Veterans' Education Benefits: Comparison of Federal Assistance	 
Awarded to Veteran and Nonveteran Students (28-FEB-02,		 
GAO-02-368).							 
                                                                 
The Montgomery GI Bill provides a monthly stipend to pay	 
postsecondary education expenses for veterans and eligible	 
service members. Concerns have been raised about whether GI	 
benefits adequately cover educational costs and whether the	 
receipt of GI benefits affects other federal financial assistance
available to postsecondary students under Title IV of the Higher 
Education Act and the Internal Revenue Code. Under Title IV, GI  
benefits do not affect the amount of aid veterans receive under  
the Pell grant and subsidized Stafford loan programs but may	 
affect the amount they receive in unsubsidized loans and through 
campus-based aid programs. Depending on the program, GI benefits 
may be considered as another source of financial assistance for  
students, which may decrease a veteran student's financial need  
and thus the amount of need-based aid provided. With regard to	 
available federal tax incentives, the receipt of GI benefits does
not preclude veterans from claiming such benefits but may affect 
the amount they would be eligible to claim. On average, veterans 
and nonveterans with comparable characteristics are awarded	 
similar amounts of federal Title IV aid. When GI benefits are	 
included, the total amount of federal assistance is greater for  
veterans than it is for nonveterans. Moreover, veterans' total	 
aid, including Pell Grants, Stafford loans, and GI benefits has a
lower proportion of loans compared with nonveterans' packages. On
average, veteran students received slightly lower average	 
campus-based aid awards than did nonveteran dependent students,  
but they received more than nonveteran independent students at	 
four-year institutions. The actual amount of HOPE and Lifetime	 
Learning tax credits by veteran and nonveteran students is	 
unknown. However, the amount of tuition and fees paid, amount of 
GI benefits and grant aid received, and family income and taxes  
owed will affect the amount of tax credit one may claim.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-368 					        
    ACCNO:   A02743						        
  TITLE:     Veterans' Education Benefits: Comparison of Federal      
Assistance Awarded to Veteran and Nonveteran Students		 
     DATE:   02/28/2002 
  SUBJECT:   Aid for education					 
	     Comparative analysis				 
	     Education or training				 
	     Education or training costs			 
	     Educational grants 				 
	     Higher education					 
	     Student financial aid				 
	     Veterans benefits					 
	     Veterans education 				 
	     College Work-Study Program 			 
	     Dept. of Education Perkins Student Loan		 
	     Program						 
                                                                 
	     Dept. of Education Stafford Student Loan		 
	     Program						 
                                                                 
	     Dept. of Education Unsubsidized Stafford		 
	     Loan Program					 
                                                                 
	     Free Application for Federal Student Aid		 
	     GI Bill						 
	     HOPE Tax Credit					 
	     Lifetime Learning Tax Credit			 
	     Pell Grant 					 
	     Supplemental Educational Opportunity		 
	     Grant						 
                                                                 

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GAO-02-368
     
United States General Accounting Office

GAO

Report to the Ranking Minority

Member, Committee on Veterans' Affairs, U.S. Senate

February 2002

VETERANS' EDUCATION BENEFITS

Comparison of Federal Assistance Awarded to Veteran and Nonveteran Students

GAO-02-368

Contents

Letter

Results in Brief
Background
Receiving GI Benefits May Affect Eligibility for Some Federal

Financial Aid

Generally Veteran Students Receive the Same or More Federal Assistance than
Nonveteran Students with the Same Characteristics

Agency Comments

                                     1

                                    2 3

                                     10

                                   11 17

      Appendix I Estimated Federal Title IV Aid Awarded to Students 19

      Appendix II Comments from the Department of Veterans Affairs 22

Tables

Table 1: Postsecondary Education Tax Provisions Enacted under the Taxpayer
Relief Act of 1997

Table 2: Average Amount of Campus-Based Aid Awarded to Students, by Type of
Institution, Academic Year 1999-2000

Table 3: Estimated Aid Awarded to First-Year Students Attending Public
2-year Institutions Full-time in Academic Year 1999-2000, by Income Level
and Veteran Status

Table 4: Estimated Aid Awarded to First-Year Students Attending Public
4-year Institutions Full-time in Academic Year 1999-2000, by Income Level
and Veteran Status

Table 5: Estimated Aid Awarded to First-Year Students Attending Private
4-year Institutions Full-time in Academic Year 1999-2000, by Income Level
and Veteran Status

7 16

19

20

21

Figures

Figure 1: Amount of Federal Aid Awarded to Students and Families in
1999-2000 6 Figure 2: Process for Determining Financial Need for Title IV
Programs 9 Figure 3: Percent of All Students and GI Bill Students Enrolled
at Each Type of Institution 10

Figure 4: Comparison of Estimated Federal Aid Packages Awarded

to Veteran and Nonveteran Students at Public 2-year

Institutions, by  Income Level 13 Figure  5: Comparison of Estimated Federal
Aid Packages Awarded

to Veteran and Nonveteran Students at Public 4-year

Institutions, by  Income Level 14 Figure  6: Comparison of Estimated Federal
Aid Packages Awarded

to Veteran and Nonveteran Students at Private 4-year

Institutions, by Income Level 15

Abbreviations

EFC expected family contribution
FAFSA Free Application for Federal Student Aid
HEA Higher Education Act
IRA individual retirement accounts
SEOG Supplemental Educational Opportunity Grant

United States General Accounting Office Washington, DC 20548

February 28, 2002

The Honorable Arlen Specter Ranking Minority Member Committee on Veterans'
Affairs United States Senate

Dear Senator Specter:

