Student Financial Aid
Monitoring Aid Greater Than Federally Defined Need Could Help Address Student Loan Indebtedness Gao ID: GAO-03-508 April 30, 2003Over half of the $80.4 billion in financial aid provided to college students in the 2000-01 school year came from the federal government in the form of grants and loans provided under Title IV of the Higher Education Act (HEA). To help finance their education, students and families may have received other funds from states, private groups or lenders, and/or the schools themselves. We initiated this study to, among other things, determine how often federal financial aid recipients received aid that was greater than their federally defined need and what cost or other implications might result from changing HEA to limit such aid.
We found that in school year 1999-2000, of the 3.4 million full-time/full-year federal aid recipients, 22 percent (732,000) received a total of $2.96 billion in financial aid that was greater than their federally defined financial need. Of these, 628,000 received an estimated $2.72 billion in such aid by obtaining non-need-based loans--which we identify as substitutable loans--that families borrow to meet their expected family contribution. Title IV allows for students and families to obtain these non-need-based loans to meet their expected family contribution. Another 104,000 federal aid recipients received an estimated $238 million in such aid as a result of receiving a combination of aid from federal and nonfederal sources. Changing the HEA to limit the receipt of aid that is greater than students' federally defined financial need is not likely to achieve significant federal savings, although, the use of substitutable loans may increase overall student indebtedness. In terms of cost implications, limiting those instances where federal aid recipients receive substitutable loans--which is the main reason why students received aid greater than their federally defined need--will not likely result in significant savings. While the government will not have to pay default claims or special allowance payments on loans it guarantees, it would forego any interest earnings on loans it makes directly. Any savings from limiting these loans would be substantially less than the total amount of the loans made--the $2.72 billion. However, the widespread use of substitutable loans may increase the average debt of borrowers and may affect Education's ability to help students and their families maintain their loan debt at manageable levels.
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Director: Team: Phone:GAO-03-508, Student Financial Aid: Monitoring Aid Greater Than Federally Defined Need Could Help Address Student Loan Indebtedness
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Report to the Honorable Rod Paige, Secretary of Education:
United States General Accounting Office:
GAO:
April 2003:
Student Financial Aid:
Monitoring Aid Greater Than Federally Defined Need Could Help Address
Student Loan Indebtedness:
GAO-03-508:
GAO Highlights:
Highlights of GAO-03-508, a report to the Honorable Rod Paige,
Secretary of Education
Why GAO Did This Study:
Over half of the $80.4 billion in financial aid provided to college
students in the 2000-01 school year came from the federal government
in the form of grants and loans provided under Title IV of the Higher
Education Act (HEA). To help finance their education, students and
families may have received other funds from states, private groups or
lenders, and/or the schools themselves.
We initiated this study to, among other things, determine how often
federal financial aid recipients received aid that was greater than
their federally defined need and what cost or other implications might
result from changing HEA to limit such aid.
What GAO Found:
We found that in school year 1999-2000, of the 3.4 million
full-time/full-year federal aid recipients, 22 percent (732,000)
received a total of $2.96 billion in financial aid that was greater
than their federally defined financial need. Of these, 628,000 received
an estimated $2.72 billion in such aid by obtaining non-need-based
loans”which we identify as substitutable loans”that families borrow to
meet their expected family contribution (i.e., what the federal
government determines the family can afford to pay for college). Title
IV allows for students and families to obtain these non-need-based
loans to meet their expected family contribution. Another 104,000
federal aid recipients received an estimated $238 million in such aid
as a result of receiving a combination of aid from federal and
nonfederal sources.
Proportion of Federal Aid Recipients Receiving Aid Greater Than
Federally Defined Need in Relation to All Federal Aid Recipients,
Full-time/Full-year Undergraduates, 1999-2000:
[See PDF for image]
[End of figure]
Changing the HEA to limit the receipt of aid that is greater than
students‘ federally defined financial need is not likely to achieve
significant federal savings, although, the use of substitutable loans
may increase overall student indebtedness. In terms of cost
implications, limiting those instances where federal aid recipients
receive substitutable loans”which is the main reason why students
received aid greater than their federally defined need”will not likely
result in significant savings. While the government will not have to
pay default claims or special allowance payments on loans it
guarantees, it would forego any interest earnings on loans it makes
directly. Any savings from limiting these loans would be substantially
less than the total amount of the loans made”the $2.72 billion.
However, the widespread use of substitutable loans may increase the
average debt of borrowers and may affect Education‘s ability to help
students and their families maintain their loan debt at manageable
levels.
What GAO Recommends:
To ensure that substitutable loans will not lead to unmanageable
student loan indebtedness, we recommend that the Secretary of Education
monitor the impact of substitutable loans on student loan debt burden
and, if debt burden associated with substitutable loans rises
substantially, develop alternatives to help students manage student
loan debt burden.
In commenting on a draft of this report, Education noted that while
student indebtedness is of concern, loans to parents should be excluded
from our analysis. We modified the report to more clearly detail when
nonstudents were responsible for the loans.
www.gao.gov/cgi-bin/getrpt?GAO-03-508.
To view the full report, including the scope
and methodology, click on the link above.
For more information, contact Cornelia M. Ashby at (202) 512-8403 or
ashbyc@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
An Estimated 22 Percent of Federal Aid Recipients Received Aid above
Their Federally Defined Need:
Recipients of Aid Greater Than Their Federally Defined Need Are More
Likely to Have Higher Family Incomes, Be Dependent, and Attend Public
Universities:
Savings from Limiting Aid Greater Than Federally Defined Need Would
Likely Be Modest, but Substitutable Loans to Students Could Affect
Their Indebtedness:
Conclusions:
Recommendation:
Agency Comments:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Logistic Regressions:
Appendix III: Comments from the Department of Education:
Appendix IV: GAO Contact and Staff Acknowledgments:
Contact:
Acknowledgments:
Tables:
Table 1: Sources of Financial Aid for Students Receiving Aid Greater
Than Their Federally Defined Need Due to Combined federal and
Nonfederal Aid, 1999-2000 School Year:
Table 2: Selected Student and School Characteristics Associated with
Increased Likelihood of Receiving Financial Aid That Was Greater Than
Federally Defined Need:
Table 3: Selected Financial Aid Package Characteristics That Were
Associated with Increased Likelihood of Receiving Financial Aid That
Was Greater Than Federally Defined Need:
Table 4: Odds Ratios for All Students Receiving Aid Greater Than
Federally Defined Need:
Table 5: Odds Ratios for Students Receiving Aid Greater Than Federally
Defined Need That Cannot Be Entirely Attributed to Substitutable Loans:
Table 6. Means of Variables:
Figures:
Figure 1: Growth in Student Financial Aid Funding, 1991-92 to 2001-02 1:
Figure 2: Proportion of Federal Aid Recipients Receiving Aid Greater
Than Federally Defined Need in Relation to All Aid Recipients,
Including Federal Aid Recipients, Full-time/Full-year Undergraduates,
1999-2000:
Figure 3: Proportion of Financial Aid Greater Than Federally Defined
Need in Relation to Total Financial Aid Awarded and Total Financial Aid
Awarded to Federal Aid Recipients, Full-time/Full-year Undergraduates,
1999-2000:
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[End of section]
United States General Accounting Office:
Washington, DC 20548:
April 30, 2003:
The Honorable Rod Paige
Secretary of Education:
Dear Mr. Secretary:
In the 2000-01 school year, $80.4 billion in financial aid[Footnote 1]
was provided to college students to help them finance their
postsecondary education. Depending on their financial situation,
students and their families had a range of options for paying for a
college education, including funding from the federal government, state
governments, private entities such as religious organizations, and
schools themselves. While students and their families had multiple
options for paying for college, during the 2000-01 school year, over
half of the financial aid awarded came from the federal government, in
the form of grants to low-income students and loans to students and
their families, under Title IV of the Higher Education Act of
1965.[Footnote 2]
Most Title IV aid is based on a student's federally defined need, which
is the difference between the student's cost of attendance and the
family's federally determined ability to pay these costs--the latter is
known as the expected family contribution (EFC). Under Title IV,
families are presumed to have the resources in the form of savings and
income to meet their EFC. However, instead of relying on family
resources to finance their EFC, Title IV allows for students and
families to obtain non-need-based loans to meet their EFC. In some
instances, the federal government makes these non-need-based loans
directly to students and families (direct loans) or guarantees the
repayment of loans made by private lenders (guaranteed loans). Other
non-need-based loans are available from state governments or borrowed
from private lenders without a federal repayment guarantee. In this
report, we refer to non-need-based loans that are used to replace EFC
as "substitutable loans.":
Aside from the federal government, the remaining aid that students
receive, both need-based and non-need-based, comes from sources, such
as schools, state government programs, and private entities such as
religious or fraternal organizations. This aid comes primarily in the
form of direct grants, including, for example, state or school need-
based grants, and/or academic or athletic merit scholarships.
