Student Financial Aid: Monitoring Aid Greater Than Federally	 
Defined Need Could Help Address Student Loan Indebtedness	 
(30-APR-03, GAO-03-508).					 
                                                                 
Over half of the $80.4 billion in financial aid provided to	 
college students in the 2000-01 school year came from the federal
government in the form of grants and loans provided under Title  
IV of the Higher Education Act (HEA). To help finance their	 
education, students and families may have received other funds	 
from states, private groups or lenders, and/or the schools	 
themselves. We initiated this study to, among other things,	 
determine how often federal financial aid recipients received aid
that was greater than their federally defined need and what cost 
or other implications might result from changing HEA to limit	 
such aid.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-508 					        
    ACCNO:   A06764						        
  TITLE:     Student Financial Aid: Monitoring Aid Greater Than       
Federally Defined Need Could Help Address Student Loan		 
Indebtedness							 
     DATE:   04/30/2003 
  SUBJECT:   Educational grants 				 
	     Student financial aid				 
	     Student loans					 
	     Aid for education					 
	     Pell Grant 					 
	     Supplemental Educational Opportunity		 
	     Grant						 
                                                                 
	     Department of Education Stafford Student		 
	     Loan Program					 
                                                                 
	     Department of Education PLUS Loan			 
	     Program						 
                                                                 
	     Department of Education Perkins Student		 
	     Loan Program					 
                                                                 

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GAO-03-508

a

GAO United States General Accounting Office

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

We found that in school year 1999- 2000, of the 3.4 million full- time/
full- year federal aid recipients, 22 percent (732, 000) received a total
of $2. 96 billion in financial aid that was greater than their federally
defined financial need. Of these, 628,000 received an estimated $2. 72
billion in such aid by obtaining non- need- based loans* which we identify
as substitutable loans* that families borrow to meet their expected family
contribution (i. e., what the federal government determines the family can
afford to pay for college). Title IV allows for students and families to
obtain these non- need- based loans to meet their expected family
contribution. Another 104,000 federal aid recipients received an estimated
$238 million in such aid as a result of receiving a combination of aid
from federal and nonfederal sources.

Proportion of Federal Aid Recipients Receiving Aid Greater Than Federally
Defined Need in Relation to All Federal Aid Recipients, Full- time/ Full-
year Undergraduates, 1999- 2000 Changing the HEA to limit the receipt of
aid that is greater than students*

federally defined financial need is not likely to achieve significant
federal savings, although, the use of substitutable loans may increase
overall student indebtedness. In terms of cost implications, limiting
those instances where federal aid recipients receive substitutable loans*
which is the main reason why students received aid greater than their
federally defined need* will not likely result in significant savings.
While the government will not have to pay default claims or special
allowance payments on loans it guarantees, it would forego any interest
earnings on loans it makes directly. Any savings from limiting these loans
would be substantially less than the total amount of the loans made* the
$2. 72 billion. However, the widespread use of substitutable loans may
increase the average debt of borrowers and may affect Education*s ability
to help students and their families maintain their loan debt at manageable
levels.

STUDENT FINANCIAL AID

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

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 508. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Cornelia M. Ashby at (202) 512- 8403 or ashbyc@ gao.
gov. Highlights of GAO- 03- 508, a report to the

Honorable Rod Paige, Secretary of Education

April 2003

Over half of the $80.4 billion in financial aid provided to college
students in the 2000- 01 school year came from the federal government in
the form of grants and loans

provided under Title IV of the Higher Education Act (HEA). To help finance
their education, students and families may have received other funds from
states, private groups or lenders, and/ or the schools themselves.

We initiated this study to, among other things, determine how often
federal financial aid recipients received aid that was greater than their
federally defined need and what cost or other implications

might result from changing HEA to limit such aid.

To ensure that substitutable loans will not lead to unmanageable student
loan indebtedness, we

recommend that the Secretary of Education monitor the impact of
substitutable loans on student loan debt burden and, if debt burden
associated with substitutable loans

rises substantially, develop alternatives to help students manage student
loan debt burden. In commenting on a draft of this

report, Education noted that while student indebtedness is of concern,
loans to parents should be excluded from our analysis. We modified the
report to more clearly detail when nonstudents were responsible for the
loans.

Page i GAO- 03- 508 Student Financial Aid 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 Contents

Page ii 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, Fulltime/ 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 This is a work of the U. S. Government and is
not subject to copyright protection in the

United States. It may be reproduced and distributed in its entirety
without further permission from GAO. It may contain copyrighted graphics,
images or other materials. Permission from the copyright holder may be
necessary should you wish to reproduce copyrighted materials separately
from GAO*s product.

