oversight

Student Financial Aid: Monitoring Aid Greater Than Federally Defined Need Could Help Address Student Loan Indebtedness

Published by the Government Accountability Office on 2003-04-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States General Accounting Office

GAO          Report to the Honorable Rod Paige
             Secretary of Education



April 2003
             STUDENT
             FINANCIAL AID
             Monitoring Aid
             Greater Than
             Federally Defined
             Need Could Help
             Address Student Loan
             Indebtedness




GAO-03-508
             a
                                               April 2003


                                               STUDENT FINANCIAL AID

                                               Monitoring Aid Greater Than Federally
Highlights of GAO-03-508, a report to the      Defined Need Could Help Address
Honorable Rod Paige, Secretary of
Education                                      Student Loan Indebtedness



Over half of the $80.4 billion in              We found that in school year 1999-2000, of the 3.4 million full-time/full-year
financial aid provided to college              federal aid recipients, 22 percent (732,000) received a total of $2.96 billion in
students in the 2000-01 school year            financial aid that was greater than their federally defined financial need. Of
came from the federal government               these, 628,000 received an estimated $2.72 billion in such aid by obtaining
in the form of grants and loans                non-need-based loans—which we identify as substitutable loans—that
provided under Title IV of the
Higher Education Act (HEA). To
                                               families borrow to meet their expected family contribution (i.e., what the
help finance their education,                  federal government determines the family can afford to pay for college).
students and families may have                 Title IV allows for students and families to obtain these non-need-based
received other funds from states,              loans to meet their expected family contribution. Another 104,000 federal aid
private groups or lenders, and/or              recipients received an estimated $238 million in such aid as a result of
the schools themselves.                        receiving a combination of aid from federal and nonfederal sources.

We initiated this study to, among              Proportion of Federal Aid Recipients Receiving Aid Greater Than Federally Defined
other things, determine how often              Need in Relation to All Federal Aid Recipients, Full-time/Full-year Undergraduates,
federal financial aid recipients               1999-2000
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.



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                   Changing the HEA to limit the receipt of aid that is greater than students’
alternatives to help students
                                               federally defined financial need is not likely to achieve significant federal
manage student loan debt burden.
                                               savings, although, the use of substitutable loans may increase overall student
In commenting on a draft of this               indebtedness. In terms of cost implications, limiting those instances where
report, Education noted that while             federal aid recipients receive substitutable loans—which is the main reason
student indebtedness is of concern,            why students received aid greater than their federally defined need—will not
loans to parents should be                     likely result in significant savings. While the government will not have to pay
excluded from our analysis. We                 default claims or special allowance payments on loans it guarantees, it
modified the report to more clearly            would forego any interest earnings on loans it makes directly. Any savings
detail when nonstudents were                   from limiting these loans would be substantially less than the total amount
responsible for the loans.                     of the loans made—the $2.72 billion. However, the widespread use of
                                               substitutable loans may increase the average debt of borrowers and may
www.gao.gov/cgi-bin/getrpt?GAO-03-508.         affect Education’s ability to help students and their families maintain their
                                               loan debt at manageable levels.
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.
Contents


Letter                                                                                     1
               Results in Brief                                                            2
               Background                                                                  4
               An Estimated 22 Percent of Federal Aid Recipients Received Aid
                 above Their Federally Defined Need                                        7
               Recipients of Aid Greater Than Their Federally Defined Need Are
                 More Likely to Have Higher Family Incomes, Be Dependent, and
                 Attend Public Universities                                              13
               Savings from Limiting Aid Greater Than Federally Defined Need
                 Would Likely Be Modest, but Substitutable Loans to Students
                 Could Affect Their Indebtedness                                         15
               Conclusions                                                               17
               Recommendation                                                            17
               Agency Comments                                                           17

Appendix I     Objectives, Scope, and Methodology                                        19



Appendix II    Logistic Regressions                                                      21



Appendix III   Comments from the Department of Education                                 30



Appendix IV    GAO Contact and Staff Acknowledgments                                     32
               Contact                                                                   32
               Acknowledgments                                                           32


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                                                             11
               Table 2: Selected Student and School Characteristics Associated
                        with Increased Likelihood of Receiving Financial Aid That
                        Was Greater Than Federally Defined Need                          14




