500 750,000 $1,000 500,000 250,000 $500 $- 19 82 19 -83 83 19 -84 84 19 -85 85 19 -86 86 19 -87 87 19 -88 88 19 -89 89 19 -90 90 19 -91 91 19 -92 92 19 -93 93 19 -94 94 19 -95 95 19 -96 96 19 -97 97 19 -98 9 19 899 99 -2 0 20 00 00 20 -01 01 20 -02 02 -0 3 0 Average FSEOG Award 1,500,000 Students Served Avg. Award Avg. Award (2002 $'s) Source: U.S. Department of Education. Office of Postsecondary Education. Federal Campus-Based Programs Data Book 2004. FWS. FWS program data are presented in Figure 3. For most of the past two decades, between 650,000 and 750,000 students have been served annually through FWS. Since the mid-1980s, the average FWS award (in 2002 dollars) has remained slightly below $1,500. From the 1994-1995 award year through the 1999-2000 33 U.S. Department of Labor, Bureau of Labor Statistics. CRS-21 award year, institutions participating in the FWS program were required to expend at least 5% of their initial and supplemental FWS allocations to compensate students employed in community service jobs. Beginning with award year 2000-2001, institutions are now required to expend 7% of their FWS allotment on community service and to operate at least 1 tutoring or family literacy project. Success in meeting the community service requirement is determined by dividing the total funds used to compensate students employed in community service jobs by the institution’s total FWS allocation. There is no explicit penalty for failing to meet the requirement. Figure 3. FWS: Number of Students Receive Awards and Average Award Amounts 1,500,000 $2,500 $2,000 1,000,000 $1,500 750,000 $1,000 500,000 Average FWS Award FWS Awards Granted 1,250,000 $500 250,000 $- 19 82 19 -83 83 19 -84 84 19 -85 85 19 -86 86 19 -87 87 19 -88 88 19 -89 89 19 -90 90 19 -91 91 19 -92 92 19 -93 93 19 -94 94 19 -95 95 19 -96 96 19 -97 97 19 -98 9 19 899 99 -2 0 20 00 00 20 -01 01 20 -02 02 -0 3 0 Students Served Students in Community Service Avg. Award Avg. Award (2002 $'s) Source: U.S. Department of Education. Office of Postsecondary Education. Federal Campus-Based Programs Data Book 2004. Table 6 shows the number and percentage of institutions meeting their community service requirements since award year 1994-1995. As can be seen by the table, while the 5% requirement was in place, the percentage of institutions in compliance trended upward. However, since the dual requirements of expending 7% of their allocation on community service employment and having at least one tutoring or family literacy project, institutions have struggled to remain in compliance. It appears that more institutions are having difficulty meeting the tutoring and family literacy project requirement than the 7% expenditure requirement. Since the community service requirements have been in place, ED reports that the number of students employed in community service increased from 58,596 in award year 1994-1995 to 131,295 in award year 2002-2003. The shaded portion of the bars in Figure 3 indicates the number of students employed in community service. CRS-22 Table 6. Number and Percent of Institutions Meeting FWS Community Service (CS) Requirements Number with a tutoring or family literacy project Number meeting both standards Percent meeting applicable standards Award year Total FWS institutionsa Number meeting CS percent expenditure standard 1994-1995b 3,257 2,481 N/A N/A 76.2 1995-1996b 3,249 2,781 N/A N/A 85.6 1996-1997b 3,231 2,927 N/A N/A 90.6 1997-1998b 3,282 2,859 N/A N/A 87.1 1998-1999b 3,342 3,153 N/A N/A 94.3 1999-2000b 3,230 2,919 N/A N/A 90.4 2000-2001c 3,221 2,791 2,848 2,600 80.7 2001-2002c 3,250 2,870 2,905 2,715 83.5 2002-2003c 3,276 2,942 2,606 2,457 75.0 Sources: ED, Community Service in the FWS Program; and U.S. Department of Education, Office of Postsecondary Education, Fiscal Operations Report program data for award years 1999-2000, 20002001, 2001-2002, and 2002-2003 from annual Fiscal Operation Reports and Applications to Participate (FISAPs). a. Institutions reporting expenditure of FWS authorizations. (A small number of institutions in receipt of FWS allotments, but not reporting the expenditure of funds for FWS, are excluded from the table.) b. Requirement to expend 5% of FWS authorization on community service. c. Requirement to expend 7% of FWS authorization on community service and to operate at least one tutoring or family literacy project. Perkins Loans. Historical data on the Perkins Loan program are provided in Figure 4. Slightly fewer students receive aid through the Perkins Loan program than through FWS, making it the smallest of the three campus-based programs in terms of number of students served. Since 