We initiated this review to determine (1) the extent to which students
received aid that was greater than their federally defined financial
need, (2) the student, school, and financial aid package
characteristics associated with receiving such aid, and (3) what cost
or other implications might result from changing the Higher Education
Act to limit the receipt of aid that is greater than a student's
federally defined need.
To do our work, we analyzed data from the 1999-2000 National
Postsecondary Student Aid Study (NPSAS)[Footnote 3] for cases
pertaining to full-time/full-year undergraduates and developed a
multiple regression model to identify which student, school, and
financial aid package characteristics were associated with receiving
aid that was greater than students' federally defined need. We also
reviewed federal laws and regulations governing the awarding of federal
financial aid, and we obtained information from 12 schools on their
financial aid packaging policies and practices. We also interviewed
officials at the Department of Education (Education) and several
academic researchers and financial aid officers.
We conducted our work between January 2002 and March 2003 in accordance
with generally accepted government auditing standards. For details on
our scope and methodology, see appendix I.
Results in Brief:
Of the 3.4 million full-time/full-year federal aid recipients for
school year 1999-2000, 22 percent (732,000) received a total of $2.96
billion in financial aid that was greater than their federally defined
financial need. They received this aid either because they borrowed
substitutable loans or because they received nonfederal financial aid,
such as scholarships, in addition to federal aid. According to our
analysis, of the 3.4 million full-time/full-year federal aid
recipients, 19 percent (628,000) received an estimated $2.72 billion in
aid greater than their federally defined need through substitutable
loans and an additional 3 percent of such aid recipients (104,000)
received an estimated $238 million in aid greater than their federally
defined need as a result of receiving a combination of federal and
nonfederal aid. For the latter group, several possible reasons, related
to how nonfederal aid is treated in determining students' need for
Title IV assistance or how need is adjusted, may explain why these
students received aid greater than their federally defined need.
Higher grade point averages, higher income, being dependent, as well as
attending public institutions or institutions located in the Southwest
or Plains states were characteristics associated with students
receiving aid greater than their federally defined need, regardless of
whether that aid was due to substitutable loans or a combination of
federal and nonfederal financial aid. Compared to those students who
did not receive aid greater than their need, those who did were more
likely to have higher family incomes, be dependent, or attend schools
in rural areas. Also, students whose aid packages were composed mostly
of non-need-based federal aid or nonfederal aid were more likely to
receive aid that was greater than their federally defined need.
Changing the Higher Education Act to limit the receipt of aid that is
greater than students' federally defined financial need is not likely
to achieve significant federal savings. However, the use of
substitutable loans could increase overall student indebtedness. In
terms of cost implications, limiting those instances where students
receive substitutable loans--which is the main reason why students
received aid greater than their federally defined need--will not likely
result in significant savings. While the government will not have to
pay default claims or special allowance payments on guaranteed loans,
it would forego any interest earnings on direct loans. Any savings from
limiting these loans would be substantially less than the total amount
of the loans made--the $2.72 billion. However, the widespread use of
substitutable loans could increase the average debt of borrowers and
may affect Education's ability to help students maintain their loan
debt at manageable levels.
In this report, we are recommending that the Secretary of Education,
over time, monitor the impact of substitutable loans on student loan
debt burden and, if debt burden associated with substitutable loans
rises substantially, develop and propose alternatives to help students
manage student loan debt burden for the administration or Congress to
consider.
In responding to a draft of this report, Education agreed that student
indebtedness is of concern, however, Education disagreed with what we
included in our analysis. Education stated that by including loans to
students' families--usually the parents--we were mischaracterizing
student debt and that loans to families should be excluded from our
analysis. We modified the report to more clearly detail when
nonstudents were responsible for the loans. Education also had
technical comments, which were incorporated when appropriate.
Background:
The following programs are authorized under Title IV of the Higher
Education Act, as amended:
* Pell grants--grants to undergraduate students who are enrolled in a
degree or certificate program and have federally defined financial
need.
:
* Stafford and PLUS loans--these loans may be made by private lenders
and guaranteed by the federal government (guaranteed loans) or made
directly by the federal government through a student's school (direct
loans).
:
* Subsidized Stafford loans--loans made to students enrolled at least
half-time in an eligible program of study and have federally defined
financial need. The federal government pays the interest costs on the
loan while the student is in school.
:
* Unsubsidized Stafford loans--non-need-based loans made to students
enrolled at least half-time in an eligible program of study. Although
the terms and conditions of the loan (i.e., interest rates, etc.) are
the same as those for subsidized loans, students are responsible for
paying all interest costs on the loan.
:
* PLUS loans--non-need-based loans made to credit worthy parents of
dependent undergraduate students enrolled at least half-time in an
eligible program of study. Borrowers are responsible for paying all
interest on the loan.
:
Dependent students may borrow combined subsidized and unsubsidized
Stafford loans up to $2,625 in their first year of college, $3,500 in
their second year, and $5,500 in their third year and beyond.
Independent students and dependent students without access to PLUS
loans can borrow combined subsidized and unsubsidized Stafford loans up
to $6,625 in their first year, $7,500 in their second year, and $10,500
in their third year and beyond. There are aggregate limits for an
entire undergraduate education of $23,000 for dependent students and
$46,000 for independent students or dependent students without access
to PLUS loans.
* Campus-based aid--participating institutions receive separate
allocations for three programs from Education. The institutions then
award the following aid to students:
:
* Supplemental Educational Opportunity Grants (SEOG)--grants for
undergraduate students with federally defined financial need. Priority
for this aid is given to Pell grant recipients.
:
* Perkins loans--low-interest (5 percent) loans to undergraduate and
graduate students. Interest does not accrue while the student is
enrolled at least half-time in an eligible program. Priority is given
to students who have exceptional federally defined financial need.
Students can borrow up to $4,000 for any year of undergraduate
education with an aggregate limit of $20,000.
* Work-study--on-or off-campus jobs in which students who have
federally defined need earn at least the current federal minimum wage.
The institution or off-campus employer pays a portion of their wages.
:
The amount of nonfederal financial aid has been increasing faster than
the amount of federal grants for financial aid while the amount of
federal loans for financial aid has increased the most. As figure 1
shows, from 1991-92 to 2001-02, the total financial aid awarded from
nonfederal grants more than doubled, while the amounts from federal
grant programs increased much more slightly. During this time, the
amount of aid borrowed through federal loan programs nearly doubled.
Growth in the amount borrowed through nonfederal loans from 1995-96 to
2001-02 also rose, but it remains the smallest source of the four
categories.
Figure 1: Figure 1: Growth in Student Financial Aid Funding, 1991-92 to
2001-02:
[See PDF for image]
Note: Data for nonfederal loans was not collected prior to 1995-96.
[End of figure]:
As a result of increasing reliance on loans to pay college costs, there
is growing concern about the level of loan debt students are
accumulating. The median cumulative amount borrowed from all loan
sources for graduating seniors increased (in constant 2001 dollars)
from $9,800 in 1992-93 to $18,000 in 1999-2000.[Footnote 4] Even though
income of graduates may have increased over the same period, some
analysts have expressed concern about the increased reliance on the use
of loans in lieu of other options for financing a college education,
such as resources the student and family already have.
Education is responsible for, among other things, formulating the
federal postsecondary education policy, overseeing federal investments
in support of students enrolled in postsecondary education, and
managing the distribution of Title IV funds. Part of its role in
fulfilling these responsibilities is to ensure that Title IV funds are
used effectively. Education has established a performance indicator of
maintaining borrower indebtedness and average borrower payments for
federal student loans at less than 10 percent of borrower income in the
first year of repayment. This indicator was established based on the
belief that an educational debt burden of 10 percent of income or
higher will negatively affect a borrower's ability to repay his or her
student loans.