The Veterans' Education Assistance Act of 1984 created the Montgomery GI
Bill-known as GI benefits-(U.S.C. Title 38 Chapter 30), a benefit program
that provides a monthly stipend to pay for postsecondary education expenses
for veterans and eligible service members. Recently, concerns have been
raised about whether GI benefits adequately cover educational costs and
whether the receipt of GI benefits affects the amount of other federal
financial assistance available to postsecondary students under Title IV of
the Higher Education Act (HEA) and the Internal Revenue Code. Through Title
IV, about $46 billion was awarded to students in the form of grants, loans,
and work-study programs in the 1999-2000 academic year. The primary Title IV
programs consist of (1) Pell grants; (2) subsidized and unsubsidized
Stafford loans; and (3) Supplemental Educational Opportunity grants (SEOG),
Perkins loans, and work study aid funded by the federal government and
administered by participating higher education institutions, commonly known
as campus-based aid. Under the Internal Revenue Code, a variety of
provisions are available that are designed to help families pay for college.
For example, in 1999, taxpayers claimed an estimated $5.2 billion in HOPE
and Lifetime Learning tax credits, which allow taxpayers to reduce the
amount of taxes owed by receiving a credit for tuition and fees paid.

Given the broad range of federal postsecondary financial aid available to
students, you asked us to (1) determine whether receiving GI benefits
affects veterans' eligibility for other federal financial aid and (2)
compare the typical amount of federal financial aid awarded to veteran and
nonveteran students based on various student and family characteristics that
affect their eligibility for financial aid, including income and whether
students were dependent or independent of their parents. For our first
objective, we reviewed the HEA of 1965, as amended, and related regulations
to identify the type of federal aid available under Title IV programs to all
students, the methodology used to determine students' eligibility for this
aid, and how GI benefits are treated in federal

methodology. For our second objective, we used data from two U.S. Department
of Education databases for academic year 1999-2000 to determine the amount
of Title IV aid awarded to all students. We asked Education to estimate the
amount of Title IV aid awarded to the following populations: (1) veteran
students; (2) nonveteran independent students; and (3) nonveteran dependent
students who were in their first year of enrollment on a full-time basis at
a public 2-year, public 4-year, and private 4-year institution. Over 90
percent of veteran and nonveteran students are enrolled in such
institutions. For each of these populations, we identified the 25th, 50th,
and 75th family income percentiles and the amount of Pell grant and Stafford
loans awarded to students at these income levels, based on the average cost
of attendance for each type of institution. We also asked Education to
calculate the average campus-based aid award made to each student population
at each type of institution. We did not independently verify data collected
or analyzed by Education, however this is the only source of data available.
We did verify Education's calculations of estimated Pell grant and Stafford
loan aid awarded. Since tax forms do not collect information on a taxpayer's
veteran status, there is no data on the exact amount of HOPE and Lifetime
Learning tax credits claimed by veteran and nonveteran students. Therefore,
we calculated the amount of tax credits for which students or families may
be eligible based on a variety of factors, such as family income and amount
of grant aid received. We did not include data on the amount of financial
aid a student may receive from a state or an institution. We performed our
work in accordance with generally accepted government auditing standards
from July 2001 to January 2002.

The receipt of GI benefits may affect veterans' eligibility for some federal
grants, loans, and tax incentives. Under Title IV, receiving GI benefits
does not affect the amount of aid veterans receive under the Pell grant and
subsidized Stafford loan programs but may affect the amount they receive in
unsubsidized loans and through campus-based aid programs. In general,
eligibility for federal Title IV aid is based on a student's financial need,
which includes a consideration of an institution's cost of attendance, the
amount a student and the student's family is expected to contribute toward
that cost, and the amount of other financial assistance available to
students. Depending on the particular program, GI benefits may be considered
as another source of financial assistance for students, which may decrease a
veteran student's financial need and thus the amount of need-based aid
provided. With regard to various federal tax incentives available for
postsecondary education, receiving GI benefits does not

Results in Brief

specifically preclude veterans from claiming such benefits but may affect
the amount veterans would be eligible to claim.

On average, veterans and nonveterans with comparable characteristics are
awarded similar amounts of federal Title IV aid, and when GI benefits are
included, the total amount of federal assistance is greater for veterans
than it is for nonveterans. Moreover, veterans' total aid package of Pell
Grants, Stafford loans, and GI benefits has lower proportions of loans
compared with nonveterans' packages. For example, among middle-income
students attending a public 4-year institution in academic year 1999-2000, a
veteran's student aid package would be comprised of 39 percent loans and 61
percent grants and benefits, compared with 78 percent loans and 22 percent
grants for a nonveteran independent student. For a dependent nonveteran
student from a middle-income family, the financial aid package would consist
entirely of loans. As a result, middle-income veteran students would incur
less debt in financing their education. On average, veteran students
received slightly lower average campus-based aid awards than nonveteran
dependent students; but they received more than nonveteran independent
students at 4-year institutions. The actual amount claimed in HOPE and
Lifetime Learning tax credits by veteran and nonveteran students is unknown.
However, the amount of tuition and fees paid, amount of GI benefits and
grant aid received, and family income and taxes owed will affect the amount
of tax credit one may claim. For example, veterans who receive GI benefits
or nonveterans who receive grant aid that equal the amount of tuition and
fees paid will not be able to claim either a HOPE or Lifetime Learning tax
credit.

We provided the Departments of Veterans Affairs and Education with a copy of
our draft report for review and comment. In written comments on our draft
report, Veterans Affairs generally agreed with our reported findings.
Education did not provide written comments, but provided technical
clarifications on our draft report.