Page 1 GAO- 03- 508 Student Financial Aid

April 30, 2003 The Honorable Rod Paige Secretary of Education Dear Mr.
Secretary: In the 2000- 01 school year, $80.4 billion in financial aid 1
was provided to college students to help them finance their postsecondary
education. Depending on their financial situation, students and their
families had a range of options for paying for a college education,
including funding from the federal government, state governments, private
entities such as religious organizations, and schools themselves. While
students and their families had multiple options for paying for college,
during the 2000- 01

school year, over half of the financial aid awarded came from the federal
government, in the form of grants to low- income students and loans to
students and their families, under Title IV of the Higher Education Act of
1965. 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 nonneed- 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.

United States General Accounting Office Washington, DC 20548

Page 2 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
fulltime/ 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 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 fulltime/ 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. Results in Brief

Page 3 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 4 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

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
Background

Page 5 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 6 GAO- 03- 508 Student Financial Aid

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

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. Amount of total aid in constant
dollars (in millions)

0 5,000

10,000 15,000

20,000 25,000

30,000 35,000

40,000 45,000

91- 92 92- 93

93- 94 94- 95

95- 96 96- 97

97- 98 98- 99

99- 00 00- 01

01- 02 School year

Federal loans Nonfederal grants

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

Federal grants

Page 7 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
nonneed- 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
fulltime/ full- year federal aid recipients (22 percent) received $2.96
billion in financial aid greater than their federally defined financial
need, either because they or their parents received substitutable loans or
because they received nonfederal financial aid, such as scholarships, in
addition to federal aid. Figure 2 shows how the number of aid recipients
receiving aid greater than their federally defined need compares to the
total number of financial aid recipients. Figure 3 shows how the amount of
aid greater than federally defined need compares to total aid received. An
Estimated 22

Percent of Federal Aid Recipients Received Aid above Their Federally
Defined Need

Page 8 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 9 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 10 GAO- 03- 508 Student Financial Aid

Of all federal aid recipients, about 19 percent (628,000) received total
financial aid that was greater than their federally defined need solely as
a result of receiving substitutable loans. We estimate this to be $2.72
billion with an average amount of about $4,300. These students received
aid that was greater than their federally defined need because, under the
Higher

Education Act, students and their families can borrow substitutable loans*
unsubsidized Stafford and PLUS loans* to offset the amount of their
expected family contribution (provided they do not exceed the annual and
cumulative borrowing limits established for these programs). The way that
schools package student financial aid could contribute to

students receiving substitutable loans that increase their aid beyond
their federally defined need. For example, of the 12 schools that provided
information on their aid packaging practices, 7 automatically package
substitutable loans for students that are greater than their federally
defined need while 5 require that a student or family who wishes to obtain
such a loan apply for it. 5 Another 3 percent of federal aid recipients
(104,000) received aid that was greater than their federally defined need
as a result of receiving nonfederal

aid in addition to their federal aid. We estimate this to be a total of
$238 million with an average of about $2,300. This group of students
continued to have aid greater than their federally defined need even after
any

substitutable loans they received were accounted for. Further, there was
no pattern among these students in terms of the sources from which they
received their financial aid, except that the majority received
unsubsidized Stafford loans. (See table 1.) In addition, there was no
pattern in terms of the types of schools they attended. 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. Most Cases of Aid Greater

Than Federally Defined Need Can be Attributed to Substitutable Loans

Some Cases of Aid Greater Than Federally Defined Need are Due to
Combinations of Federal and Nonfederal Aid

Page 11 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

Aid category Source of financial aid Percent of the 104,000

students who received aid from this source

Pell grants 17 % Supplemental Educational Opportunity grants (SEOG) 6
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) benefits 4
Vocational Rehabilitation and Job Training Partnership Act assistance 7
Federal aid

Other federal aid 3 State need- based grants 30 State merit grants or
scholarships 8 State loans 3 State nonneed, nonmerit grants a Other state
aid 1 State aid

State work study 5 College or university athletic scholarships or grants 5
College or university merit grants or scholarships 38 College or
university need- based grants 36 College or university nonneed, non- merit
grants 6 College or university loans 10 College or university work study
29 College or

university aid Other college or university aid a Private source grants or
scholarships 32 Private loans 13 Tuition waivers for students whose
parents are college or university employees 4 Private aid

Employer assistance 3 Source: GAO analysis of 1999- 2000 NPSAS data. a
Less than 1 percent of students received this form of aid.