               Page i                                       GAO-03-508 Student Financial Aid
          Table 3: Selected Financial Aid Package Characteristics That Were
                   Associated with Increased Likelihood of Receiving
                   Financial Aid That Was Greater Than Federally Defined
                   Need                                                                             15
          Table 4: Odds Ratios for All Students Receiving Aid Greater Than
                   Federally Defined Need                                                           22
          Table 5: Odds Ratios for Students Receiving Aid Greater Than
                   Federally Defined Need That Cannot Be Entirely
                   Attributed to Substitutable Loans                                                26
          Table 6. Means of Variables                                                               29


Figures
          Figure 1: Growth in Student Financial Aid Funding, 1991-92 to
                   2001-02                                                                           6
          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                                         8
          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                         9




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          Page ii                                                GAO-03-508 Student Financial Aid
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 aid1 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
                                   1965.2

                                   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.”




                                   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.



                                   Page 1                                                 GAO-03-508 Student Financial Aid
                   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)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.


                   Of the 3.4 million full-time/full-year federal aid recipients for school year
Results in Brief   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


                   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.




                   Page 2                                                GAO-03-508 Student Financial Aid
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.




Page 3                                        GAO-03-508 Student Financial Aid
                 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.

                 The following programs are authorized under Title IV of the Higher
Background       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




                 Page 4                                          GAO-03-508 Student Financial Aid
    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.




    Page 5                                          GAO-03-508 Student Financial Aid
Figure 1: Growth in Student Financial Aid Funding, 1991-92 to 2001-02

45,000          Amount of total aid in constant dollars (in millions)

40,000

35,000

30,000

25,000

20,000

15,000

10,000

    5,000

       0
          -92



                       -93



                                    -94



                                                -95



                                                        -96



                                                                  -97



                                                                            -98



                                                                                    -99



                                                                                            -00



                                                                                                    -01



                                                                                                            -02
        91



                     92



                                  93



                                              94



                                                      95



                                                                96



                                                                          97



                                                                                  98



                                                                                          99



                                                                                                  00



                                                                                                          01
        School year

                             Federal loans
                             Nonfederal grants
                             Federal grants
                             Nonfederal loans
Source: The College Board, Trends in Student Aid 2002, Washington, D.C.

Note: Data for nonfederal loans was not collected prior to 1995-96.


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 1999-2000.4 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


4
 National Center for Education Statistics, National Postsecondary Student Aid Studies:
1992-93 and 1999-2000.




Page 6                                                                      GAO-03-508 Student Financial Aid
                     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.


                     In school year 1999-2000, an estimated 732,000 out of 3.4 million full-
An Estimated 22      time/full-year federal aid recipients (22 percent) received $2.96 billion in
Percent of Federal   financial aid greater than their federally defined financial need, either
                     because they or their parents received substitutable loans or because they
Aid Recipients       received nonfederal financial aid, such as scholarships, in addition to
Received Aid above   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
Their Federally      financial aid recipients. Figure 3 shows how the amount of aid greater than
Defined Need         federally defined need compares to total aid received.




                     Page 7                                        GAO-03-508 Student Financial Aid
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




                                         Page 8                                              GAO-03-508 Student Financial Aid
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




                                         Page 9                                             GAO-03-508 Student Financial Aid
Most Cases of Aid Greater   Of all federal aid recipients, about 19 percent (628,000) received total
Than Federally Defined      financial aid that was greater than their federally defined need solely as a
Need Can be Attributed to   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
Substitutable Loans         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.5


Some Cases of Aid Greater   Another 3 percent of federal aid recipients (104,000) received aid that was
Than Federally Defined      greater than their federally defined need as a result of receiving nonfederal
Need are Due to             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
Combinations of Federal     to have aid greater than their federally defined need even after any
and Nonfederal Aid          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.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.




                            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.