                                 Background

Montgomery GI Bill The Veterans' Education Assistance Act of 1984 created
the current

Education Benefits Montgomery GI bill program. Under the GI bill program
(Title 38 United States Code Chapter 30), veterans who have met their duty
obligation and were honorably discharged are eligible to receive GI
benefits. Active-duty personnel are also eligible to use GI benefits. In
fiscal year 2000, approximately $923 million was paid to veterans through
the GI bill

program. The GI bill program is a contributory program, which requires
service members, upon enlistment, to contribute $100 per month for their
first 12 months of service. Although service members have the option to
decline participation at enlistment, almost all are enrolling in the GI bill
program. In fiscal year 1999, 96 percent of all active-duty eligible
enlistees enrolled in the GI bill program. GI benefits end 10 years from
last discharge, and if veterans do not use their GI benefit within that time
period, the amount is not refunded to them.1

Veterans may use GI benefits for a variety of postsecondary education
programs, including an undergraduate or graduate degree; courses that lead
to a certificate or diploma from a business, technical, or vocational
school; correspondence training; on-the-job training or apprenticeships; and
vocational flight training. The monthly benefit amount will vary depending
on the type of coursework in which the veteran enrolls and whether the
student attends part-time or full-time. For veterans who enroll full-time in
an undergraduate degree program in academic year 2001-02, the monthly GI
benefit is $672 per month for a maximum of 36 months-a total of $6,048 for
each of 4 academic years. The Veterans Education and Benefits Expansion Act
of 2001 (P.L. 107-103) increases the monthly GI benefit to $800 per month as
of January 1, 2002. Additionally, the law increases the GI benefit to $900
per month on October 1, 2002 and to $985 per month beginning on October 1,
2003-a total of $8,100 in 2002-03 and $8,865 in 2003-04. Most veterans use
their GI benefits to pursue an undergraduate degree. For example, in fiscal
year 2001, 88 percent of GI bill beneficiaries were pursuing an
undergraduate degree. In addition, 62 percent of GI bill beneficiaries were
enrolled in school full-time.

Federal  Financial Aid  for  Title IV of  HEA of  1965, as amended  in 1998,
authorizes the federal

Postsecondary   Education     government's   financial  aid   programs   for
postsecondary education. Title IV programs include the following:

*  Pell grant-grants to undergraduate students who  are enrolled in a degree
or certificate program and have financial need.

1In November 2001, the House of Representatives passed the Reservists
Education Protection Act of 2001 (H.R. 3240). This act would allow retired
and reserve military personnel called to duty during the war on terrorism to
extend the requirement to use GI benefits within 10 years by adding the time
of their mobilized tour of duty, plus 4 months to it.

* Subsidized Stafford loan-loans made to students enrolled at least
half-time in an eligible program of study and have demonstrated financial
need. The federal government pays the interest costs on the loan while the
student is in school.

* Unsubsidized Stafford loan-loans made to students enrolled at least
half-time in an eligible program of study. Although the terms and conditions
of the loan (e.g., interest rates) are the same as those for subsidized
loans, the federal government does not pay the interest costs on the loan
while the student is in school. Students are therefore responsible for all
interest costs.

* PLUS loans-loans made to 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.

* Campus-based aid-allocated to participating institutions by the U.S.
Department of Education. The institutions then award the following aid to
students:

* Supplemental Educational Opportunity Grant (SEOG)-grants for undergraduate
students with 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 financial need.

* Work-study-students are provided on-or off-campus jobs in which they earn
at least the current federal minimum wage. The institution or off-campus
employer pays a portion of their wages.

Education is responsible for administering $46 billion a year through these
programs. As shown in figure 1, most of these funds are subsidized and
unsubsidized Stafford loans.

Figure 1: Amount of Federal Aid Awarded to Students and Families in
1999-2000

20,000 Dollars in Millions $18,114

16,000

12,000

8,000

4,000

0

Campus-PLUS Pell Unsubsidized Subsidized Based Aid Loans Grants Stafford
Stafford (SEOG, Loans Loans Perkins Loans, Work-Study)

Note: Estimated data for academic year 1999-2000.

Source: College Board, Trends in Student Aid: 2001.

In addition to the Title IV programs, there are tax provisions that students
and their families may be eligible to use for postsecondary education. The
Taxpayer Relief Act of 1997 (P.L. 105-34) created several provisions to help
families pay for postsecondary education, such as the HOPE tax credit,
Lifetime Learning tax credit, and the student loan interest deduction. The
act also created tax-exempt savings accounts, called education individual
retirement accounts (IRA), to help families save for college. See table 1
for further detail about the tax provisions created under the Taxpayer
Relief Act. The act also made changes to the tax treatment of state tuition
savings plans, extended the exclusion for educational assistance provided by
employers from students' taxable incomes, and exempted IRA distributions for
qualified higher education expenses from early withdrawal penalties.

 Table 1: Postsecondary Education Tax Provisions Enacted under the Taxpayer
                             Relief Act of 1997

Definition of qualified
higher education
expense Who is eligible

Tax benefit is phased out for filers with incomes between...

Tax provision Tax benefit

HOPE credit Maximum credit: $1,500 Credit rate is 100 percent on first
$1,000 of qualified higher education expenses, 50 percent on next $1,000.

Tuition and fees at institutions eligible to participate in Title IV
programs Tax filer on behalf of self, spouse, or dependent who is working
towards a degree or certificate at least half-time in the first 2 years of
postsecondary enrollment.