Page 12 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
nonTitle 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 13 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
than their federally defined need, the 732,000 who did were more likely to
have higher family incomes, be dependent, or attend public universities.
They are also more likely to have higher grade point averages or attend
schools in the Southwest or Plains states. Among those variables that
proved statistically significant, table 2 shows selected student and
school characteristics that were associated with receiving aid greater
than federally defined need. Appendix II more fully describes all of the
variables used in our analysis and more completely discusses their levels
of statistical significance. These patterns generally held regardless of

whether the aid greater than federally defined need could be attributed to
substitutable loans or a combination of federal and nonfederal aid. The
one exception we found was that students who received aid greater than

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

Greater Than Their Federally Defined Need Are More Likely to Have Higher
Family

Incomes, Be Dependent, and Attend Public Universities

Page 14 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

Characteristics Likelihood of receiving aid greater than 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 states Almost twice as likely as
students attending

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 15 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

Characteristic of aid package Likelihood of receiving aid greater than
federally defined need

Number of different aid sources in student*s package Increased by about a
third for every additional source in the student*s aid package Majority of
aid is from federal non- needbased loans to students Almost 5 times as
likely as students receiving the majority of their aid from federal grants
Majority of aid is from federal work study and PLUS loans to parents Six
times as likely as students receiving the

majority of their aid from federal grants Majority of aid is from
nonfederal grants, scholarships and work study (also veterans and DOD
benefits and vocational rehabilitation assistance)

Just over 6 times as likely as students receiving the majority of their
aid from federal grants

Majority of aid from nonfederal loan sources Nearly 8 times as likely as
students receiving 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
greater than students* federally defined financial need is not likely to
achieve significant federal savings. However, the use of substitutable
loans could increase overall student indebtedness. Any cost savings from
changing the Higher Education Act to limit the receipt of aid that is
greater than students* federally defined financial need would likely be
very modest, much less than the dollar amount of such aid* the $2.96
billion. In the case of the larger group of students and their families
whose aid greater than federally defined need is attributable to
substitutable loans, the actual cost to the government is not the face
value of the loans. For guaranteed loans, the government incurs costs*
primarily insurance claims payments to lenders for defaulted loans and
special allowance payments made to lenders to ensure a guaranteed return
on the loans they make. For direct loans, interest from loan repayments
offsets costs the

government incurs for defaults and interest payments to the treasury on
funds Education borrows to make loans. These interest earnings produce
savings for the government. Determining the net cost of federal
substitutable loans would require comparing savings generated by direct
Savings from Limiting

Aid Greater Than Federally Defined Need Would Likely Be Modest, but

Substitutable Loans to Students Could Affect Their Indebtedness

Page 16 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 17 GAO- 03- 508 Student Financial Aid

While students and their families have a range of options for paying for
college, the money students borrow could influence their later debt
burden. Given Education*s performance indicator of maintaining borrower
indebtedness at less than 10 percent of income in the first year of
repayment, this relationship should be of interest to the agency.
Education may find it more difficult to meet this standard if indebtedness
continues

to grow through the use of substitutable loans. Such information might
prove useful to help inform federal policymakers on how best to minimize
student indebtedness.

To ensure that the use of substitutable loans will not lead to
unmanageable student loan indebtedness, we recommend that the Secretary of
Education, over time, monitor the impact of substitutable loans on student
debt burden and, if debt burden associated with substitutable loans rises
substantially, develop and propose alternatives for the administration or
Congress to consider to help students manage student loan debt burden.
Such alternatives could range from shifting students into repayment plans
that would lower their debt burden to limiting the use or amount of
substitutable loans. In written comments on a draft of this report,
Education agreed that

student indebtedness is of concern, however, Education disagreed with what
we included in our analysis. Specifically, we included PLUS loans to a
student*s family* usually to the parents* as part of our analysis.
Education stated that by including these loans we were mischaracterizing
student debt and that loans to families should be excluded from our
analysis. Education also stated that we should distinguish between
students and their families as the recipients of federal financial aid. We
modified the report to more clearly detail when non- students were
responsible for the loans. However, based on the 1999- 2000 NPSAS data,
1.3 million federal aid recipients received unsubsidized Stafford loans
while 323,000 federal aid recipients received PLUS loans, indicating to us
that far more substitutable loans are likely to be made to students.
Education also had technical comments, which were incorporated when
appropriate. See appendix III for a printed copy of Education*s comments.
We are sending copies of this report to the Chairmen and Ranking

Members of the Senate Committee on Health, Education, Labor and Pensions
and the House Committee on Education and the Workforce; and the Director
of the Office of Management and Budget. We will also make copies available
to others on request. This report is also available at no charge on GAO*s
Web site at http:// www. gao. gov. Conclusions Recommendation