Schools are responsible for determining individual students'
eligibility for specific sources of financial aid and compiling these
sources to meet each student's need--a process known as packaging. Part
of this process involves deciding which types or sources of aid should
be awarded first--for example, grants or loans, federal or nonfederal
aid, need-based or non-need-based aid. Another factor to consider in
packaging aid is whether to reduce aid from any source in a student's
package to offset an aid award from another source. Such a reduction
might be done, for example, when a student who has been awarded a
significant amount of need-based aid subsequently obtains a substantial
non-need-based aid award from a source outside of their school's
financial aid office.
An Estimated 22 Percent of Federal Aid Recipients Received Aid above
Their Federally Defined Need:
In school year 1999-2000, an estimated 732,000 out of 3.4 million full-
time/full-year federal aid recipients (22 percent) received $2.96
billion in financial aid greater than their federally defined financial
need, either because they or their parents received substitutable loans
or because they received nonfederal financial aid, such as
scholarships, in addition to federal aid. Figure 2 shows how the number
of aid recipients receiving aid greater than their federally defined
need compares to the total number of financial aid recipients. Figure 3
shows how the amount of aid greater than federally defined need
compares to total aid received.
Figure 2: Figure 2: Proportion of Federal Aid Recipients Receiving Aid
Greater Than Federally Defined Need in Relation to All Aid Recipients,
Including Federal Aid Recipients, Full-time/Full-year Undergraduates,
1999-2000:
[See PDF for image]
[End of figure]
Figure 3: Figure 3: Proportion of Financial Aid Greater Than Federally
Defined Need in Relation to Total Financial Aid Awarded and Total
Financial Aid Awarded to Federal Aid Recipients, Full-time/Full-year
Undergraduates, 1999-2000:
[See PDF for image]
[End of figure]
:
Most Cases of Aid Greater Than Federally Defined Need Can be Attributed
to Substitutable Loans:
Of all federal aid recipients, about 19 percent (628,000) received
total financial aid that was greater than their federally defined need
solely as a result of receiving substitutable loans. We estimate this
to be $2.72 billion with an average amount of about $4,300. These
students received aid that was greater than their federally defined
need because, under the Higher Education Act, students and their
families can borrow substitutable loans--unsubsidized Stafford and PLUS
loans--to offset the amount of their expected family contribution
(provided they do not exceed the annual and cumulative borrowing limits
established for these programs). The way that schools package student
financial aid could contribute to students receiving substitutable
loans that increase their aid beyond their federally defined need. For
example, of the 12 schools that provided information on their aid
packaging practices, 7 automatically package substitutable loans for
students that are greater than their federally defined need while 5
require that a student or family who wishes to obtain such a loan apply
for it.[Footnote 5]
Some Cases of Aid Greater Than Federally Defined Need are Due to
Combinations of Federal and Nonfederal Aid:
Another 3 percent of federal aid recipients (104,000) received aid that
was greater than their federally defined need as a result of receiving
nonfederal aid in addition to their federal aid. We estimate this to be
a total of $238 million with an average of about $2,300. This group of
students continued to have aid greater than their federally defined
need even after any substitutable loans they received were accounted
for. Further, there was no pattern among these students in terms of the
sources from which they received their financial aid, except that the
majority received unsubsidized Stafford loans. (See table 1.) In
addition, there was no pattern in terms of the types of schools they
attended.[Footnote 6] The lack of any such pattern may be due to
factors not captured in NPSAS data, such as the sequence in which
financial aid was packaged.
Table 1: Sources of Financial Aid for Students Receiving Aid Greater
Than Their Federally Defined Need Due to Combined Federal and
Nonfederal Aid, 1999-2000 School Year:
Aid category: Federal aid:
Source of financial aid: Pell grants;
Percent of the 104,000 students who received aid from this source: 17
%.
Source of financial aid: Supplemental Educational Opportunity grants
(SEOG); Percent of the 104,000 students who received aid from this
source: 6.
Source of financial aid: Other federal grants; Percent of the 104,000
students who received aid from this source: 6.
Source of financial aid: Perkins loans; Percent of the 104,000 students
who received aid from this source: 8.
Source of financial aid: Subsidized Stafford loans; Percent of the
104,000 students who received aid from this source: 39.
Source of financial aid: Unsubsidized Stafford loans; Percent of the
104,000 students who received aid from this source: 66.
Source of financial aid: PLUS loans; Percent of the 104,000 students
who received aid from this source: 12.
Source of financial aid: Other federal loans; Percent of the 104,000
students who received aid from this source: 5.
Source of financial aid: Federal work study; Percent of the 104,000
students who received aid from this source: 12.
Source of financial aid: Veterans and Department of Defense (DOD)
benefits; Percent of the 104,000 students who received aid from this
source: 4.
Source of financial aid: Vocational Rehabilitation and Job Training
Partnership Act assistance; Percent of the 104,000 students who
received aid from this source: 7.
Source of financial aid: Other federal aid; Percent of the 104,000
students who received aid from this source: 3.
Aid category: State aid:
Source of financial aid: State need-based
grants; Percent of the 104,000 students who received aid from this
source: 30.
Source of financial aid: State merit grants or scholarships; Percent of
the 104,000 students who received aid from this source: 8.
Source of financial aid: State loans; Percent of the 104,000 students
who received aid from this source: 3.
Source of financial aid: State nonneed, nonmerit grants; Percent of the
104,000 students who received aid from this source: a.
Source of financial aid: Other state aid; Percent of the 104,000
students who received aid from this source: 1.
Source of financial aid: State work study; Percent of the 104,000
students who received aid from this source: 5.
Aid category: College or university aid:
Source of financial aid:
College or university athletic scholarships or grants; Percent of the
104,000 students who received aid from this source: 5.
Source of financial aid: College or university merit grants or
scholarships; Percent of the 104,000 students who received aid from
this source: 38.
Source of financial aid: College or university need-based grants;
Percent of the 104,000 students who received aid from this source: 36.
Source of financial aid: College or university nonneed, non-merit
grants; Percent of the 104,000 students who received aid from this
source: 6.
Source of financial aid: College or university loans; Percent of the
104,000 students who received aid from this source: 10.
Source of financial aid: College or university work study; Percent of
the 104,000 students who received aid from this source: 29.
Source of financial aid: Other college or university aid; Percent of
the 104,000 students who received aid from this source: a.
Aid category: Private aid:
Source of financial aid: Private source
grants or scholarships; Percent of the 104,000 students who received
aid from this source: 32.
Source of financial aid: Private loans; Percent of the 104,000 students
who received aid from this source: 13.
Source of financial aid: Tuition waivers for students whose parents are
college or university employees; Percent of the 104,000 students who
received aid from this source: 4.
Source of financial aid: Employer assistance; Percent of the 104,000
students who received aid from this source: 3.
Source: GAO analysis of 1999-2000 NPSAS data.
[A] Less than 1 percent of students received this form of aid.
[End of table]
While we did not identify any common patterns or characteristics
associated with students receiving aid greater than their federally
defined need as a result of combinations of federal and nonfederal aid,
there are a number of possible reasons why this may occur:
* In limited circumstances, students who receive Title IV assistance
are allowed to receive aid that is greater than their federally defined
need. In the first situation, schools cannot reduce the amount of a
Pell grant even if it results in a student receiving aid greater than
federally defined need. We found, however, that only 17 percent of the
students in this group received Pell grants. Also, if aid greater than
federally defined need is $300 or less, campus-based assistance does
not need to be reduced and subsidized Stafford loans do not need to be
reduced if the student is also receiving federal work study. Finally,
after any Stafford loan funds have been delivered to the student, the
student is allowed to receive aid from a non-Title IV source, even if
that aid results in aid greater than federally defined need.[Footnote
7] This could, for example, explain some of the 39 percent of students
in this group who received subsidized Stafford loans.
:
* In some cases, rules for nonfederal assistance can increase the
likelihood of students receiving aid greater than their federally
defined need from sources such as private scholarships. Benefactors of
private scholarships may sometimes prohibit schools from reducing the
amount of the scholarship even if a student's total aid package will be
greater than their federally defined need. Also, several of the schools
that provided information to us specifically cited students who receive
both Pell grants and state, merit, or athletic scholarships that are
greater than their federally defined need as cases in which they would
not reduce total aid in order to stay within their federally defined
need. We found that, among the students whose aid was greater than
federal need due to combinations of federal and nonfederal aid, less
than 5 percent received both Pell grants and state or institutional
merit scholarships or athletic scholarships.
