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Statistics in Brief:  Outcomes of Recent Changes in Federal Student Financial Aid
NCES 96231
November 1995

Outcomes of Recent Changes in Federal Student Financial Aid

The 1992 Higher Education Act (HEA) Reauthorization resulted in a number of changes in the operation and delivery of federal Title IV financial aid. In particular, changes were made in the number of aid applicants that institutions are required to verify and in the use of professional judgment to adjust financial aid awards. The Reauthorization also affected the student loan program in a number of ways, including the creation of a new Stafford unsubsidized loan program, increased loan limits, and changes in the need analysis methodology for federal student aid. This National Center for Education Statistics' Survey on Financial Aid at Postsecondary Education Institutions collected information on institutions' experiences with verification, professional judgment, and student loan borrowing for 1993-94 awards, following the changes brought about by the 1992 HEA Reauthorization. The institutions' experiences with 1993-94 awards were contrasted with their experiences for 1992-93 awards (prior to the changes). The survey was conducted in 1994-95 through the Postsecondary Education Quick Information System (PEQIS).

The survey found that institutional verification policies and the percent of applicants verified were generally not affected by changes in the law, probably because most institutions were already verifying more than 30 percent of aid applicants. Professional judgment was not heavily used to adjust Pell grant awards or to change dependent students to independent student status. Professional judgment was more of a factor for student loans, with about one-third to one-half of institutions using it to at least some degree to deny or reduce the amount of federal student loans to individual students. The student loan program appears to have been affected somewhat by the Reauthorization, with most institutions experiencing increased borrowing in the subsidized and unsubsidized Stafford and Supplemental Loans for Students programs, and 55 to 65 percent of these institutions ranking an increase in loan limits or changes in need analysis methodology as the most important reason for the increased borrowing.

What were institutional verification policies for Title IV aid applicants for 1992-93 and 1993-94 awards?

About a third of all institutions in both years used each of the following verification policies (figure 1):

  • Verified all applicants selected by the U.S. Department of Education (ED), even if higher than 30 percent, but verified no additional applicants selected by the institution;
  • Verified all applicants selected by the U.S. Department of Education, plus some selected by the institution; or
  • Verified all or almost all applicants.

The policy used most frequently by public institutions was to verify some additional applicants selected by the institution (table 1). Private nonprofit institutions used the three main verification approaches about equally, while private for-profit institutions verified no additional applicants or verified all or almost all applicants with about the same frequency.

Do institutions use their own guidelines to select additional applicants for verification, and are these additional applicants more likely to have errors?

Institutional guidelines to select additional aid applicants for verification were used by 40 percent of institutions (table 2). Public, private nonprofit, and private for-profit institutions were all about equally likely to use such guidelines. Among institutions that used such guidelines, 61 percent reported that applicants selected by the institution using its own guidelines were about equally likely to have errors as applicants selected by the U.S. Department of Education. Public institutions differed from private for-profit institutions in the reported likelihood of errors. Applicants selected by the institution were reported to be more likely to have errors than those selected by ED by 14 percent of private for-profit institutions, compared with 41 percent of public institutions. Applicants selected by the institution and by ED were reported to be about equally likely to have errors by 71 percent of private for-profit institutions, compared with 49 percent of public institutions. The differences in the reported likelihood of errors for public versus private nonprofit institutions are not statistically significant.

What percent of Title IV aid applicants were verified for 1992-93 and 1993-94 awards?

On average, institutions verified slightly more than half of aid applicants in both years—a mean percent of 55 percent for 1992-93 awards and a mean percent of 57 percent for 1993-94 awards (not shown in tables). Only 15 percent of institutions reported that the percent of applicants verified for 1993-94 awards was affected by changes in the law about aid applicant verification (not shown in tables). There were no differences by institutional control in the mean percentage of applicants verified in either year or in whether verification was affected by changes in the law (not shown in tables).

What percent of Pell grant applications were adjusted for 1992-93 and 1993-94 awards

Institutions used special conditions to adjust art average of 5 percent of Pell grant applications for 1992-93 awards (not shown in tables). For awards the following year, when the use of professional judgment replaced the use of special conditions, an average of 6 percent of Pell grant applications were adjusted. This study found no differences by institutional control for either year (not shown in tables).

What were the reasons for exercising professional judgement on Pell grant applications for 1993-94 awards?

The most important reason for exercising professional judgment to adjust Pell grant applications for 1993-94 awards was that prior year income was not reflective of current circumstances. Almost two-thirds (63 percent) of institutions rated this reason as very important (table 3). Other reasons rated as very important were changes in dependency status (39 percent) and changes in family structure or size (21 percent). Reasons related to need analysis underestimating actual expenses or under- or overestimating true ability to pay were generally rated as not important. Public, private nonprofit, and private for-profit institutions all provided similar ratings of the reasons for exercising professional judgment (not shown in tables).

What approaches were used for reviewing 1993-94 Pell grant applications for the exercise of professional judgement?

About half of the institutions (47 percent) reviewed Pell grant applications for the exercise of professional judgment only upon student request (table 4). Most of the remaining institutions were about evenly split between reviewing applications for all students (23 percent) and reviewing applications for any students the office thought might need changes (26 percent). The review approach used most frequently by public and private nonprofit institutions was to review applications only upon student request. Private for-profit institutions showed more diversity in their approaches to reviewing applications, with 25 percent reviewing applications only upon student request, 33 percent reviewing applications for all students, and 38 percent reviewing applications for any students the office thought might need changes.