1982-1983, the annual number of students served has averaged between 630,000 and 730,000. The average Perkins Loan amount, however, is considerably greater than the amount of aid provided under either FSEOG or FWS. Since the early 1990s, Perkins Loan amounts have averaged between $1,700 and $2,000 (in 2002 dollars). During recent years, Perkins Loans cohort default rates have declined from a high of 12.95% in 1997 to 8.35% in 2002, but increased slightly in 2003 to 8.85%. This is indicated in Table 7. Four-year institutions typically have the lowest cohort default rates, while those of two-year and proprietary institutions are much higher. In comparison, FFEL/Direct Loan cohort default rates typically have been a few CRS-23 percentage points lower than rates for Perkins Loans.34 At the end of FY2003, the Administration reports a total of $1.2 billion in outstanding defaulted Perkins Loans, with $321 million of this amount assigned to ED for collection.35 Figure 4. Perkins Loans: Number of Students Receiving Awards and Average Award Amounts $2,500 1,500,000 $2,000 1,000,000 $1,500 750,000 $1,000 500,000 Average Perkins Loan Perkins Loans Awarded 1,250,000 $500 250,000 $- 19 82 19 -83 83 19 -84 84 19 -85 85 19 -86 86 19 -87 87 19 -88 88 19 -89 89 19 -90 90 19 -91 91 19 -92 92 19 -93 93 19 -94 94 19 -95 95 19 -96 96 19 -97 97 19 -98 19 9899 99 -2 0 20 00 00 20 -01 01 20 -02 02 -0 3 0 Students Served Avg. Award Avg. Award (2002 $'s) Source: U.S. Department of Education. Office of Postsecondary Education. Federal Campus-Based Programs Data Book 2004. Table 7. Perkins and FFEL/DL Cohort Default Rates: 1996-2003 Loan type 1996 1997 1998 1999 2000 2001 2002 2003 Perkins 12.57 12.95 12.48 11.54 10.61 9.99 8.35 8.85 FFEL/DL 10.7 10.4 9.6 8.8 6.9 5.6 5.9 5.4 Sources: ED, Federal Campus-Based Programs Data Books, 1996 through 2004; U.S. Department of Education, Official Cohort Default Rates for Schools, National Student Loan Default Rates. a. Perkins Loan cohort default rates are for the two-year period ending June 30 of the year indicated. b. FFEL/DL cohort default rates are for the two-year period ending Sept. 30 of the year indicated. 34 U.S. Department of Education. National Student Loan Default Rates, accessed via the Internet at [http://www.ed.gov/offices/OSFAP/defaultmanagement/defaultrates.html]. 35 Office of Management and Budget, Budget of the United States Government, Fiscal Year 2005 — Appendix, Department of Education, Office of Student Financial Assistance, p. 361. CRS-24 Potential Issues for Reauthorization The HEA, including each of the campus-based programs, may be considered for reauthorization during the 109th Congress. As it deliberates reauthorization, the Congress may address a number of issues that have been raised regarding the campus-based programs and how they are implemented under Title IV of the HEA. This section identifies and discusses a number of such issues. Two overarching issues are considered first, followed by several program-specific issues. Continuation of the Programs The federal campus-based programs are among the oldest of federal student financial assistance programs. While they repeatedly have been reauthorized, they largely have become overshadowed by the other non-campus-based Title IV aid programs and by higher education tax subsidies. Whether the campus-based programs are again reauthorized in their current form may be debated by the 109th Congress. While amending and extending authorization for the campus-based programs has been proposed (H.R. 609), the Administration, in its FY2006 Budget proposal, has called for terminating the Perkins Loan program and for restructuring the FWS program. With regard to terminating any of the campus-based programs, the Perkins Loan program is unique in that when an institution ceases participation in the program, or if authorization of the program expires, a distribution of assets from institutions’ revolving loan funds is required.36 Under such a scenario, institutions are required to repay to the Secretary a portion of the balance of their loan funds that is proportional to the amount constituted by FCCs — often ranging between 85% and 90%.37 Thus, upon termination of the program, the majority of the funds remaining in institutions’ Perkins Loan fund and the majority of funds subsequently repaid on outstanding loans would be returned to the federal government. The Administration estimates that terminating the Perkins Loan program would result in $6.0 billion being made available for other purposes.38 A general criticism of the campus-based programs is that campus-based financial aid is not portable and that the availability and amount of aid a student receives is dependent upon the institution a student attends. This is unlike many other Title IV aid programs (e.g., Pell Grants and Stafford Loans) in which a recipient can use federal aid to attend any eligible institution. Another criticism is 36 HEA, Section 466 (20 U.S. C. § 1087ff). 