:
* Some schools--primarily private 4-year institutions--use different
factors than those used by the federal government to determine
eligibility for institutional need-based aid. These need formulas,
known as institutional methodologies, may identify a higher level of
need for a student than the federal government would. However, schools
that use institutional methodologies must still use the federal
definition of need to award federal need-based aid. By filling this
higher level of need from aid sources that are not counted towards
federally defined need, the student could receive more aid than his/her
federally defined need would dictate. NPSAS does not capture whether
any nonfederal need-based aid was distributed using these institutional
methodologies.
:
* Under Title IV, financial aid officers have discretion to recalculate
a student's need if the family's financial circumstances change
dramatically, such as a parent's loss of employment. This discretion,
known as professional judgment, could result in an increase to a
student's financial need. NPSAS does not capture whether a student's
aid package was adjusted due to professional judgment. However, the 12
schools that provided information to us generally said they changed aid
awards as a result of professional judgment for 5 percent or fewer of
federal aid recipients.[Footnote 8]
These cases describe situations under which federal aid recipients may
legitimately receive more financial aid than their federally defined
need. While each of the situations described provides a plausible
explanation of how a combination of federal and nonfederal aid can
raise overall aid above federally defined need, we cannot determine
with certainty, without looking in detail at each case, why these aid
recipients received more aid than their federally defined need.
Recipients of Aid Greater Than Their Federally Defined Need Are More
Likely to Have Higher Family Incomes, Be Dependent, and Attend Public
Universities:
Compared to those federal aid recipients who did not receive aid
greater than their federally defined need, the 732,000 who did were
more likely to have higher family incomes, be dependent, or attend
public universities. They are also more likely to have higher grade
point averages or attend schools in the Southwest or Plains states.
Among those variables that proved statistically significant, table 2
shows selected student and school characteristics that were associated
with receiving aid greater than federally defined need. Appendix II
more fully describes all of the variables used in our analysis and more
completely discusses their levels of statistical significance. These
patterns generally held regardless of whether the aid greater than
federally defined need could be attributed to substitutable loans or a
combination of federal and nonfederal aid. The one exception we found
was that students who received aid greater than their need as a result
of a combination of federal and nonfederal aid were more likely to be
white.
Table 2: Selected Student and School Characteristics Associated with
Increased Likelihood of Receiving Financial Aid That Was Greater Than
Federally Defined Need:
Characteristics: Students.
Characteristics: Dependent; Likelihood of receiving aid greater than
federally defined need: Students: More than twice as likely as
independent students.
Characteristics: Family income; Likelihood of receiving aid greater
than federally defined need: Students: Increased 24 percent for every
$5,000 increase in income.
Characteristics: Grade point average; Likelihood of receiving aid
greater than federally defined need: Students: Increased 16 percent for
every half-point increase in grade point average.
Characteristics: Schools; Likelihood of receiving aid greater than
federally defined need: Students: [Empty].
Characteristics: Located in Plains or Southwestern states; Likelihood
of receiving aid greater than federally defined need: Students: Almost
twice as likely as students attending schools in other regions.
Characteristics: Public institution; Likelihood of receiving aid
greater than federally defined need: Students: Almost 3 times as likely
as students at private not-for-profit institutions.
Characteristics: Located in rural area; Likelihood of receiving aid
greater than federally defined need: Students: One and a half times as
likely as students at schools located in urban areas.
Source: GAO analysis of 1999-2000 NPSAS data.
[End of table]:
In addition, these 732,000 students were more likely to have financial
aid packages consisting mostly of non-need-based federal aid or
nonfederal aid. Among those variables that proved statistically
significant, table 3 shows selected financial aid package
characteristics that were associated with receiving aid greater than
federally defined need. (See app. II for a more complete description of
variables and their significance levels.):
Table 3: Selected Financial Aid Package Characteristics That Were
Associated with Increased Likelihood of Receiving Financial Aid That
Was Greater Than Federally Defined Need:
Characteristic of aid package: Number of different aid sources in
student's package; Likelihood of receiving aid greater than federally
defined need: Increased by about a third for every additional source in
the student's aid package.
Characteristic of aid package: Majority of aid is from federal non-
need-based loans to students; Likelihood of receiving aid greater than
federally defined need: Almost 5 times as likely as students receiving
the majority of their aid from federal grants.
Characteristic of aid package: Majority of aid is from federal work
study and PLUS loans to parents; Likelihood of receiving aid greater
than federally defined need: Six times as likely as students receiving
the majority of their aid from federal grants.
Characteristic of aid package: Majority of aid is from nonfederal
grants, scholarships and work study (also veterans and DOD benefits and
vocational rehabilitation assistance); Likelihood of receiving aid
greater than federally defined need: Just over 6 times as likely as
students receiving the majority of their aid from federal grants.
Characteristic of aid package: Majority of aid from nonfederal loan
sources; Likelihood of receiving aid greater than federally defined
need: Nearly 8 times as likely as students receiving the majority of
their aid from federal grants.
Source: GAO analysis of 1999-2000 NPSAS data.
[End of table]:
Based on NPSAS data alone, we cannot say why the characteristics listed
in tables 2 and 3 are associated with a greater likelihood of receiving
aid greater than federally defined need.
Savings from Limiting Aid Greater Than Federally Defined Need Would
Likely Be Modest, but Substitutable Loans to Students Could Affect
Their Indebtedness:
Changing the Higher Education Act to limit the receipt of aid that is
greater than students' federally defined financial need is not likely
to achieve significant federal savings. However, the use of
substitutable loans could increase overall student indebtedness. Any
cost savings from changing the Higher Education Act to limit the
receipt of aid that is greater than students' federally defined
financial need would likely be very modest, much less than the dollar
amount of such aid--the $2.96 billion. In the case of the larger group
of students and their families whose aid greater than federally defined
need is attributable to substitutable loans, the actual cost to the
government is not the face value of the loans. For guaranteed loans,
the government incurs costs--primarily insurance claims payments to
lenders for defaulted loans and special allowance payments made to
lenders to ensure a guaranteed return on the loans they make. For
direct loans, interest from loan repayments offsets costs the
government incurs for defaults and interest payments to the treasury on
funds Education borrows to make loans. These interest earnings produce
savings for the government. Determining the net cost of federal
substitutable loans would require comparing savings generated by direct
loans with the net costs associated with guaranteed loans. We could not
estimate these costs given the data available in NPSAS.[Footnote 9]
For the smaller group of cases involving combinations of federal and
nonfederal aid, any savings would depend on how aid is packaged.
Assuming that most schools package loans and work study last--8 of the
12 schools that provided us with information said this was the typical
practice at their institutions--loans and work study would most likely
be eliminated first to keep aid packages within federally defined need
limits. Any savings on loans would be derived using the same basic
calculation we described above for substitutable loans. In addition,
the government would also save the interest it pays on subsidized loans
while students are still in school. Thus, these savings would be
considerably smaller than the face value of the loan. With regard to
work study, it is likely that schools rather than the federal
government would obtain most of the savings. According to our analysis
of the NPSAS data, this would occur because a larger percentage of
these students received institution-funded work study rather than
federally funded work study (29 percent versus 12 percent).
Although changing the Higher Education Act to limit receiving aid
greater than federally defined need is not likely to result in any
substantial cost savings, continuing this practice may affect some
students' loan indebtedness. The one fifth of federal aid recipients
who received substitutable loans may face higher monthly loan
repayments that might constrain their other financial choices. In
addition, as student loan indebtedness rises, borrowers could
experience difficulty in meeting their monthly payments, particularly
under weak economic conditions.
The widespread use of substitutable loans might also affect Education's
ability to help students and their families maintain their loan
indebtedness at manageable levels. Officials at Education told us that
the agency is committed to tracking overall student debt burden.
However, the 19 percent of students and their families who borrowed
substitutable loans may have higher monthly repayments and spend a
larger share of their income on loan repayments than other students.
This could increase the average debt burden of these students above
that of other students.
Conclusions:
While students and their families have a range of options for paying
for college, the money students borrow could influence their later debt
burden. Given Education's performance indicator of maintaining borrower
indebtedness at less than 10 percent of income in the first year of
repayment, this relationship should be of interest to the agency.
Education may find it more difficult to meet this standard if
indebtedness continues to grow through the use of substitutable loans.
Such information might prove useful to help inform federal policymakers
on how best to minimize student indebtedness.