Single filer: $40-50,000 Joint return: $80-100,000

  Lifetime  Maximum credit:     Tuition and fees Tax filer on behalf
 Learning   $1,000                     at        of self,            Single filer:

  credit                          institutions   spouse, or           $40-50,000
             (in 2003 maximum     eligible to    dependent who
               increases to      participate in
                 $2,000)            Title IV       is enrolled in    Joint return:
               20 percent of                     undergraduate or
                qualified           programs     graduate           $80-100,000
                                                 courses, or any
            higher education                     course that aids in
            expenses up to                       learning new or
            $5,000 (increases                    improving existing
            to $10,000 in                        job skills, for as
            2003).                               many years as the
                                                 student is
                                                 enrolled.
  Student
    loan    Maximum deduction:   Eligible loans  Tax filer, even        Single
 interest                          are those     those who             filer:b

 deduction        $2,500         used to pay for do not itemize, may
                                    tuition,                          $40-55,000
             Interest paid on    fees, room and    deduct interest
                 eligible            board,           paid on        Joint return:
            education loans is     and related   education loans
               deductible.       expenses minus  during the first 60  $60-75,000
                                any scholarships months interest
                                    or grants       payments are
                                    received         requireda
 Education  Annual contribution  Tuition, fees,
    IRA     limit is                 books,      Distributions from  Single filer:
                 $500c per      supplies, and     education IRA can
                designated      equipment                be         $95-110,000
               beneficiary.     required for     used for students
                 Account        attendance.      enrolled            Joint return:
            earnings and         Room and board  on full-time,
            distributions used     if enrolled   half-time, or less
            for qualified         half-time or   than half-time      $150-160,000
            higher                               basis.
            education expenses
            are                      more.
                tax-free.

aUnder the Economic Growth and Tax Relief Reconciliation Act, the 60-month
limit will be eliminated in 2002, and tax filers may deduct the interest as
long as they are paying it.

bUnder the Economic Growth and Tax Relief Reconciliation Act, the income
phase-out range increases to $50-$65,000 for single filers and $100-130,000
for joint returns in 2002.

cUnder the Economic Growth and Tax Relief Reconciliation Act, the annual
contribution limit will increase to $2,000 beginning in 2002.

Source: Joint Committee on Taxation and Congressional Research Service.

In 2001, the Economic Growth and Tax Relief Reconciliation Act (P.L. 107-

16) expanded and modified several of the tax provisions previously
mentioned. Most notably, the act created a new tax deduction for tuition and
fees for taxpayers, even those who do not itemize. In 2002 through 2005,
taxpayers will have the option of using either the HOPE tax credit or the
tuition deduction. The 2001 act also made changes to the student loan
interest deduction and education IRAs.

Federal Methodology for Determining Financial Need for Title IV Programs

To obtain financial aid under Title IV programs, students must apply using
the Free Application for Federal Student Aid (FAFSA). Information from the
FAFSA is used to determine the amount of money-called the expected family
contribution (EFC)-that a student, or student's family, is expected to
contribute to the student's education. A student is classified as either
financially dependent on his or her parents or independent in the financial
aid process. This classification is important because it affects the factors
used to determine a student's EFC. For dependent students, the EFC is based
on both the student and parent's income and assets, as well as whether the
family has other children enrolled in college. For independent students, the
EFC is based on the student's and, if married, spouse's income and assets
and whether the student has any dependents other than a spouse. By law,
veteran students are automatically classified as independent students, and
GI benefits are not included as veterans' income for purposes of calculating
EFC.2

Once EFC is established, this information is compared to the cost of the
institution at which the student will attend to determine a student's
financial need. In the federal financial aid process, an institution's cost
of attendance includes tuition and fees, room and board, books, supplies,
transportation, and miscellaneous personal expenses. The type of institution
that a student attends will affect the cost of attendance. Typically, public
2-year institutions cost significantly less than public 4-year institutions
or private 4-year institutions. For example, on average, the annual cost to
attend a public 2-year college as a commuter student was $7,024 compared
with $11,338 for resident students at public 4-year institutions and $24,946
for resident students at private 4-year institutions.

If the EFC is equal to or greater than the cost of attendance, then the
student is not considered to have financial need for federal aid programs.
If the EFC is less than cost of attendance, then the student is considered
to have financial need. Financial aid administrators at the school the
student is attending then create a federal financial aid package that could
include grants, loans, and work-study. The basic premise for awarding
need-based aid is that a student's "total financial aid package must not
exceed a student's need." Veterans are an exception to this rule, and in
some cases, those who receive GI benefits may receive a combined federal aid
package

2Nonveteran students who meet at least one of the following criteria in
academic year 2001-02 are also considered independent in the federal
financial aid process: born before January 1, 1978; married; enrolled in a
graduate or professional educational program; have legal dependents other
than a spouse; or an orphan or ward of the court.

of GI benefits and need-based aid, such as Pell grants and subsidized
Stafford loans, that is greater than their financial need. Figure 2
highlights these key steps in determining a student's financial need for
Title IV programs.

   Figure 2: Process for Determining Financial Need for Title IV Programs

Institution's cost of attendance

* Tuition

* Fees

* Room and board

* Books

* Transportation

* Supplies

* Personal expenses

Source: GAO analysis of HEA.

Enrollment in Most students, whether receiving a GI benefit or not, enroll
in a public 2-

Postsecondary Institutions or 4-year institution. As shown in figure 3, 81
percent of the overall student population and 89 percent of GI bill students
enroll in a public institution, while 19 percent of all students and 11
percent of GI bill students enroll in a private institution. Due to the fact
that small proportions of the general student population and GI bill
students enroll at private 2-year institutions, we focused our analysis on
the other three types of institutions.

Figure 3: Percent of All Students and GI Bill Students Enrolled at Each Type
of Institution

50 Percent Enrolled 47.4 44.5

40

30

20 17.1

10

0

Two-Year Public Four-Year Public Two-Year Private Four-Year Private

Type of Institution

                                All Students

                          
Note: Data for all students were collected for academic year 1999-2000. Data
for GI bill students were collected from veterans who entered service
between 1989 and 1999 and had used their GI benefits by April 1999.

