Three need-based Federal Student Aid (FSA) programs authorized under the Higher Education Act of 1965, as amended (HEA) —the Federal Supplemental Educational Opportunity Grant (FSEOG) program, the Federal Work-Study (FWS) program, and the Federal Perkins Loan program—are collectively referred to as the campus-based financial aid programs. The programs have also been criticized because the current distribution of funds allows institutions that receive proportionately more funding on a per-student basis to give larger campus-based awards to more students and to students with higher incomes than can be awarded at other institutions. Some have proposed modifying the campus-based programs' funding procedures to gradually phase out the current practice of allocating the majority of funds to institutions on the basis of the amounts they received in prior years and to require that all funding eventually be provided in proportion to the aggregate financial need of students at participating institutions. 609 , as introduced in the House, would have amended the allocation procedures for the campus-based programs to gradually phase out provisions that provide for the allocation of funds on the basis of the amounts institutions' received in prior years so that eventually all funds would be allocated to institutions on the basis of their aggregate student financial need. In the second stage, any funds remaining after the allocation of base guarantees are allocated to IHEs according to need-based formula allocation procedures. Earlier in this report, it was shown that an institution's fair share is the amount of funds it would receive if the total appropriation were allocated entirely on the basis of institutional need. In the current postsecondary education environment in which college costs have been rising rapidly in recent years, it is not uncommon under the fair share formulas for institutional need at higher-cost IHEs to be comprised largely of the financial need of middle- and upper-income students, whereas at lower-cost IHEs, institutional need is comprised primarily of the financial need of lower- and middle-income students. Significantly, on a per-student basis, greater amounts of institutional need are calculated for high-cost institutions than for low-cost institutions. This part of the report estimates and analyzes the prospect of eliminating base guarantees in favor of allocating all campus-based funding according to the existing fair share formulas. This tends to favor students attending higher-cost institutions. Both the percentage of students receiving aid and average award amounts increase consistently with institutional COA. When these procedures were developed, it was envisioned that funds would be allocated according to a series of formulas designed to provide each institution with funding in proportion to its fair share of aggregate student need. Overall, however, more IHEs would receive allocation increases than decreases if base guarantees were eliminated. Analysis of the distribution of aid to students revealed that despite there being a strong correlation between a student's family income and the cost of attendance at the institution a student attends, larger proportions of students at high-cost institutions receive campus-based aid than students at low-cost institutions.
The Federal Supplemental Educational Opportunity Grant, Federal Work-Study, and Federal Perkins Loan programs are collectively referred to as the campus-based financial aid programs largely because participating institutions play a central role in their operation, and because the aid they make available to students comprises federal funds matched in part with institutional funds. In recent years, the programs have been criticized because a large share of funding is allocated to institutions on the basis of amounts received in prior years for "base guarantees" as opposed to being allocated exclusively on the basis of aggregate student financial need. They also have been criticized because the current funding procedures allow institutions that receive proportionately greater funding on a per-student basis to provide larger awards to students with higher incomes than can be provided to lower-income students at institutions that receive less funding. In recent Congress bills have been introduced to modify the funding procedures by gradually phasing out base guarantee funding and requiring all campus-based funding to be allocated to institutions according to existing need-based "fair share" formulas.
This report describes and analyzes (a) the process through which federal funds are allocated to institutions under the campus-based programs, (b) the potential for allocating all campus-based funding according to the existing need-based formulas, and (c) the current distribution of aid to students. It will be updated to track legislative proposals addressing the campus-based allocation procedures. Major findings presented in the report include the following:
Under each program, the majority of funds are allocated to institutions on the basis of amounts received in prior years, while only a modest amount are allocated according to aggregate student financial need as calculated according to "fair share" formulas. Under the need-based formulas, the cost of attendance at an institution is the dominant factor in determining institutional need. Much greater amounts of institutional need are calculated on a per-student basis at high-cost institutions than at low-cost institutions. At low-cost institutions, institutional need comprises limited amounts of aggregate student need attributable to large numbers of predominately low-income students, while at high-cost institutions, it tends to comprise greater amounts of need attributable to a smaller number of mostly middle- and upper-income students. It is estimated that if the allocation procedures were to be modified so that funding was allocated entirely on the basis of institutions' proportionate share of institutional need, more institutions would receive allocation increases than would receive allocation decreases. Larger proportions of students at higher-cost institutions receive campus-based aid, and receive larger awards, than do comparable students at lower-cost institutions; however, average awards at higher-cost institutions cover a smaller percentage of costs.