Recommendation:
To ensure that the use of substitutable loans will not lead to
unmanageable student loan indebtedness, we recommend that the Secretary
of Education, over time, monitor the impact of substitutable loans on
student debt burden and, if debt burden associated with substitutable
loans rises substantially, develop and propose alternatives for the
administration or Congress to consider to help students manage student
loan debt burden. Such alternatives could range from shifting students
into repayment plans that would lower their debt burden to limiting the
use or amount of substitutable loans.
Agency Comments:
In written comments on a draft of this report, Education agreed that
student indebtedness is of concern, however, Education disagreed with
what we included in our analysis. Specifically, we included PLUS loans
to a student's family--usually to the parents--as part of our analysis.
Education stated that by including these loans we were
mischaracterizing student debt and that loans to families should be
excluded from our analysis. Education also stated that we should
distinguish between students and their families as the recipients of
federal financial aid. We modified the report to more clearly detail
when non-students were responsible for the loans. However, based on the
1999-2000 NPSAS data, 1.3 million federal aid recipients received
unsubsidized Stafford loans while 323,000 federal aid recipients
received PLUS loans, indicating to us that far more substitutable loans
are likely to be made to students. Education also had technical
comments, which were incorporated when appropriate. See appendix III
for a printed copy of Education's comments.
:
We are sending copies of this report to the Chairmen and Ranking
Members of the Senate Committee on Health, Education, Labor and
Pensions and the House Committee on Education and the Workforce; and
the Director of the Office of Management and Budget. We will also make
copies available to others on request. This report is also available at
no charge on GAO's Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please call
me at (202) 512-8403. Major contributors are listed in appendix IV.
Sincerely yours,
Cornelia M. Ashby
Director, Education, Workforce and Income Security Issues:
Signed by Cornelia M. Ashby:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
The objectives of this study were to determine how often students who
were federal financial aid recipients received aid that was greater
than their federally defined financial need, identify the student,
school, and financial aid package characteristics associated with
receiving such aid, and determine what the implications might be, if
any, of changing the Higher Education Act to limit the receipt of aid
that is greater than a student's federally defined need. When students
receive financial aid from multiple sources or some aid that is not
need-based, the potential exists for some students to receive aid that
is greater than their federally defined need. Most Title IV aid is
based on a student's federally defined financial need, which is the
difference between the student's cost of attendance and the family's
federally determined ability to pay these costs--known as the expected
family contribution (EFC). To meet their EFC under Title IV, families
can obtain non-need-based loans, which we refer to as substitutable
loans.
To carry out our objectives, we used the National Postsecondary Student
Aid Study (NPSAS) data collected by the Department of Education's
National Center for Education Statistics. We also contacted 19 college
and university financial aid officers to obtain information on their
schools' financial aid packaging policies and practices. We received
responses from 12 of these officials.
To determine the extent to which students received financial aid
greater than their federally defined need, we analyzed the NPSAS data
to identify the amount and source of financial aid received by full-
time, full-year undergraduates who received aid from any federal source
whether or not it was a Title IV program. We identified two distinct
groups of students who received aid greater than their federally
defined need. We first identified all students who received aid greater
than the federally defined need, regardless of the source of that aid
(see block A in fig. 2). The first group of students were those whose
aid greater than federally defined need was accounted for by the
substitutable loans they received (see block A-1 in fig. 2). The second
group of students were those whose aid still remained greater than
their federally defined need, after accounting for any substitutable
loans in their aid packages (see block A-2 in fig. 2).
To determine what student and school characteristics were associated
with receiving aid greater than federally defined need, we again used
NPSAS data for our analysis. For all of the students receiving aid
greater than federally defined need and the second group of these
students, we employed logistic regression models to estimate the
association between student and school characteristics and the
likelihood of receiving aid greater than federally defined need. We
chose logistic models due to the dichotomous nature of the phenomenon
of interest--whether or not students received aid greater than their
federally defined need. We did not perform a similar analysis on the
first group because, since it was such a large portion of the students
receiving aid greater than their federally defined need and since the
aid that was greater than need could be attributed entirely to
receiving substitutable loans, it was not likely the results would show
this group to be different in any other ways.
The variables that we used are listed and defined in appendix II. In
general, we included student characteristics such as race, marital
status, and dependency status. We included such school characteristics
as graduation rate, geographical location, and whether or not a school
was public. We also included some characteristics of the aid packages
the students received. To report the results of the regressions, we use
odds ratio tables. (See app. II.) Some variables proved not to have a
statistically significant association with receiving aid greater than
federally defined need. For all of the students receiving aid greater
than their federally defined need, these included whether the student
was white, the graduation rate of the school, and if the majority of a
student's aid package was composed from federal need-based loans. For
the second group, whether the student was a veteran, was a U.S.
citizen, and whether the majority of aid was received from federal
need-based loans or nonfederal loans were statistically insignificant.
In analyzing the results for the second group of students, we sought to
determine if a large proportion of these students had characteristics
in common, such as receiving aid from specific programs or attending
schools with a certain common characteristic (e.g., public versus
private, regional location). We did not undertake any further analysis
to identify how these students received aid that was greater than their
federally defined need. This would have entailed individually analyzing
each of the over 400 cases and obtaining additional information
directly from the school. This analysis would have been beyond the
scope of our review.
[End of section]
Appendix II: Logistic Regressions:
To analyze the student and school characteristics that are associated
with receiving aid greater than federally defined need, we ran logistic
regressions from variables in the 1999-2000 NPSAS. We sought to
determine which student, school, and aid package characteristics were
significantly associated with the receipt of aid greater than the
federally defined need. We included variables representing dependency
status, grade point average (GPA), region of the country, race, veteran
status, income, a private college indicator, the source of the majority
of the student's aid, and the number of different aid source in the aid
package.
The results for the models we used are odds ratios that estimate the
relative likelihood of receiving aid greater than federally defined
need for each factor. Table 4 shows these odds ratios for all students
receiving aid greater than their federally defined need (see blocks A-
1 and A-2 in fig. 2). Table 5 shows the results for the students whose
aid greater than their need could not be attributed entirely to
receiving substitutable loans (see block A-2 in fig. 2). If there were
no significant differences between those who received aid greater than
federal need and those who did not with regard to a particular
characteristic then the odds ratio would be 1.00. The more the odds
ratio differs from 1.00 in either direction, the larger the effect.
The odds ratios were generally computed in relation to a reference
group; for example, if the odds ratio refers to being a dependent
student, then the reference group would be independent students. Some
variables, such as GPA and income, are continuous in nature. In these
cases, the odds ratio can be interpreted as representing the increase
in the likelihood of receiving aid greater than federally defined need
given a 1 unit increase in the continuous variable.
An odds ratio greater than 1.00 indicates an increase in the likelihood
of receiving aid greater than the federally defined need relative to
the reference group, whereas an odds ratio less than 1.00 indicates a
decrease in the likelihood of receiving aid greater than the federally
defined need relative to the reference group. Both tables also include
the 95 percent confidence intervals around the odds ratios. If these
intervals contain 1.00, then the difference is not statistically
significant.
Table 6 shows the means for all the variables considered.
Table 4: Odds Ratios for All Students Receiving Aid Greater Than
Federally Defined Need:
Independent variables and effects: Dependent; Odds ratio: 2.62; 95%
lower limit: 1.89; 95% upper limit: 3.64.
Independent variables and effects: GPA (0-40); Odds ratio: 1.03; 95%
lower limit: 1.01; 95% upper limit: 1.04.
Independent variables and effects: Currently married; Odds ratio: 1.63;
95% lower limit: 1.17; 95% upper limit: 2.27.
Independent variables and effects: Household size; Odds ratio: 0.72;
95% lower limit: 0.67; 95% upper limit: 0.78.
Independent variables and effects: Institution in Plains or Southwest;
Odds ratio: 1.70; 95% lower limit: 1.33; 95% upper limit: 2.17.
Independent variables and effects: White; Odds ratio: 1.08; 95% lower
limit: 0.87; 95% upper limit: 1.35.
Independent variables and effects: Veteran; Odds ratio: 1.83; 95% lower
limit: 1.09; 95% upper limit: 3.06.
Independent variables and effects: Income/$5,000; Odds ratio: 1.24; 95%
lower limit: 1.20; 95% upper limit: 1.28.
Independent variables and effects: Substitutable loan (y/n); Odds
ratio: 69.21; 95% lower limit: 47.59; 95% upper limit: 100.64.