Agency Comments

Page 18 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

Appendix I: Objectives, Scope, and Methodology

Page 19 GAO- 03- 508 Student Financial Aid

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
Appendix I: Objectives, Scope, and Methodology

Appendix I: Objectives, Scope, and Methodology

Page 20 GAO- 03- 508 Student Financial Aid

greater than federally defined need. We chose logistic models due to the
dichotomous nature of the phenomenon of interest* whether or not students
received aid greater than their federally defined need. We did not perform
a similar analysis on the first group because, since it was such a large
portion of the students receiving aid greater than their federally defined
need and since the aid that was greater than need could be attributed
entirely to receiving substitutable loans, it was not likely the results
would show this group to be different in any other ways.

The variables that we used are listed and defined in appendix II. In
general, we included student characteristics such as race, marital status,
and dependency status. We included such school characteristics as
graduation rate, geographical location, and whether or not a school was
public. We also included some characteristics of the aid packages the
students received. To report the results of the regressions, we use odds
ratio tables. (See app. II.) Some variables proved not to have a
statistically significant association with receiving aid greater than
federally defined need. For all of the students receiving aid greater than
their federally

defined need, these included whether the student was white, the graduation
rate of the school, and if the majority of a student*s aid package was
composed from federal need- based loans. For the second group, whether the
student was a veteran, was a U. S. citizen, and whether the majority of
aid was received from federal need- based loans or nonfederal loans were
statistically insignificant. In analyzing the results for the second group
of students, we sought to

determine if a large proportion of these students had characteristics in
common, such as receiving aid from specific programs or attending schools
with a certain common characteristic (e. g., public versus private,
regional location). We did not undertake any further analysis to identify
how these students received aid that was greater than their federally
defined need. This would have entailed individually analyzing each of the
over 400 cases and obtaining additional information directly from the
school. This analysis would have been beyond the scope of our review.

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

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. Appendix II: Logistic
Regressions

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

Table 4: Odds Ratios for All Students Receiving Aid Greater Than Federally
Defined Need Independent variables and effects Odds ratio 95% lower

limit 95% upper 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

Aid package variables a For the remaining variables, the reference group
is *Majority from Federal Grants.* b Federal need- based loans to

students 1.72 .73 4. 07 Federal non- need- based loans to students 4.77
1.97 11.54 Federal work study and PLUS loans to parents 6.02 2.41 15.03
Nonfederal grants, scholarships, and work study (includes Veterans/ DOD
benefits and Vocational Rehabilitation assistance)

6.12 2.57 14.53 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:

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

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. Student Characteristics School Characteristics

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

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

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

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

Independent variables and effects Odds ratio Lower 95% limit Upper 95%

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 components

1.21 1.09 1.34

Aid package variables a The variables below indicate whether or not the
majority of a student*s aid came from the

particular source described by the variable. The reference group is
*Majority from Federal Grants.*

Federal need- based loans to students 1.79 0.78 4.10 Federal non- need-
based loans to students 6.61 3.00 14.6 Federal work study and PLUS loans
to parents 3.00 1.16 7.79 Nonfederal grants, scholarships and work study
(includes Veterans/ DOD benefits and Vocational Rehabilitation assistance)

19.92 10.14 39.15 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:

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). Student
Characteristics

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

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).

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. School
Characteristics

Aid Packages

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

Appendix II: Logistic Regressions Page 29 GAO- 03- 508 Student Financial
Aid

Table 6. Means of Variables Independent variables Means for all federal
student

aid recipients Means for those who receive aid greater than federally

defined need Means for those who receive aid greater than federally

defined need after accounting 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 widowed
0.036 0.016 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 grants 0.170 0.0005
0.002 Majority of aid from federal need- based loans to students 0.182
0.110 0.038 Majority of aid from federal nonneed- based loans to students
0.123 0.168 0.122 Majority of aid from federal work study and PLUS loans
to parents

0.055 0.129 0.028 Majority of aid from nonfederal grants, scholarships,
and work study (includes Veterans/ DOD benefits and Vocational

Rehabilitation assistance) 0.188 0.200 0.565

Majority of aid from nonfederal loans 0.019 0.059 0.022 Number of Aid
components 3.225 3.841 4.082 Source: GAO analysis of 1999- 2000 NPSAS
Data.

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

Appendix III: Comments from the Department of Education

Appendix III: Comments from the Department of Education Page 31 GAO- 03-
508 Student Financial Aid

Appendix IV: GAO Contact and Staff Acknowledgments

Page 32 GAO- 03- 508 Student Financial Aid

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

Acknowledgments Contact Acknowledgments

(130107)

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