Source: All student data from College Board, Trends in College Pricing: 2000
and GAO's analysis of GI bill student data collected for the Klemm Analysis
Group's Program Evaluation of the Montgomery GI Bill, April 17, 2000.

Veterans' eligibility for some federal grants, loans, and tax incentives may
be affected by the receipt of GI benefits. Veterans can apply for federal
Title IV aid; however, receiving GI benefits may affect their eligibility
for some Title IV aid. Pell grant aid is awarded to students based mainly on
income. The amount awarded to students is the difference between the maximum
Pell grant award for that academic year and the student's EFC. GI benefits
are not included in the formula used to calculate EFC and therefore
receiving them does not affect veterans' eligibility for Pell grants. For
all other Title IV aid, EFC and the amount of other financial assistance
students receive is subtracted from the cost of attendance to determine
financial need. Depending on the aid program, GI benefits may or may not be
considered as another source of financial assistance for veteran students,
thus affecting veterans' eligibility for these programs. By law, GI benefits
are specifically excluded as another source of assistance for

Receiving GI Benefits May Affect Eligibility for Some Federal Financial Aid

veteran students when awarding subsidized Stafford loans. Since GI benefits
are excluded from the calculations used to award subsidized Stafford loans,
veterans and nonveterans are equally eligible for these loans. On the other
hand, when determining eligibility for unsubsidized Stafford loans and
campus-based aid, GI benefits are considered another source of assistance.
Regulations issued in 1999 allow financial aid administrators some
flexibility to exclude the value of GI benefits in the calculations for
campus-based aid, but only if the GI bill student also receives a subsidized
Stafford loan.3 If this flexibility is used, veteran students' eligibility
for campus-based aid may not be affected by receipt of GI benefits. With
regard to various federal tax incentives available for postsecondary
education, receiving GI benefits does not prevent veterans from claiming
such benefits, but may affect the amount they would be eligible to claim.4

Generally Veteran Students Receive the Same or More Federal Assistance than
Nonveteran Students with the Same Characteristics

On average, veterans and nonveterans with similar characteristics are
awarded about the same amount of federal Title IV aid, and when GI benefits
are included, the total amount of federal assistance for postsecondary
education is greater for veterans than nonveterans. When GI benefits are
combined with Pell grant and Stafford loan aid, veterans receive aid
packages that include a lower proportion of loans than nonveterans. Veterans
receive smaller campus-based aid awards than nonveteran dependents, but more
than nonveteran independent students at 4-year institutions. Although the
actual amount claimed in HOPE and Lifetime Learning tax credits by veteran
and nonveteran students is unknown, there are several factors that affect
the amount a student may be eligible to claim.

3The amount of GI benefits that can be excluded cannot exceed the value of
the subsidized Stafford loan awarded to the veteran student. For example, a
veteran who receives $4,200 in GI benefits and $2,625 in subsidized Stafford
loans may have $2,625 of his GI benefits excluded from the calculation used
to award campus-based aid.

4U.S. General Accounting Office, VA Student Financial Aid: Potential Effect
of Providing Education Tax Benefit Eligibility to Students Receiving VA
Assistance,

GAO/HEHS-00-40R (Washington, D.C.: 2000). We reported that students who
attend schools that are not certified by the U.S. Department of Education
are not eligible to claim federal tax credits. In the three states that we
examined, we found that a small number (2.3 percent) of veterans receiving
educational assistance from the Department of Veterans' Affairs attended
schools that were not certified by Education and thus were not eligible to
receive federal tax benefits.

Veterans' Total Aid Packages of Pell Grants, Stafford Loans, and GI Benefits
Are Larger Than Nonveterans and Include Smaller Proportions of Loans

At each type of institution, veterans are awarded total federal aid packages
of Pell grant, Stafford loans, and GI benefits that are greater than those
awarded to nonveteran students.5 When veterans and nonveterans have similar
characteristics, such as family income, they are awarded on average the same
Pell grant and subsidized Stafford loan aid. In contrast, veterans and
nonveterans who have similar characteristics are awarded different amounts
of unsubsidized Stafford loans. This is largely due to the fact that GI
benefits are included in the formula used to award unsubsidized Stafford
loans. The only exception is at private 4-year institutions where veteran
and nonveteran independent students are awarded the same amount of
unsubsidized Stafford loan aid because the average cost of attendance is
much greater at these institutions, thus making veterans eligible for
unsubsidized Stafford loans.

When comparing total federal aid packages of Pell grants, Stafford loans,
and GI benefits, veterans' aid packages have a lower percentage of loans and
a larger percentage of grant6 aid than nonveterans' at each type of
institution. As shown in figure 4, among students who attended public 2-year
institutions, veterans received aid packages that were greater than
nonveterans and consisted of primarily grants. Both nonveteran independent
and dependent students at public two-year institutions typically received
federal aid packages that were comprised primarily of loans.

5See app. I for data on the amount of aid awarded to veteran and nonveteran
students at public 2-year, public 4-year, and private 4-year institutions.

6For veteran students, grant aid is defined as Pell grants and GI benefits.
For nonveteran students, grant aid is defined as Pell grants. Loan amounts
for both veteran and nonveteran students include only Stafford subsidized
and unsubsidized loans. Parents of dependent students are also eligible to
receive federal PLUS loans that are equal to the cost of attendance minus
all other assistance. Use of this loan ranges from less than 1 percent of
dependent students at public two-year institutions to 11 percent of
dependent students at private four-year institutions.