37 U.S. Department of Education, Office of Postsecondary Education, Dear Colleague Letter CB-00-05, Enclosure 1. Institutions participating in the Perkins Loan program typically have received FCCs throughout the duration of their participation in the program. From the inception of the program through the 1992-1993 award year, the federal share was 90%. In the 1993-1994 award year, the federal share was 70%. Since the 1994-1995 award year the federal share has been 75%. 38 Office of Management and Budget, Budget of the United States Government, Fiscal Year 2005 — Appendix: Department of Education, Office of Student Financial Assistance, p. 368. CRS-25 that the campus-based programs duplicate functions performed by other Title IV aid programs, particularly with regard to the FSEOG and Perkins Loan programs. For instance, the FSEOG program serves largely the same population that is served through Pell Grants. It might be argued that this population could be better served through expanded Pell Grants. Low-interest loans also might be provided to eligible students through subsidized Stafford Loans provided under the Federal Family Education Loan (FFEL) and William D. Ford Direct Loan (DL) programs.39 It also might be argued that elimination of one or more of the campus-based programs potentially could simplify the provision of federal postsecondary aid to students. Finally, the costs of administering the programs may be considered to be high. Many arguments can be made in favor of continuing the campus-based programs. The programs share a number of characteristics not present in other federal financial aid programs and which may be viewed as making them particularly valuable programs. For instance, they are the only Title IV programs that allow institutions to establish guidelines (which must be consistent with program requirements) for packaging federal aid in a way to meet the particular needs of eligible students. The campus-based programs also allow institutions to transfer funds between programs and to carry-forward and carry-back funds across award years. (These two characteristics make the programs popular with participating institutions.) Because the campus-based programs have matching requirements, institutional funds are leveraged by federal funds, giving institutions an incentive to take a proactive role in ensuring that the programs are administered efficiently. The campus-based programs also support a number of broader societal goals such as community service under FWS, and public service through Perkins loan cancellations. Finally, the potential effects of discontinuing the programs are uncertain. Procedures for Allocating Funds to Institutions The process through which funds are allocated to institutions under each of the campus-based programs may be considered during HEA reauthorization. While each of the funding formulas are different and somewhat complex, they share the similarity of allocating a portion of program funds to institutions based on the amount of funds each institution received in years past (base guarantee) and a portion based on each institution’s fair share of unmet student need (fair share increase). Some have argued that the current allocation procedures often provide a disproportionately larger share of funding to institutions that long have operated campus-based programs at the expense of institutions that only more recently began participating in the programs or which expanded their enrollments in recent years.40 In many instances, institutions with lower allocations are located in rapidly growing 39 Similarities and differences between Perkins Loans and Stafford Loans are discussed in CRS Report RL32854, Federal Perkins Loans and FFEL/DL Stafford Loans: A Brief Comparison, by David P. Smole. 