                            Page 10                                                GAO-03-508 Student Financial Aid
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

                                                                      Percent of the 104,000
                                                                      students who received
    Aid category Source of financial aid                                 aid from this source
    Federal aid    Pell grants                                                           17 %
                   Supplemental Educational Opportunity                                     6
                   grants (SEOG)
                   Other federal grants                                                    6
                   Perkins loans                                                           8
                   Subsidized Stafford loans                                              39
                   Unsubsidized Stafford loans                                            66
                   PLUS loans                                                             12
                   Other federal loans                                                     5
                   Federal work study                                                     12
                   Veterans and Department of Defense (DOD)                                4
                   benefits
                   Vocational Rehabilitation and Job Training                               7
                   Partnership Act assistance
                   Other federal aid                                                       3
    State aid      State need-based grants                                                30
                   State merit grants or scholarships                                      8
                   State loans                                                             3
                                                                                            a
                   State nonneed, nonmerit grants
                   Other state aid                                                          1
                   State work study                                                         5
    College or     College or university athletic scholarships or                           5
    university aid grants
                   College or university merit grants or                                  38
                   scholarships
                   College or university need-based grants                                36
                   College or university nonneed, non-merit                                6
                   grants
                   College or university loans                                            10
                   College or university work study                                       29
                                                                                            a
                   Other college or university aid
    Private aid    Private source grants or scholarships                                  32
                   Private loans                                                          13
                   Tuition waivers for students whose parents                              4
                   are college or university employees
                   Employer assistance                                                      3
Source: GAO analysis of 1999-2000 NPSAS data.
a
Less than 1 percent of students received this form of aid.




Page 11                                                      GAO-03-508 Student Financial Aid
    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.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



    7
     Schools may still need to adjust packages with both campus-based aid and Stafford loans
    to prevent aid greater than federally defined need.




    Page 12                                               GAO-03-508 Student Financial Aid
                        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.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.


                        Compared to those federal aid recipients who did not receive aid greater
Recipients of Aid       than their federally defined need, the 732,000 who did were more likely to
Greater Than Their      have higher family incomes, be dependent, or attend public universities.
                        They are also more likely to have higher grade point averages or attend
Federally Defined       schools in the Southwest or Plains states. Among those variables that
Need Are More Likely    proved statistically significant, table 2 shows selected student and school
                        characteristics that were associated with receiving aid greater than
to Have Higher Family   federally defined need. Appendix II more fully describes all of the
Incomes, Be             variables used in our analysis and more completely discusses their levels
Dependent, and          of statistical significance. These patterns generally held regardless of
                        whether the aid greater than federally defined need could be attributed to
Attend Public           substitutable loans or a combination of federal and nonfederal aid. The
Universities            one exception we found was that students who received aid greater than




                        8
                        Two schools said they did so for 10 percent of federal aid recipients.




                        Page 13                                                 GAO-03-508 Student Financial Aid
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

                                                Likelihood of receiving aid greater than
 Characteristics                                federally defined need
 Students
 Dependent                                      More than twice as likely as independent
                                                students
 Family income                                  Increased 24 percent for every $5,000
                                                increase in income
 Grade point average                            Increased 16 percent for every half-point
                                                increase in grade point average
 Schools
 Located in Plains or Southwestern              Almost twice as likely as students attending
 states                                         schools in other regions
 Public institution                             Almost 3 times as likely as students at private
                                                not-for-profit institutions
 Located in rural area                          One and a half times as likely as students at
                                                schools located in urban areas
Source: GAO analysis of 1999-2000 NPSAS data.


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.)




Page 14                                                      GAO-03-508 Student Financial Aid
                         Table 3: Selected Financial Aid Package Characteristics That Were Associated with
                         Increased Likelihood of Receiving Financial Aid That Was Greater Than Federally
                         Defined Need

                                                                         Likelihood of receiving aid greater than
                          Characteristic of aid package                  federally defined need
                          Number of different aid sources in             Increased by about a third for every additional
                          student’s package                              source in the student’s aid package
                          Majority of aid is from federal non-need-      Almost 5 times as likely as students receiving
                          based loans to students                        the majority of their aid from federal grants
                          Majority of aid is from federal work           Six times as likely as students receiving the
                          study and PLUS loans to parents                majority of their aid from federal grants
                          Majority of aid is from nonfederal             Just over 6 times as likely as students
                          grants, scholarships and work study            receiving the majority of their aid from federal
                          (also veterans and DOD benefits and            grants
                          vocational rehabilitation assistance)
                          Majority of aid from nonfederal loan           Nearly 8 times as likely as students receiving
                          sources                                        the majority of their aid from federal grants
                         Source: GAO analysis of 1999-2000 NPSAS data.


                         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.