Figure 4:  Comparison of  Estimated Federal Aid Packages  Awarded to Veteran
and Nonveteran Students at Public 2-year Institutions, by Income Level

12,000 Amount of Federal Aid (in Dollars) $10,574

                                  $10,124

10,000

8,000

6,000

4,000

2,000 0

                                   $8,424

eteranV

vetNon

Independen

vetNon

Dependent

teraneV

vetNon

Independen

vetNon

Dependent

eteranV

vetNon

Independen

vetNon

Dependent

                                   t t t

Low-Income Middle-Income High-Income

Loans

Note: Federal aid packages include Pell grants, subsidized Stafford loans,
and unsubsidized Stafford loans, and in the case of veteran students, GI
benefits as well. For veterans, we defined grants as Pell grants and GI
benefits. For nonveterans, we defined grants as Pell grants. Among each type
of student attending public 2-year institutions, the Department of Education
determined the 25th, 50th, and 75th percentile of family income, which we
classified as low-income, middle-income, and high-income, respectively.

Source: U.S. Department of Education, academic year 1999-2000 data.

Among students attending public 4-year institutions, veterans also received
federal aid packages that were larger than nonveterans and most veterans'
packages had a lower percentage of loan aid than nonveteran students, as
shown in figure 5. Only low-income, nonveteran dependent students received
an aid package with a greater proportion of grant aid than loan aid. Among
middle-income students, nonveteran independents were awarded almost the same
amount of aid as veterans; however, nonveteran independents' aid package was
78 percent loans while veterans' aid package was 39 percent loans.
Middle-income nonveteran dependents' federal aid package was comprised
entirely of loans.

Figure 5:  Comparison of  Estimated Federal Aid Packages  Awarded to Veteran
and Nonveteran Students at Public 4-year Institutions, by Income Level

                 14,000 Amount of Federal Aid (in Dollars)

$11,338

12,000

10,000

8,000

6,000

4,000

2,000 0

                            $8,550 $8,500 $8,476

teraneV

teraneV

vetNon

Independen

vetNon

Dependent

teraneV

vetNon

Independen

vetNon

Dependent

vetNon

Independen

vetNon

Dependent

                 t tt Low-Income Middle-Income High-Income

Loans

Note: Federal aid packages include Pell grants, subsidized Stafford loans,
and unsubsidized Stafford loans, and in the case of veteran students, GI
benefits. For veterans, we defined grants as Pell grants and GI benefits.
For nonveterans, we defined grants as Pell grants. Among each type of
student attending public 4-year institutions, the Department of Education
determined the 25th, 50th, and 75th percentile of family income, which we
classified as low-income, middle-income, and high-income, respectively.

Source: U.S. Department of Education, academic year 1999-2000 data.

Among students attending private 4-year institutions, veteran students were
awarded total aid packages that were greater than those awarded to
nonveterans. As shown in figure 6, veterans' aid packages were more evenly
balanced between grants and loans, with the exception of high-income veteran
students whose aid package was comprised of slightly more loans than grants.
In several cases, nonveteran students at private 4-year institutions
received aid packages that were entirely loans. See appendix I for detailed
data on estimated federal Title IV aid awarded to veteran and nonveteran
students at each type of institution.

Figure 6:  Comparison of  Estimated Federal Aid Packages  Awarded to Veteran
and Nonveteran Students at Private 4-year Institutions, by Income Level

   18,000 Amount of Federal Aid (in Dollars) $14,57415,000 $13,224 $11,449
                                   12,000

                                   9,000

                                   6,000

                                  3,000 0

eteranV

vetNon

Independent

vetNon

Dependent

eteranV

vetNon

Independent

vetNon

Dependent

eteranV

vetNon

Independent

vetNon

Dependent Low-Income

Loans Grants

                         Middle-Income High-Income

Note: Federal aid packages include Pell grants, subsidized Stafford loans,
and unsubsidized Stafford loans, and in the case of veteran students, GI
benefits. For veterans, we defined grants as Pell grants and GI benefits.
For nonveterans, we defined grants as Pell grants. Among each type of
student attending private 4-year institutions, the Department of Education
determined the 25th, 50th, and 75th percentile of family income, which we
classified as low-income, middle-income, and high-income, respectively.

Source: U.S. Department of Education, academic year 1999-2000 data.

Amount of Campus-Based The amount of campus-based aid awarded to veteran and
nonveteran Aid Awarded to Veteran students varied across type of institution
attended and by a nonveteran and Nonveteran Students student's dependency
status. As shown in table 2, in academic year 1999-

2000 veteran students received lower awards than nonveteran dependentVaries
by Type of students at all institutions and nonveteran independent students
at publicInstitution Attended 2-year institutions, while veterans who
attended public 4-year and

private  4-year institutions  received larger  campus-based aid  awards than
nonveteran independent students.7

Table 2: Average Amount  of Campus-Based Aid Awarded to Students, by Type of
Institution, Academic Year 1999-2000

                    Type of institution Veteran student

Nonveteran independent student

Nonveteran dependent student

                        Public 2-year $626 $870 $907

                     Public 4-year $1,723 $1,570 $1,992

                    Private 4-year $2,042 $1,738 $2,241

Note:  Campus-based aid includes  only programs  funded under HEA  Title IV:
Supplemental Educational Opportunity Grants, federal work-study, and Perkins
loans.

Source:  U.S. Department  of Education,  National Postsecondary  Student Aid
Study: 2000.