What percent of dependent students were changed to independent student status by exercising professional judgment for 1993-94 awards?

For 1993-94 awards, institutions reported, on average, that they changed 3 percent of dependent students to independent student status through the exercise of professional judgment (not shown in tables). There were no differences by institutional control in the mean percentage of dependent students changed to independent student status (not shown in tables).

Do institutions believe that the law allows the use of professional judgment to adjust financial aid to maximize access?

Respondents at 40 percent of the institutions believe that the law allows their office to use professional judgment "somewhat" to adjust federal financial aid awards to maximize access to their institution (figure 2). Respondents at 13 percent of institutions believe that the law allows this use of professional judgment "very much" and 16 percent believe that the law allows this use "not at all." Respondents at public, private nonprofit, and private for-profit institutions all had similar beliefs about the extent to which access to the institution can be maximized through the use of professional judgment (not shown in tables).

To what extent is professional judgment used to deny or reduce federal student loans?

About half (48 percent) of institutions indicated that they use professional judgment to some degree to reduce the amount of federal student loans to individual students (table 5; scale points 2 through 5); about one-third (38 percent) use professional judgment to some degree to deny federal student loans to individual students ( table 6; scale points 2 through 5). Private for-profit institutions were more likely than public or private nonprofit institutions to indicate that they use professional judgment to reduce the amount of student loans (58 percent versus 42 and 40 percent), and were more likely than private nonprofit institutions to indicate that they use professional judgment to deny student loans (46 versus 30 percent).

What are the reasons for using professional judgment to reduce or deny federal student loans?

Among those institutions that use professional judgment to reduce or deny federal student loans to individual students, the most frequently cited reason for doing so was that the student does not need to borrow or does not need as much money as he or she would be allowed to borrow (79 percent; table 7). Private for-profit institutions were particularly likely (90 percent) to cite this reason. About half of the institutions (46 percent) used professional judgment to reduce or deny loans because they believed there was a high likelihood that the student would not repay the loan; 40 percent used professional judgment in this way because high-risk students have a high probability of dropping out during the first year of study. Private nonprofit institutions were less likely than public or private for-profit institutions to cite either of these reasons for using professional judgment to reduce or deny loans.

To what extent did student loan borrowing increase for 1993-94, and what were the reasons for increased borrowing?

Almost all institutions awarding federal financial aid participate in the subsidized Stafford loan program (99 percent), and 75 percent of those institutions had increased subsidized Stafford loan borrowing for 1993-94 compared with 1992-93 (table 8). Private for-profit institutions were less likely than public or private nonprofit institutions to have had increased subsidized Stafford loan borrowing. Among institutions that had increased subsidized Stafford loan borrowing, 36 percent ranked an increase in loan limits as the most important reason for increased borrowing; 26 percent ranked smaller grant sizes as the most important reason. Private for-profit institutions had a different pattern of reasons for increased borrowing than did public or private nonprofit institutions. While 42 percent of public and 47 percent of private nonprofit institutions ranked an increase in loan limits as the most important reason for increased borrowing, only 14 percent of private for-profit institutions ranked this reason first. Instead, 47 percent of private for-profit institutions ranked smaller grant sizes as the most important reason; this reason was selected as most important by 20 percent of public and 17 percent of private nonprofit institutions.

The pattern for unsubsidized Stafford and Supplemental Loans for Students (SLS) loans is similar to the pattern for subsidized Stafford loans. Most institutions awarding federal financial aid participate in the unsubsidized Stafford and SLS loan programs (92 percent), and 80 percent of those institutions had increased borrowing in these programs for 1993-94 compared with 1992-93 (table 9). Private for-profit institutions were less likely than the other types of institutions to have increased unsubsidized Stafford and SLS loan borrowing. Among institutions that had increased borrowing in these programs, the reason most frequently ranked as most important for increased borrowing was an increase in loan limits and/or availability of unsubsidized Stafford loans (52 percent); 19 percent ranked smaller grant sizes as the most important reason for increased borrowing. Private for-profit institutions differed from public and private nonprofit institutions in the pattern of reasons for increased borrowing. While 61 percent of both public and private nonprofit institutions ranked an increase in loan limits and/or availability of unsubsidized Stafford loans as the most important reason for increased borrowing, only 29 percent of private for-profit institutions ranked this reason first. Smaller grant sizes was ranked first by 34 percent of private for-profit institutions, compared with 11 percent of public and 14 percent of private nonprofit institutions.

The pattern for PLUS loans is somewhat different from the other types of loans. (PLUS loans are loans that parents take out to finance their children's education.) While 81 percent of institutions awarding federal financial aid participate in the PLUS loan program, only 49 percent of participating institutions had increased PLUS loan borrowing for 1993-94 compared with 1992-93 (table 10). Private nonprofit institutions were more likely than the other types of institutions to have had increased PLUS loan borrowing. Among institutions that had increased PLUS loan borrowing, the reason most frequently ranked first for increased borrowing was an increase in loan limits (44 percent). Private for-profit institutions differed from the other types of institutions in the pattern of reasons for increased borrowing. While 53 percent of public and 52 percent of private nonprofit institutions ranked an increase in loan limits as most important, only 18 percent of private for-profit institutions ranked this reason first. Increased student charges and smaller grant sizes were ranked as the most important reasons for increased PLUS loan borrowing more often by private for-profit institutions than by public institutions.

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