                         Changing the Higher Education Act to limit the receipt of aid that is
Savings from Limiting    greater than students’ federally defined financial need is not likely to
Aid Greater Than         achieve significant federal savings. However, the use of substitutable loans
                         could increase overall student indebtedness. Any cost savings from
Federally Defined        changing the Higher Education Act to limit the receipt of aid that is greater
Need Would Likely Be     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
Modest, but              the case of the larger group of students and their families whose aid
Substitutable Loans to   greater than federally defined need is attributable to substitutable loans,
Students Could Affect    the actual cost to the government is not the face value of the loans. For
                         guaranteed loans, the government incurs costs—primarily insurance
Their Indebtedness       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




                         Page 15                                                     GAO-03-508 Student Financial Aid
loans with the net costs associated with guaranteed loans. We could not
estimate these costs given the data available in NPSAS.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.



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.




Page 16                                                 GAO-03-508 Student Financial Aid
                  While students and their families have a range of options for paying for
Conclusions       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.

                  To ensure that the use of substitutable loans will not lead to
Recommendation    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.


                  In written comments on a draft of this report, Education agreed that
Agency Comments   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.



                  Page 17                                       GAO-03-508 Student Financial Aid
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




Page 18                                        GAO-03-508 Student Financial Aid
              Appendix I: Objectives, Scope, and
Appendix I: Objectives, Scope, and
              Methodology



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


              Page 19                                         GAO-03-508 Student Financial Aid
Appendix I: Objectives, Scope, and
Methodology




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.




Page 20                                        GAO-03-508 Student Financial Aid
               Appendix II: Logistic Regressions
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.




               Page 21                                        GAO-03-508 Student Financial Aid
Appendix II: Logistic Regressions




Table 4: Odds Ratios for All Students Receiving Aid Greater Than Federally Defined
Need

                                                               95% lower        95% upper
    Independent variables and effects           Odds ratio             limit          limit
     Dependent                                        2.62             1.89            3.64
     GPA (0-40)                                       1.03             1.01            1.04
     Currently married                                1.63             1.17            2.27
     Household size                                   0.72             0.67            0.78
     Institution in Plains or Southwest               1.70             1.33            2.17
     White                                            1.08             0.87            1.35
     Veteran                                          1.83             1.09            3.06
     Income/$5,000                                    1.24             1.20            1.28
     Substitutable loan (y/n)                        69.21            47.59         100.64
     Private university                               0.35             0.28            0.43
     4-year university                                1.54             1.14            2.07
     Urban institution                                0.68             0.54            0.35
     Graduation rate of institution                   1.00             0.99            1.00
     # Aid Components                                 1.33             1.24            1.43
                                                For the remaining variables, the reference
                                 a                                                        b
    Aid package variables                        group is “Majority from Federal Grants.”
    Federal need-based loans to                       1.72               .73           4.07
    students
    Federal non-need-based loans to                     4.77               1.97              11.54
    students
    Federal work study and PLUS loans                   6.02               2.41              15.03
    to parents
    Nonfederal grants, scholarships,                    6.12               2.57              14.53
    and work study (includes
    Veterans/DOD benefits and
    Vocational Rehabilitation
    assistance)
     Nonfederal loans                                    7.8               2.89              21.08
     No majority                                        2.33                1.0               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.


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:




Page 22                                                        GAO-03-508 Student Financial Aid
                          Appendix II: Logistic Regressions




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.


                          Page 23                                         GAO-03-508 Student Financial Aid
               Appendix II: Logistic Regressions




               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.


               Page 24                                        GAO-03-508 Student Financial Aid
Appendix II: Logistic Regressions




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).




Page 25                                       GAO-03-508 Student Financial Aid
                          Appendix II: Logistic Regressions




                          Table 5: Odds Ratios for Students Receiving Aid Greater Than Federally Defined
                          Need That Cannot Be Entirely Attributed to Substitutable Loans