Independent variables and effects: Private university; Odds ratio:
0.35; 95% lower limit: 0.28; 95% upper limit: 0.43.
Independent variables and effects: 4-year university; Odds ratio: 1.54;
95% lower limit: 1.14; 95% upper limit: 2.07.
Independent variables and effects: Urban institution; Odds ratio: 0.68;
95% lower limit: 0.54; 95% upper limit: 0.35.
Independent variables and effects: Graduation rate of institution; Odds
ratio: 1.00; 95% lower limit: 0.99; 95% upper limit: 1.00.
Independent variables and effects: # Aid Components; Odds ratio: 1.33;
95% lower limit: 1.24; 95% upper limit: 1.43.
Independent variables and effects: Aid package variables[A]; Odds
ratio: For the remaining variables, the reference group is "Majority
from Federal Grants."[B].
Independent variables and effects: Federal need-based loans to
students; Odds ratio: 1.72; 95% lower limit: .73; 95% upper limit:
4.07.
Independent variables and effects: Federal non-need-based loans to
students; Odds ratio: 4.77; 95% lower limit: 1.97; 95% upper limit:
11.54.
Independent variables and effects: Federal work study and PLUS loans to
parents; Odds ratio: 6.02; 95% lower limit: 2.41; 95% upper limit:
15.03.
Independent variables and effects: Nonfederal grants, scholarships, and
work study (includes Veterans/DOD benefits and Vocational
Rehabilitation assistance); Odds ratio: 6.12; 95% lower limit: 2.57;
95% upper limit: 14.53.
Independent variables and effects: Nonfederal loans; Odds ratio: 7.8;
95% lower limit: 2.89; 95% upper limit: 21.08.
Independent variables and effects: No majority; Odds ratio: 2.33; 95%
lower limit: 1.0; 95% upper limit: 5.43.
Source: GAO analysis of 1999-2000 NPSAS data.
[A] The classifications used are consistent with the categories of aid
package variables used in the NPSAS data. However, we did separate
need-based and non-need-based loans.
[B] The variables indicate whether or not the majority of a student's
aid came from the particular source described by the variable. The
omitted reference group is those students who had the majority of their
aid coming from federal grants.
[End of table]:
We found statistically significant differences between those students
who received aid greater than their federally defined need and those
who did not for the following characteristics:
:
Student Characteristics:
Dependent. All else equal, dependents are more than twice (2.62) as
likely to receive aid greater than federally defined need.
Currently Married. All else equal, being currently married (as opposed
to single or separated, divorced or widowed) increased the likelihood
of receiving aid greater than federally defined need by a factor of
1.63.
Veteran. Veterans were almost twice as likely (1.83) than nonveterans
to receive aid greater than the federally defined need.
Household Size. As the size of a household increases, the likelihood of
receiving aid greater than the federally defined need decreases. For
example, a student from a two-member household is 1.4 times more likely
to receive aid greater than federally defined need than a person from a
three-member household.
GPA. GPA is usually calculated on a 4-point scale. In the NPSAS data
set, GPA is multiplied by 100 or reported on a 400-point scale. In our
analysis, we have GPA ranging from 0 to 40, such that a unit increase
in our GPA variable (say from 37 to 38) represents a 0.1 change in
grade point average as it is usually calculated (3.7 to 3.8). An odds
ratio of 1.03 should thus be interpreted as follows: On a 4-point GPA
scale, increasing GPA by one-tenth of one point (2.53 to 2.63)
increases the likelihood of receiving aid greater than federally
defined need by 3 percent. Thus, a change of one grade point (2.5 to
3.5) increases the likelihood of receiving aid greater than federally
defined need by 35 percent (1.0310 = 1.35).
Income. For every $5,000 change in income, the probability of receiving
aid greater than federally defined need increases by 24 percent. A
person earning $50,000 more than another, all else equal, is 8.6
(1.2410 = 8.59) times more likely to receive aid greater than federally
defined need.
School Characteristics:
Private Not-for-profit University. Attending a private university
decreases the likelihood of receiving aid greater than federally
defined need. Someone who attends a public university increases his/her
chances of receiving aid greater than federally defined need by a
factor of 2.86 (1/0.35).
Four-year School. All else equal, attending a 4-year institution
increases the likelihood of receiving aid greater than federally
defined need by a factor of 1.5.
Urban. All else equal, attending a rural (rather than urban)
institution increases the likelihood of receiving aid greater than
federally defined need by a factor of 1.5 (1/0.68).
Plains-Southwest. A student attending school in the Plains states or
the Southwest is 1.7 times more likely to receive aid greater than
federally defined need than a similar student attending school in other
regions of the country.
Aid Packages:
The aid package variables represent the source of the "majority" of the
student's aid, if there was a majority source. The omitted reference
group is the category of people whose majority of aid comes from
federal grants such as Pell and Supplemental Educational Opportunity
Grants (SEOG). About 17 percent of the sample falls into the reference
group. In general, the people who had a majority of their aid coming
from federal grants were less likely to receive aid greater than the
federally defined need than any other group (as defined by majority of
aid source).
Majority from Non-Need-Based Federal Loans. Holding all else equal, a
student who receives a majority of aid from federal, non-need-based
loans was almost 5 times more likely to receive aid greater than
federally defined need than a student who receives the majority of aid
from federal grants.
Majority from Federal Work Study and PLUS Loans to Parents. Holding all
else equal, a student who receives a majority of aid from federal work
study and PLUS loans is about 6 (6.02) times more likely to receive aid
greater than federally defined need than a student who receives the
majority of aid from federal grants.
Majority from Nonfederal Grants, Scholarships and Work Study. Holding
all else equal, a student who has a majority of aid coming from
nonfederal grants or scholarships, work study, Veterans/Department of
Defense benefits, Vocational Rehabilitation assistance or other non-
loan sources is about 6.12 times more likely to receive aid greater
than federally defined need than a student who receives the majority of
aid from federal grants.
Majority from Nonfederal Loans. Holding all else equal, a student who
receives a majority of aid from nonfederal loan sources is about 7.8
times more likely to receive aid greater than federally defined need
than a student who receives the majority of aid from federal grants.
No Majority. A student who has no distinct majority source of aid is
2.33 times more likely to receive aid greater than federally defined
need than a student who the majority of aid from federal grants.
Number of Aid Components in Aid Packages. Having more aid sources in a
student's aid package results in a higher probability of receiving aid
greater than the federally defined need. Having an additional aid
component increases the likelihood of receiving aid greater than
federally defined need by a factor of 1.33. This means that having five
sources of aid, rather than one source of aid, can cause a three-fold
increase in the likelihood of receiving aid greater than federally
defined need (2.994 = 1.314).
Substitutable Loans. Receiving loans that can be substituted for EFC is
associated with a great increase in the likelihood of receiving aid
greater than federally defined need. This can be attributed to the fact
that aid greater than federally defined need can be accounted for by
substitutable loans for over 85 percent of the students who received
such aid (628,000 out of 732,000).
Table 5: Odds Ratios for Students Receiving Aid Greater Than Federally
Defined Need That Cannot Be Entirely Attributed to Substitutable Loans:
Independent variables and effects: Dependent; Odds ratio: 3.00; Lower
95% limit: 1.53; Upper 95% limit: 5.89.
Independent variables and effects: Citizen; Odds ratio: 3.23; Lower 95%
limit: 0.76; Upper 95% limit: 13.63.
Independent variables and effects: GPA (0-40); Odds ratio: 1.05; Lower
95% limit: 1.02; Upper 95% limit: 1.08.
Independent variables and effects: Institution in Plains or Southwest;
Odds ratio: 1.77; Lower 95% limit: 1.24; Upper 95% limit: 2.51.
Independent variables and effects: White; Odds ratio: 1.75; Lower 95%
limit: 1.15; Upper 95% limit: 2.68.
Independent variables and effects: Veteran status; Odds ratio: 2.26;
Lower 95% limit: 0.60; Upper 95% limit: 8.51.
Independent variables and effects: Income/$5,000; Odds ratio: 1.06;
Lower 95% limit: 1.04; Upper 95% limit: 1.08.
Independent variables and effects: Private institution; Odds ratio:
0.74; Lower 95% limit: 0.52; Upper 95% limit: 1.04.
Independent variables and effects: Number of aid; components; Odds
ratio: 1.21; Lower 95% limit: 1.09; Upper 95% limit: 1.34.