40 See for example, Greg Winter, “Rich Colleges Receiving Richest Share of U.S. Aid,” New York Times, Nov. 9, 2003; and Stephen Burd, “In Some Federal Aid Programs, Not All Campuses Are Treated Alike,” Chronicle of Higher Education, June 16, 2000. CRS-26 areas. It has been suggested that the allocation procedures might be modified to be based primarily or entirely on each institution’s fair share of unmet student need.41 In the 109th Congress, proposals have been made to accomplish this by gradually phasing out institutional base guarantees.42 It is generally acknowledged that funding disparities exist between institutions; and a number of ways have been considered as means of reducing these disparities. In the past, it had been argued that institutions with well-funded campus-based programs should not be made to bear the costs associated with providing adequate funding to institutions currently receiving comparatively lower levels of campusbased funding. According to that line of reasoning, if funding for the campus-based programs were to be significantly increased so that a greater proportion of aid is provided based on institutions’ fair share of unmet student need, relative differences in funding levels would decrease without having to change the underlying allocation procedures.43 Given that in the past several years, there have not been increases in funding for the campus-based programs sufficient to overcome the funding advantages conferred to institutions with large base guarantees, current discussion has centered on phasing out institutional base guarantees over a period of years. This discussion is premised on the assumption that the allocation of funding according to the fair share formulas would result in a more equitable distribution of funds to institutions.44 As reauthorization of the campus-based programs is considered, it may be useful to examine how different types of institutions are affected by the current method of allocating campus-based funding (described earlier). Figure 5 provides a comparison of the number of institutions that were allocated campus-based funding for award year 2004-2005; and of those, the number with a base guarantee larger than the amount that, hypothetically, would be provided were funds allocated entirely according to institutions’ fair share of student need. Except for the case of proprietary institutions receiving FWS funding, more than one-quarter of institutions of each type had a base guarantee greater than their fair share for each of the campusbased programs. In part due to the base guarantee providing some institutions more than their fair share, but also due to insufficient funds being allocated to meet each institution’s fair share, many institutions often are allocated substantially less than their fair share of program funds. 41 The allocation procedures for the campus-based programs last were modified in 1998 when the programs were reauthorized under P.L. 105-244. Previously, they provided that if funds remained after awarding institutions their base guarantees, one-quarter of the remaining funds would be distributed on a pro-rata basis, and three-quarters of such funds would be distributed according to each institution’s fair share of excess eligible need. 42 H.R. 609 would phase out base guarantees between FY2008 and FY2016. The Administration’s Department of Education FY2006 Budget Summary calls for phasing in revised allocation formulas beginning with FY2006. 43 44 Stephen Burd, “Unfair Advantage?,” Chronicle of Higher Education, Aug. 15, 2003. These issues are discussed in more detail in CRS Report RL32775, The Campus-Based Financial Aid Programs: A Review and Analysis of the Allocation of Funds to Institutions and the Distribution of Aid to Students, by David P. Smole. CRS-27 Figure 5. Institutions Receiving Campus-Based Program Allotments and Those with Adjusted Base Guarantees Greater Than Their Fair Share: Award Year 2004-2005 FSEOG Public 4-year 540 194 Private 4-year 1160 306 Public 2-year 955 229 Private 2-year 58 155 Proprietary 994 238 FWS Public 4-year 544 235 Private 4-year 1231 436 Public 2-year 940 206 Private 2-year 49 Proprietary 138 506 57 PERKINS LOANS Public 4-year 400 176 Private 4-year 776 316 Public 2-year 37 72 28 Private 2-year 18 Proprietary 60 0 116 200 400 600 Institutions Receiving Funding Allocations 800 1000 1200 1400 Institutions w/ Adj. Base Guarantee > Fair Share Sources: U.S. Department of Education. Office of Postsecondary Education. FISAP data (Feb. 27, 2004); and U.S. Departmetn of Education. Office of Postsecondary Education. Campus-Based Programs Allocation Data (Apr. 2, 2004). Notes: Data for Perkins Loans refers only to institutions receiving FCC allocations. Does not include institutions for which data on institutional need are not available. Program-Specific Issues A number of issues specific to particular programs might be deliberated during the consideration of HEA reauthorization. These are discussed for each program and might include the following: FSEOG. Proposals may be made to provide institutions’ financial aid administrators greater flexibility in the awarding of FSEOGs to students with financial