Amount of Education Tax Credits and Deductions Claimed by Veteran and
Nonveteran Students is Unknown

Information on the exact amount that veteran and nonveteran students claimed
for the HOPE and Lifetime Learning tax credits and the student loan interest
deduction is not known; nonetheless there are several factors that are known
to affect the amount one may be eligible to claim. The amount of HOPE or
Lifetime Learning tax credit one may be eligible to claim is affected by
several factors, including the amount of tuition and fees paid, amount of GI
benefits and grant aid received, and family income and taxes owed.
Generally, veteran and nonveteran students who pay higher tuition and
required fees, such as students who attend private 4-year institutions or
those with a tax liability greater than the HOPE credit, may claim the full
credit of $1,500. Veterans and nonveterans who pay lower tuition and
required fees may claim a partial HOPE tax credit. Additionally, veterans
who receive GI benefits or nonveteran students who receive grants that equal
or exceed the amount of tuition and fees paid may not claim a HOPE tax
credit. Likewise, veterans and nonveterans who pay higher tuition and fees
may claim the full Lifetime Learning credit of

7Estimates of campus-based aid awarded are not strictly comparable to Pell
grant and Stafford loan data because campus-based aid is not awarded
directly to students. The Department of Education uses a statutory formula
to allocate campus-based funds to institutions that then award the aid to
students based on financial need. Under the statutory formulas, institutions
receive different amounts of campus-based funds. Thus, students who have the
same characteristics, but attend different schools, may receive different
amounts of campus-based aid. In our calculations of estimated aid awarded,
we collected data based on student characteristics and not the actual school
attended, therefore we must present data on campus-based aid separately from
Pell grant and Stafford loan aid.

$1,000; while veterans who receive GI benefits or nonveterans who receive
grant aid that equal or exceed the amount of tuition and fees paid may not
claim a Lifetime Learning tax credit. Any student whose income is not higher
than $55,000 ($75,000 if a joint filer) and who pays interest on a qualified
education loan is eligible to deduct up to $2,500 per year for the first 60
months that interest has been paid on an education loan.8

                               Agency Comments

In written comments on our draft report the Department of Veterans Affairs
generally agreed with our reported findings. Veterans Affairs suggested that
we include education awards provided through the AmeriCorps program in our
review as well. Our analysis focused on comparing benefits that students
receive in exchange for their military service to benefits that are awarded
under Title IV of HEA and for which no service is required. We did not
include AmeriCorps education awards in our review because they are not part
of Title IV and because education awards are provided in exchange for
community service. In addition, the number of students who earn AmeriCorps
education awards is small compared to students who receive benefits through
Title IV aid programs. In fiscal year 2000, about 27,000 participants earned
an AmeriCorps education award compared to approximately 7.6 million students
who received aid through Title IV programs in fiscal year 2001. Veterans
Affairs' written comments are printed in appendix II.

The Department of Education provided technical clarifications on our draft
report and we have incorporated these where appropriate.

We are sending copies of this report to the secretary of education and
secretary of veterans affairs and other interested parties. We will also
make copies available to others upon request. The report is available at
GAO's homepage, http://www.gao.gov.

8 In 2002,  the  60-month time  limit is  eliminated  and income  limits are
raised.

If you or your staff have any questions about this report, please contact me
on (202)  512-8403. Other  major contributors include Jeff  Appel and Andrea
Romich Sykes.

Sincerely yours,

Cornelia M. Ashby Director, Education, Workforce, and Income Security

Appendix I: Estimated Federal Title IV Aid Awarded to Students

The following three tables provide estimates of the amount of Pell grant,
subsidized Stafford loan, and unsubsidized Stafford loan aid awarded to
veteran and nonveteran students at public 2-year, public 4-year, and private
4-year institutions and the amount of GI benefits available in academic year
1999-2000.

Table  3:  Estimated Aid  Awarded  to First-Year  Students Attending  Public
2-year Institutions  Full-time in  Academic Year 1999-2000,  by Income Level
and Veteran Status

Veteran student Nonveteran independent student Nonveteran dependent studenta

b

Low-income Income = $5,500 Income=$3,726 Income= $11,588 EFC=0 EFC= 0 EFC=0

                 Pell grant                     $3,125       $3,125         $3,125
          Subsidized Stafford loan               2,625       2,625           2,625
         Unsubsidized Stafford loan                0         1,274               0
                 GI benefitc                     4,824         0                 0

Total aid $10,574 $7,024 $5,750

Middle-income  Income =  $16,502 Income=  $13,187 Income= $27,743  EFC= $465
EFC=0 EFC= S1,480

                 Pell grant                     $2,675       $3,125         $1,675
          Subsidized Stafford loan               2,625       2, 625          2,625
         Unsubsidized Stafford loan                0         1, 274              0
                 GI benefit                      4,824         0                 0

Total aid $10,124 $7,024 $4,300

High-income  Income =  $33,037 Income=  $27,725 Income= $57,569  EFC= $2,183
EFC= $1,337 EFC= $7,318

                    Pell grant                         $975        $1,775        0
             Subsidized Stafford loan                  2,625        2,625        0
            Unsubsidized Stafford loan                   0          2,624        0
                    GI benefit                         4,824          0          0

Total aid $8,424 $7,024 0

Note: Average cost of attendance at a public 2-year institution is $7,024.
We used a stratified representative sample of all students who applied for
and were awarded federal financial aid in academic year 1999-2000 to
calculate Pell grant and loan amounts. Expected family contribution (EFC) is
a weighted average of the EFC across students with different family
characteristics within each student classification-veteran (always
classified as independent), nonveteran independent, and nonveteran
dependent. Pell grant and loan amounts are calculated using federal
statutory rules for awarding aid.

aParents of dependent students have several credit options for financing
their child's education, including home equity, private loans, and federal
PLUS loans. The maximum amount that a parent may borrow through a PLUS loan
is equal to the student's cost of attendance minus all other assistance.
Among dependent students who attended public 2-year institutions in academic
year 1999-2000, less than 1 percent received PLUS loans.

bAmong students attending public 2-year institutions, the Department of
Education determined the 25th percentile, 50th percentile, and 75th
percentile of family income in each student classification, which we defined
as low-income, middle-income, and high-income, respectively.

cGI benefit amount is based on academic year 1999-2000 rates of $536 per
month for veterans attending school full-time for an academic year of 9
months.

Source: U.S. Department of Education.