Independent variables and effects: Aid package variables[A]; Odds
ratio: The variables below indicate whether or not the majority of a
student's aid came from the particular source described by the
variable. The reference group is "Majority from Federal Grants.".
Independent variables and effects: Federal need-based loans to
students; Odds ratio: 1.79; Lower 95% limit: 0.78; Upper 95% limit:
4.10.
Independent variables and effects: Federal non-need-based loans to
students; Odds ratio: 6.61; Lower 95% limit: 3.00; Upper 95% limit:
14.6.
Independent variables and effects: Federal work study and PLUS loans to
parents; Odds ratio: 3.00; Lower 95% limit: 1.16; Upper 95% limit:
7.79.
Independent variables and effects: Nonfederal grants, scholarships and
work study (includes Veterans/DOD benefits and Vocational
Rehabilitation assistance); Odds ratio: 19.92; Lower 95% limit: 10.14;
Upper 95% limit: 39.15.
Independent variables and effects: Nonfederal loans; Odds ratio: 3.14;
Lower 95% limit: 0.57; Upper 95% limit: 17.40.
Independent variables and effects: No majority; Odds ratio: 6.96; Lower
95% limit: 3.48; Upper 95% limit: 13.92.
Source: GAO analysis of 1999-2000 NPSAS data.
[A] See table 4 for a detailed explanation of the aid package
variables.
[End of table]:
We found statistically significant differences between those students
who received aid greater than their federally defined need and those
who did not for the following characteristics:
Student Characteristics:
Dependent. All else equal, being a dependent increases the probability
of receiving aid greater than federally defined need three-fold.
White. Being white as opposed to nonwhite almost doubles the chances of
getting aid greater than federally defined need (1.75).
GPA. GPA is usually calculated on a 4-point scale. In the NPSAS data
set, GPA is multiplied by 100 or reported on a 400-point scale. In our
analysis, we have GPA ranging from 0 to 40, such that a unit increase
in our GPA variable (say from 37 to 38) represents a 0.1 change in
grade point average as it is usually calculated (3.7 to 3.8). An odds
ratio of 1.05 should thus be interpreted as follows: On a 4-point GPA
scale, increasing GPA by one-tenth of one point (2.53 to 2.63)
increases the likelihood of receiving aid greater than federally
defined need by 5 percent. Thus, a change of one grade point (2.5 to
3.5) increases the likelihood of receiving aid greater than federally
defined need by 63 percent (1.0510).
Income. For every $5,000 change in income, the probability of receiving
aid greater than federally defined need increases by 6 percent. Thus, a
$50,000 increase in income (say between someone earning $25,000 and
someone earning $75,000) results in a 79 percent (1.0610 = 1.79)
increase in the likelihood of receiving aid greater than federally
defined need.
School Characteristics:
Plains-Southwest. A student attending school in the Plains states or
the Southwest is 1.77 times more likely to receive aid greater than
federally defined need than a similar student attending school in other
regions of the country.
Private University. Attending a private university decreases the
likelihood of receiving aid greater than federally defined need.
Someone who attends a public university increases his or her chances of
receiving aid greater than the federally defined need by a factor of
1.35 (1/0.74).
Aid Packages:
The aid package variables represent the source of the "majority" of the
student's aid, if there was a majority source. The omitted reference
group is the category of people whose majority of aid comes from
federal grants such as Pell and SEOG. About 17 percent of the sample
falls into the reference group. In general, the students who had a
majority of their aid coming from federal grants were less likely to
receive aid greater than federally defined need than any other group
(as defined by majority of aid source).
Majority from Non-Need-Based Federal Loans. A student who receives a
majority of aid from federal non-need-based loans is 6.6 times more
likely to receive aid greater than federally defined need than a
student who receives the majority of aid from federal grants.
Majority from Federal Work Study and PLUS Loans to Parents. A student
who receives a majority of aid from federal work study and PLUS loans
is 3 times more likely to receive aid greater than federally defined
need than a student who receices the majority of his aid in the form of
federal grants.
Majority from Nonfederal Grants, Scholarships and Work Study. Holding
all else equal, a student who receives a majority of aid from
nonfederal grants or scholarships, work study, Veterans/Department of
Defense benefits, Vocational Rehabilitation assistance or other nonloan
sources is about 20 times more likely to receive aid greater than
federally defined need than a student who receives the majority of aid
from federal grants.
No Majority. A student who has no distinct majority source of aid is
about 7 times more likely to receive aid greater than federally defined
need than a student who receives the majority of aid from federal
grants.
Number of Aid Components in Aid Packages. Having more aid sources in a
student's aid package results in a higher probability of receiving aid
greater than federally defined need. Having an additional aid component
increases the likelihood of receiving aid greater than federally
defined need by a factor of 1.2. This means that having seven sources
of aid rather than one source of aid can double the likelihood of
receiving aid greater than federally defined need (2.14 = 1.214).
Table 6: Means of Variables:
Independent variables: Citizen; Means for all federal student aid
recipients: 0.940; Means for those who receive aid greater than
federally defined need: 0.978; Means for those who receive aid greater
than federally defined need after accounting for substitutable loans:
0.989.
Independent variables: Dependent; Means for all federal student aid
recipients: 0.687; Means for those who receive aid greater than
federally defined need: 0.794; Means for those who receive aid greater
than federally defined need after accounting for substitutable loans:
0.915.
Independent variables: GPA; Means for all federal student aid
recipients: 28.858; Means for those who receive aid greater than
federally defined need: 29.651; Means for those who receive aid greater
than federally defined need after accounting for substitutable loans:
31.667.
Independent variables: Currently married; Means for all federal student
aid recipients: 0.098; Means for those who receive aid greater than
federally defined need: 0.095; Means for those who receive aid greater
than federally defined need after accounting for substitutable loans:
0.066.
Independent variables: Separated, divorced, or widowed; Means for all
federal student aid recipients: 0.036; Means for those who receive aid
greater than federally defined need: 0.016; Means for those who receive
aid greater than federally defined need after accounting for
substitutable loans: [Empty].
Independent variables: Missing marriage; Means for all federal student
aid recipients: 0.279; Means for those who receive aid greater than
federally defined need: 0.249; Means for those who receive aid greater
than federally defined need after accounting for substitutable loans:
0.209.
Independent variables: Household size; Means for all federal student
aid recipients: 3.650; Means for those who receive aid greater than
federally defined need: 3.776; Means for those who receive aid greater
than federally defined need after accounting for substitutable loans:
4.08.
Independent variables: Plains State and Southwest; Means for all
federal student aid recipients: 0.185; Means for those who receive aid
greater than federally defined need: 0.216; Means for those who receive
aid greater than federally defined need after accounting for
substitutable loans: 0.249.
Independent variables: White; Means for all federal student aid
recipients: 0.641; Means for those who receive aid greater than
federally defined need: 0.772; Means for those who receive aid greater
than federally defined need after accounting for substitutable loans:
0.853.
Independent variables: Substitutable loans; Means for all federal
student aid recipients: 0.490; Means for those who receive aid greater
than federally defined need: 0.961; Means for those who receive aid
greater than federally defined need after accounting for substitutable
loans: 0.725.
Independent variables: Veteran status; Means for all federal student
aid recipients: 0.023; Means for those who receive aid greater than
federally defined need: 0.029; Means for those who receive aid greater
than federally defined need after accounting for substitutable loans:
0.017.
Independent variables: Missing vet; Means for all federal student aid
recipients: 0.009; Means for those who receive aid greater than
federally defined need: 0.008; Means for those who receive aid greater
than federally defined need after accounting for substitutable loans:
0.004.
Independent variables: Income/$5,000; Means for all federal student aid
recipients: 8.171(*$5,000 = 40,855); Means for those who receive aid
greater than federally defined need: 11.380(*$5,000 = $56,900); Means
for those who receive aid greater than federally defined need after
accounting for substitutable loans: 13.213(*$5,000 = $66,065).
Independent variables: Private not-for-profit university; Means for all
federal student aid recipients: 0.362; Means for those who receive aid
greater than federally defined need: 0.425; Means for those who receive
aid greater than federally defined need after accounting for
substitutable loans: 0.524.
Independent variables: Level of university; Means for all federal
student aid recipients: 0.777; Means for those who receive aid greater
than federally defined need: 0.894; Means for those who receive aid
greater than federally defined need after accounting for substitutable
loans: 0.876.