need. Currently, FSEOGs are required to be awarded first to students with the lowest EFC, with priority to those who receive Pell Grants. Some suggest that financial aid administrators should be provided flexibility to award at least a portion of FSEOGs to students who are among those with the lowest EFCs, but who are not Pell Grant recipients. It also has been suggested that increased FSEOG funding would enable institutions to provide more grant aid to students with exceptional financial need.45 H.R. 609 would also amend allocation procedures to allow for 10 percent of FSEOG funding that is in excess of $700 million to be allocated to four-year institutions in which more than 50% of Pell Grant recipients graduate within four years and to two-year institutions in which more than 50% of Pell Grant recipients 45 See for example, the National Association of Student Financial Aid Administrators: [http://www.nasfaa.org/publications/2003/senaterecs052203.doc]. CRS-28 graduate within two years. If funds were to be allocated according to such a provision, it could be viewed as rewarding institutions in which a large proportion of students with the most financial need graduate in quickly. However, it also could be viewed as being biased against institutions with large numbers of students enrolled on a less than full-time basis. FWS. Reauthorization issues likely will include those related to community service. Elements of the community service requirements might be modified, such as by changing the percentage of FWS funds that institutions are required to use to compensate students employed in community service. In its FY2006 Budget Justification, the Administration proposed eliminating the 7% community service requirement and replacing it with a set-aside for community service equal to 20% of the FWS appropriation. Under this proposal, institutions committed to operating community service programs would be eligible to receive funds from the set-aside and would be required to use the funds to compensate students employed in community service jobs.46 Alternatively, proposals might be made to increase the percentage of FWS funds that must be used to compensate students engaged in community service above the current 7% requirement. As changes to the community service requirement are considered, it may be worth noting that as shown in Table 6, only 75.0% of institutions reporting the expenditure of FWS funds met both the requirement to spend 7% of their allotment on community service and the requirement to operate a tutoring or family literacy program during award year 20022003. (When examined separately, 89.8% of institutions met the 7% expenditure requirement; and 79.6% met the tutoring and family literacy project requirement.) Proposals also might include changing or clarifying the types of activities that are considered community service. For instance, currently, FWS employment in an on-campus daycare facility that is open only to campus employees, but not the general public, is not considered community service. Under H.R. 609, work in oncampus child care services would be counted as community service regardless of whether or not the child care program served the larger community. Proposals also might be made to amend the procedures through which institutions are held accountable for their community service requirements, such as by changing the conditions under which institutions might be granted waivers from these requirements or by imposing explicit sanctions on institutions for failing to meet these requirements. Perkins Loans. A range of issues is likely to emerge regarding Perkins Loans. For instance, proposals have been made to raise annual or aggregate loan limits (H.R. 609). Currently, the average value of a Perkins loan is significantly below current loan limits, however, some suggest that by increasing loan limits, the borrowing needs of eligible students might be able to be met under a single loan program, rather than multiple programs (i.e., Stafford and PLUS) as is often the case.47 In addition, it has been suggested that the terms and conditions of Perkins loans should be made more similar to those of other Title IV programs in instances 46 47 U.S. Department of Education, Fiscal Year 2006 Budget Summary, p. 55. See, for example, the National Association of Student Financial Aid Administrators, [http://www.nasfaa.org/publications/2002/grtfperkins090302.html]. CRS-29 where these might be more favorable to the borrower, such as when borrowers are seeking forbearance or regaining eligibility after default.48 Effective July 1, 2004, the variable interest rate on Stafford Loans (3.37% during repayment, and 2.77% for in-school, grace, and deferment periods), and PLUS Loans (4.17%), dropped to a level that is lower than the rate for Perkins loans (5.0% during repayment). In this time of low interest rates, some might question whether borrowers of Perkins Loans should be faced with an interest rate that is higher than that available under Stafford or PLUS Loans. Others might point out that Perkins Loans contain conditions favorable to borrowers, some of which are not available with Stafford and PLUS Loans, including that Perkins Loans have no borrower fees, the provision that no interest accrues on Perkins Loans while borrowers are in-school and during grace and deferment periods,49 that Perkins Loans carry a fixed interest rate, and that Perkins Loan interest rates may be reduced to 4.0% under incentive repayment programs. Still, if a borrower consolidates a Perkins Loan, these benefits may be lost. As previously discussed, an additional benefit provided by Perkins Loans is that borrowers may be granted cancellation of Perkins Loans (and concurrent deferment) for many types of public service. Included among these types of public service is service as a law enforcement officer or corrections officer. ED has determined that this includes service as a prosecuting attorney, but not as a public defender. Proposals have been made to authorize student loan cancellations (including Perkins Loans) for service as a public defender (H.R. 198). Some might suggest that Perkins Loan cancellations be made available for types of public service beyond those already provided for, such as for police, fire, and rescue workers; or for service in national security, for example as a critical foreign language specialist or cultural expert.50 Issues involving federal funding for the Perkins Loan program also might be considered. Some might question whether the federal government should continue to make FCCs to institutions’ revolving loan funds, or if institutions might be able to continue operating the program solely by making new loans capitalized by the repayment of previously made loans. Others have called for the federal government to devote more resources toward keeping current on reimbursements for Perkins Loan cancellations.51 For FY2005, no funds were appropriated for Perkins Loan FCCs. Suggestions also have ben made to allow institutions that cease participating in the Perkins Loan program to be able to continue collecting repayments on outstanding loans and to be permitted to transfer these funds to the FSEOG or FWS 48 Ibid. 49 In the case of subsidized Stafford Loans, the government pays the interest that accrues while students are in-school, and during grace and deferment periods. For further information on the terms and conditions of Stafford and PLUS Loans, see CRS Report RL30655, Federal Student Loans: Terms and Conditions for Borrowers, by Adam Stoll. 50 For examples of bills previously introduced to accomplish such purposes, see H.R. 2522, H.R. 2476, S. 486, and S. 1112 — 107th Congress; and S. 407 — 108th Congress. 51 The Student Aid Alliance suggests that for FY2003, Perkins Loan reimbursements should be increased to $100 million to fully reimburse institutions for Perkins Loan cancellations. CRS-30 programs rather than being required to assign their Perkins Loan portfolios to ED for collection and to liquidate their Perkins Loan funds.52 Finally, Perkins Loan cohort default rates might be reexamined more closely, to include their use as an accountability tool. Perkins Loan cohort default rates potentially are affected by a range of factors to include the mix of financial aid types that students receive. For instance, research has found that average Perkins Loan amounts are small relative to overall student financial need.53 As a result, Perkins Loan borrowers often have to receive Stafford Loans to meet their expenses. Thus, Perkins Loan borrowers often have a higher debt burden, in addition to having less financial resources than non-Perkins Loan borrowers. In addition, the types of institutions most adversely affected by cohort default rate penalties are two-year institutions and proprietary schools, which often serve proportionately larger numbers of low-income students than four-year institutions. 52 See, for example, the National Association of Student Financial Aid Administrators, [http://www.nasfaa.org/publications/2003/senaterecs052203.doc]. 53 Kenneth E. Redd, Is There Still A Need for Perkins Loans? Differences in the Demographic Characteristics and Income Levels of Perkins and Stafford Loan Borrowers (Sallie Mae Education Institute, Jan. 1999), p. 15.