Appendix I: Estimated Federal Title IV Aid Awarded to Students

Table  4:  Estimated Aid  Awarded  to First-Year  Students Attending  Public
4-year Institutions  Full-time in  Academic Year 1999-2000,  by Income Level
and Veteran Status

                         Veteran studentNonveteran independent      Nonveteran dependent
                                        student                                studenta
      bLow-income        Income= $4,377           Income= $2,498        Income= $19,163
                                  EFC=0                   EFC= 0              EFC= $326
       Pell grant                $3,125                   $3,125                 $2,775
Subsidized Stafford loan          2,625                    2,625                  2,625
  Unsubsidized Stafford
          loan                      764                    4,000                      0
      GI benefitc                 4,824                        0                      0
       Total aid                $11,338                   $9,750                 $5,400

     Middle-income             Income =$          Income= $9,422        Income= $46,590
                                 14,102
                            EFC= $2,788              EFC= $1,291            EFC= $4,580
       Pell grant                  $400                   $1,875                      0
Subsidized Stafford loan          2,625                    2,625                 $2,625
  Unsubsidized Stafford
          loan                      701                    4,000                      0
       GI benefit                 4,824                        0                      0
       Total aid                 $8,550                   $8,500                 $2,625
      High-income        Income= $34,108         Income= $20,973        Income= $85,431
                            EFC= $2,862              EFC= $3,998           EFC= $14,671
       Pell grant                  $400                        0                      0
Subsidized Stafford loan          2,625                   $2,625                      0
  Unsubsidized Stafford
          loan                      627                    4,000                      0
       GI benefit                 4,824                        0                      0
       Total aid                 $8,476                   $6,625

Note: Average cost of attendance for a resident student at a public 4-year
institution is $11,338. We used a stratified representative sample of all
students who applied for and were awarded federal financial aid in academic
year 1999-2000 to calculate Pell grant and loan amounts. EFC is a weighted
average of the EFC across students with different family characteristics
within each student classification-veteran (always classified as
independent), nonveteran independent, and nonveteran dependent. Pell grant
and loan amounts are calculated using federal statutory rules for awarding
aid.

aParents of dependent students have several credit options for financing
their child's education, including home equity, private loans, and federal
PLUS loans. The maximum amount that a parent may borrow through a PLUS loan
is equal to the student's cost of attendance minus all other assistance.
Among dependent students who attended public 4-year institutions in academic
year 1999-2000, about 6 percent received PLUS loans.

bAmong students attending public 4-year institutions, the Department of
Education determined the 25th percentile, 50th percentile, and 75th
percentile of family income in each student classification, which we defined
as low-income, middle-income, and high-income, respectively.

cGI benefit amount is based on academic year 1999-2000 rates of $536 per
month for veterans attending school full-time for an academic year of 9
months.

Source: U.S. Department of Education.

Appendix I: Estimated Federal Title IV Aid Awarded to Students

Table  5: Estimated  Aid  Awarded to  First-Year Students  Attending Private
4-year Institutions  Full-time in  Academic Year 1999-2000,  by Income Level
and Veteran Status

                                            Nonveteran independent  Nonveteran dependent
                           Veteran student                 student             studenta
       bLow-income          Income= $6,795          Income= $3,297      Income= $21,082
                                     EFC=0                  EFC= 0              EFC=440
        Pell grant                  $3,125                  $3,125               $2,675
 Subsidized Stafford loan            2,625                   2,625                2,625
Unsubsidized Stafford loan           4,000                   4,000                    0
       GI benefitc                   4,824                       0                    0
        Total aid                  $14,574                  $9,750               $5,300
      Middle-income        Income =$24,248         Income= $15,699      Income= $52,608
                               EFC= $1,311             EFC= $2,154          EFC= $5,595
        Pell grant                  $1,775                    $975                    0
 Subsidized Stafford loan            2,625                   2,625               $2,625
Unsubsidized Stafford loan           4,000                   4,000                    0
        GI benefit                   4,824                       0                    0
        Total aid                  $13,224                  $7,600               $2,625
       High-income         Income= $54,000         Income= $39,649      Income= $97,058
                               EFC= $7,843             EFC= $7,518         EFC= $17,866
        Pell grant                       0                       0                    0
 Subsidized Stafford loan           $2,625                  $2,625               $2,625
Unsubsidized Stafford loan           4,000                   4,000                    0
        GI benefit                   4,824                       0                    0
        Total aid                  $11,449                  $6,625               $2,625

Note: Average cost of attendance for a resident student at private 4-year
institutions is $24,946. We used a stratified representative sample of all
students who applied for and were awarded federal financial aid in academic
year 1999-2000 to calculate Pell grant and loan amounts. EFC is a weighted
average of the EFC across students with different family characteristics
within each student classification-veteran (always classified as
independent), nonveteran independent, and nonveteran dependent. Pell grant
and loan amounts are calculated using federal statutory rules for awarding
aid.

aParents of dependent students have several credit options for financing
their child's education, including home equity, private loans, and federal
PLUS loans. The maximum amount that a parent may borrow through a PLUS loan
is equal to the student's cost of attendance minus all other assistance.
Among dependent students who attended private 4-year institutions in
academic year 1999-2000, about 11 percent received PLUS loans.

bAmong students attending private 4-year institutions, the Department of
Education determined the 25th percentile, 50th percentile, and 75th
percentile of family income in each student classification, which we defined
as low-income, middle-income, and high-income, respectively.

cGI benefit amount is based on academic year 1999-2000 rates of $536 per
month for veterans attending school full-time for an academic year of 9
months.

Source: U.S. Department of Education.

Appendix II: Comments from the Department of Veterans Affairs

Appendix II: Comments from the Department of Veterans Affairs

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