Independent variables: Urban; Means for all federal student aid
recipients: 0.756; Means for those who receive aid greater than
federally defined need: 0.752; Means for those who receive aid greater
than federally defined need after accounting for substitutable loans:
0.702.
Independent variables: Graduation rate; Means for all federal student
aid recipients: 47.122; Means for those who receive aid greater than
federally defined need: 52.395; Means for those who receive aid greater
than federally defined need after accounting for substitutable loans:
53.251.
Independent variables: Majority of aid from federal grants; Means for
all federal student aid recipients: 0.170; Means for those who receive
aid greater than federally defined need: 0.0005; Means for those who
receive aid greater than federally defined need after accounting for
substitutable loans: 0.002.
Independent variables: Majority of aid from federal need-based loans to
students; Means for all federal student aid recipients: 0.182; Means
for those who receive aid greater than federally defined need: 0.110;
Means for those who receive aid greater than federally defined need
after accounting for substitutable loans: 0.038.
Independent variables: Majority of aid from federal non-need-based
loans to students; Means for all federal student aid recipients: 0.123;
Means for those who receive aid greater than federally defined need:
0.168; Means for those who receive aid greater than federally defined
need after accounting for substitutable loans: 0.122.
Independent variables: Majority of aid from federal work study and PLUS
loans to parents; Means for all federal student aid recipients: 0.055;
Means for those who receive aid greater than federally defined need:
0.129; Means for those who receive aid greater than federally defined
need after accounting for substitutable loans: 0.028.
Independent variables: Majority of aid from nonfederal grants,
scholarships, and work study (includes Veterans/DOD benefits and
Vocational Rehabilitation assistance); Means for all federal student
aid recipients: 0.188; Means for those who receive aid greater than
federally defined need: 0.200; Means for those who receive aid greater
than federally defined need after accounting for substitutable loans:
0.565.
Independent variables: Majority of aid from nonfederal loans; Means for
all federal student aid recipients: 0.019; Means for those who receive
aid greater than federally defined need: 0.059; Means for those who
receive aid greater than federally defined need after accounting for
substitutable loans: 0.022.
Independent variables: Number of Aid components; Means for all federal
student aid recipients: 3.225; Means for those who receive aid greater
than federally defined need: 3.841; Means for those who receive aid
greater than federally defined need after accounting for substitutable
loans: 4.082.
Source: GAO analysis of 1999-2000 NPSAS Data.
[End of table]
[End of section]
Appendix III: Comments from the Department of Education:
UNITED STATES DEPARTMENT OF EDUCATION:
OFFICE OF POSTSECONDARY EDUCATION:
APR 24 2003:
THE ASSISTANT SECRETARY:
Dr. Cornelia M. Ashby, Director:
Education, Workforce and Income Security Issues General Accounting
Office:
Washington, DC 20548:
Dear Dr. Ashby:
The Department of Education appreciates the opportunity to review the
General Accounting Office's (GAO's) draft report (GAO-03-508) on
"Monitoring Aid Greater Than Federally Defined Need Could Help Address
Student Indebtedness." This report addresses the important issue of
student indebtedness that the Department monitors on an on-going basis.
The Department is concerned, however, that the way in which GAO
presents its findings may mislead the Congress and the public about the
way in which federal aid for postsecondary education is awarded and who
receives that aid. We suggest revising the report in a way that we
believe will more accurately portray how the postsecondary financial
aid process works.
Our basic concern is that the report does not distinguish between
students and their parents as recipients of financial aid. Student aid
comes in the form of federal Pell Grants, Stafford (subsidized and
unsubsidized) and Perkins Loans, and Work-study aid, along with other
federal and nonfederal aid (including Veteran/Department of Defense
benefits). Parental aid comes primarily in the form of federal PLUS
loans and private loans. While students are the beneficiaries of these
latter loans in meeting their costs of attendance at postsecondary
education institutions, parents are the recipients and bear the
repayment responsibility.
Although the report does not focus explicitly on PLUS loans (combining
this form of parental aid with student work-study aid in the
statistical analyses on pages 21 and 25), it does strongly suggest that
PLUS loans are a primary reason students "receive" federal aid greater
than their calculated financial need. Since parents are the recipients
of PLUS loans and not students, and since PLUS loans are to help
parents meet their "expected" (not estimated) family contribution, the
title of the GAO report is misleading when it suggests that monitoring
this form of aid (to parents) will help students with their
indebtedness.
Among the 732,000 "recipients" of federal aid that GAO identifies as
receiving aid greater than their federally defined financial need, only
104,000 are estimated to have exceeded that need not due to loans
(including PLUS loans), but due to a combination of aid from federal
and nonfederal sources. Although unsubsidized Stafford loans available
to students to help meet their costs of attendance (and hence
permissibly greater than their calculated financial need based on
expected family contribution) are a major reason
many students receive aid greater than their calculated financial need,
merit-based grant aid and private loans and scholarships are also
important contributing factors (as shown on page 11).
In this context, GAO's finding that independent students are more than
twice as likely as dependent students to receive aid greater than need
is not surprising. Such students are automatically eligible for
unsubsidized Stafford loans (what GAO calls "substitutable loans")
without regard to federally defined need. The Department also doubts
GAO's explanation (on page 12) for why students at public institutions
are more likely to get aid greater than need may be that private 4-year
institutions use so-called institutional methodologies for calculating
financial need. GAO suggests these methodologies "may identify a higher
level of need for a student than the federal government would."
Institutional methodologies generally used by private institutions are,
however, more stringent in identifying financial need than the federal
methodology.
The report itself and its recommendations to the Secretary are focused
on student indebtedness. For example, the report notes on page six that
in real terms the median debt for a loan recipient completing a
baccalaureate degree nearly doubled between 1993 and 2000. However,
there is no mention of any corresponding change in income for recent
college graduates, so the reader cannot assess if the increased debt
has resulted in increased debt service. Debt burden--debt payments
relative to income--is the important policy concern because it measures
college graduates' difficulty in repaying their federal student loans.
Hence in its strategic plan performance objective, the Department
tracks debt burden, not debt level.
The Department also notes that GAO is not suggesting in this report
that waste, fraud, or abuse are concerns in the patterns of aid awards
found. The report could, however, make this point more forcefully so
that the possibility of perceiving those as concerns is reduced.
In conclusion, the Department suggests that GAO distinguish between
students and parents as recipients of federal financial aid in its
analyses and reporting. Doing so will address what may be very
misleading statements in the report (including the first sentence in
the conclusion section on page 16, which does not note that many of the
loans attributed to students in the report go to their parents and thus
do not affect the students' level of debt) and allow it to focus on the
issue of most concern--the level of indebtedness of students
themselves. Additional technical comments are attached to this letter.
Sincerely,
Sally L. Stroup:
Signed by Sally L. Stroup:
Attachment: 1:
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
Contact:
Kelsey Bright, Assistant Director (202) 512-9037:
Acknowledgments:
In addition to the name above, Mary Crenshaw, Patrick diBattista,
Nagla'a El-Hodiri, Kathy Hurley, Joel Marus, John Mingus, Doug Sloane,
and Wendy Turenne made important contributions to this report.
FOOTNOTES
[1] The College Board, Trends in Student Aid 2002, Washington, D.C.
[2] Other federal agencies, such as the Department of Veterans Affairs,
provided an estimated $2.7 billion in additional non-Title IV student
financial aid.
[3] NPSAS is a comprehensive nationwide survey designed to determine
how students and families pay for postsecondary education. Within
Education, the National Center for Education Statistics is responsible
for conducting the survey. The most recent survey collected data for
the 1999-2000 academic year.
[4] National Center for Education Statistics, National Postsecondary
Student Aid Studies: 1992-93 and 1999-2000.
[5] One of the 7 schools automatically awards substitutable loans when
need falls below a $200 threshold.
[6] Other characteristics we examined included whether the institution
was rural or urban, its regional location, or whether it awarded only
undergraduate degrees or masters or doctoral degrees as well.
[7] Schools may still need to adjust packages with both campus-based
aid and Stafford loans to prevent aid greater than federally defined
need.
[8] Two schools said they did so for 10 percent of federal aid
recipients.
[9] NPSAS does not identify whether loans are direct or guaranteed. The
final cost of these loans will also depend on which of several
repayment options the borrowers select after graduating and whether or
not they consolidate their loans. Neither of these is captured in the
NPSAS data.
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