                                                                                                 Lower 95%     Upper 95%
                              Independent variables and effects              Odds ratio                limit         limit
                               Dependent                                           3.00                1.53          5.89
                               Citizen                                             3.23                0.76        13.63
                               GPA (0-40)                                          1.05                1.02          1.08
                               Institution in Plains or Southwest                  1.77                1.24          2.51
                               White                                               1.75                1.15          2.68
                               Veteran status                                      2.26                0.60          8.51
                               Income/$5,000                                       1.06                1.04          1.08
                               Private institution                                 0.74                0.52          1.04
                               Number of aid                                       1.21                1.09          1.34
                              components
                                                                          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
                              Aid package variablesa                      Federal Grants.”
                              Federal need-based loans to                            1.79            0.78           4.10
                              students
                              Federal non-need-based loans to                       6.61               3.00          14.6
                              students
                              Federal work study and PLUS loans                     3.00               1.16          7.79
                              to parents
                              Nonfederal grants, scholarships and                 19.92               10.14         39.15
                              work study (includes Veterans/DOD
                              benefits and Vocational
                              Rehabilitation assistance)
                               Nonfederal loans                                     3.14               0.57         17.40
                               No majority                                          6.96               3.48         13.92
                          Source: GAO analysis of 1999-2000 NPSAS data.
                          a
                          See table 4 for a detailed explanation of the aid package variables.


                          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).




                          Page 26                                                       GAO-03-508 Student Financial Aid
                         Appendix II: Logistic Regressions




                         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.



                         Page 27                                         GAO-03-508 Student Financial Aid
Appendix II: Logistic Regressions




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).




Page 28                                       GAO-03-508 Student Financial Aid
                                                        Appendix II: Logistic Regressions




Table 6. Means of Variables

                                                                                                                Means for those who receive
                                                                                 Means for those who receive        aid greater than federally
                                                Means for all federal student       aid greater than federally defined need after accounting
 Independent variables                                          aid recipients                   defined need          for substitutable loans
 Citizen                                                                 0.940                          0.978                            0.989
 Dependent                                                               0.687                          0.794                            0.915
 GPA                                                                    28.858                         29.651                           31.667
 Currently married                                                       0.098                          0.095                            0.066
 Separated, divorced, or                                                 0.036                          0.016
 widowed
 Missing marriage                                                       0.279                            0.249                          0.209
 Household size                                                         3.650                            3.776                           4.08
 Plains State and Southwest                                             0.185                            0.216                          0.249
 White                                                                  0.641                            0.772                          0.853
 Substitutable loans                                                    0.490                            0.961                          0.725
 Veteran status                                                         0.023                            0.029                          0.017
 Missing vet                                                            0.009                            0.008                          0.004
 Income/$5,000                                        8.171(*$5,000 = 40,855)        11.380(*$5,000 = $56,900)      13.213(*$5,000 = $66,065)
 Private not-for-profit university                                      0.362                            0.425                          0.524
 Level of university                                                    0.777                            0.894                          0.876
 Urban                                                                  0.756                            0.752                          0.702
 Graduation rate                                                       47.122                           52.395                         53.251
 Majority of aid from federal                                           0.170                           0.0005                          0.002
 grants
 Majority of aid from federal                                           0.182                           0.110                           0.038
 need-based loans to students
 Majority of aid from federal non-                                      0.123                           0.168                           0.122
 need-based loans to students
  Majority of aid from federal                                          0.055                           0.129                           0.028
 work study and PLUS loans to
 parents
 Majority of aid from nonfederal                                        0.188                           0.200                           0.565
 grants, scholarships, and work
 study (includes Veterans/DOD
 benefits and Vocational
 Rehabilitation assistance)
 Majority of aid from nonfederal                                        0.019                           0.059                           0.022
 loans
 Number of Aid components                                               3.225                           3.841                           4.082
Source: GAO analysis of 1999-2000 NPSAS Data.




                                                        Page 29                                             GAO-03-508 Student Financial Aid
              Appendix III: Comments from the Department of Education
Appendix III: Comments from the
Department of Education




              Page 30                                             GAO-03-508 Student Financial Aid
Appendix III: Comments from the Department of Education




Page 31                                             GAO-03-508 Student Financial Aid
                  Appendix IV: GAO Contact and Staff
Appendix IV: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Kelsey Bright, Assistant Director (202) 512-9037
Contact
                  In addition to the name above, Mary Crenshaw, Patrick diBattista, Nagla’a
Acknowledgments   El-Hodiri, Kathy Hurley, Joel Marus, John Mingus, Doug Sloane, and
                  Wendy Turenne made important contributions to this report.




(130107)
                  Page 32                                      GAO-03-508 Student Financial Aid
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