Archived Information

Reauthorization of the Higher Education Act


Subpart 3--Federal Supplemental Educational Opportunity Grant Program

Section 413. Section 413 of the bill would amend section 413A(b) of the Act to extend the FSEOG program through 2003 by providing for $619,000,000 for fiscal year 1999, and such sums as may be necessary for each of the four succeeding fiscal years.

Section 414. Section 414 of the bill would amend section 413C(c) of the Act by removing the requirement that institutions selecting students for FSEOG funds follow a specific order based on financial need. This amendment would require instead that an institution award supplemental grants first to those students who receive Pell Grants and meet the eligibility requirements of section 484 of the Act, and then to other eligible students after considering the need of such other students for supplemental grants. The current requirement is burdensome for institutions, and interferes with the ability of the aid officer to handle the needs of students by "packaging" the student's financial aid in the manner most appropriate for the student. This amendment would retain a reasonable requirement that FSEOGs go to the most needy (i.e., Pell Grant recipients), without placing an undue administrative burden on institutions.

Additionally, section 414 of the bill would amend section 413C(d) of the Act to eliminate the requirement that an institution make at least 5 percent of each of its Federal Supplemental Educational Opportunity Grant (FSEOG) funds available to independent and less-than-full-time students if such students account for at least 5 percent of the total financial need of all students attending the institution. This requirement causes an administrative hardship, because institutions must keep track of students to whom they offer aid based on these artificial categories, and carry out additional calculations and reporting on students in these categories. Furthermore, many institutions are far exceeding the 5 percent minimum for these categories of students, not just in offers, but in actual expenditures. This change will remove the administrative burden, while still enabling the Secretary to take action against those few institutions that do not make funds reasonably available to all students, including independent and less-than-full-time students. In its place, section 414(2) of the bill would add a requirement that funds be reasonably available, to the extent of available funds, to all eligible students in the institution in need thereof. This requirement currently applies to the Federal Work Study (FWS) and Federal Perkins Loan programs.

Section 415. Section 415(1) of the bill would amend the institutional allocation formula in section 413D of the Act. Under current law, the annual appropriation for each of the three title IV, HEA "campus-based" programs--the FSEOG, FWS, and Federal Perkins Loan programs--is distributed to institutions according to a two-part statutory formula. The first part, the "base guarantee," considers a school's program expenditures in a previous year. The second step in the current allocation formula, based on institutional need for additional funding, allocates the amount remaining after the base guarantees are fully funded, by providing one­fourth of the remaining amount to institutions on a pro rata basis (the "pro rata increase"), and three­fourths to institutions based on the institution's need (the "fair share increase"). Additional funding under the second step in the allocation formula is generally available if the annual appropriation is sufficient to fund the full amount to which each school is entitled in step one. That is, all institutions are first "held harmless" to prior funding levels. Two statutory formulas--one for FSEOG and a second for FWS and Perkins Loans--measure institutional need (the Perkins Loan formula also currently reflects an institution's default experience). This formula essentially aggregates individual student financial need to institutional levels based on national standards. Aggregate institutional need drives the second part of the institutional allocation process.

Since 1986, an institution's base guarantee has been the principal determinant of its current-year allocation. For most schools, the prior year expenditure is linked to its program participation in the 1970's. Thus, today's allocation of campus-based funds largely reflects a 20-year-old distribution of program funds.

The current allocation formula is inequitable because growing schools cannot increase their funding and other institutions' funding levels are largely protected. Even though approximately one-fourth of the FSEOG appropriations is distributed on the basis of institutional need, most of that funding (95 percent) is accounted for by the institutions that began participating in the program before 1986. Also, due to the base guarantee, schools with declining enrollments have not necessarily experienced a corresponding decline in campus-based funding. Conversely, schools with increasing enrollments, and populations of needy students, have not received a corresponding increase in campus-based funding.

Section 415 of the bill would modify the institutional allocation formula so that increasingly larger shares of program appropriations will be distributed on the basis of measured financial need. By shifting the distribution of program funds toward relative institutional need, the campus-based programs will better meet the needs of financially needy students. However, to avoid disruption that could be caused by dramatic shifts in program funds between institutions, the amendment would ensure that no institution's allocation would be reduced by more than five percent compared to the prior year. Next, sections 415(2) and (3) of the bill would eliminate section 413D(b) of the Act, which provides for the allocation of one fourth of the available funds to institutions on a pro rata basis, make a conforming change, and limit the allocation of excess eligible funds to 2-year and 4-year programs of instruction, for which the institution awards an associate, or baccalaureate degree. The pro rata increase is a needless complication in the formula.

For most institutions, the base year for prior program expenditures would be the second year preceding the academic year for which allocations are being determined. For example, 1999-2000 allocations would be based on 1997-98 program expenditures for those institutions that participated in that year. Base guarantees for institutions that began participating at a later date would be computed similar to current law. Unlike current law, however, an institution's base year would continue to move forward each year, which would "lock in" any annual funding an institution gains for the future and also helps ensure that no school receives less than a specified percentage of its previous year funding.

For the first year that the proposed amendments to the allocation formula would be in effect, the base guarantee percentage would be 100 percent. That is, no school would receive less than 100 percent of their base year program expenditures. Thereafter, the base guarantee percentage would be 95 percent of the preceding year's amount.

Section 415(4) of the bill would amend section 413D(d) of the Act to provide that when the Secretary establishes income categories for aid applicants to determine an institution's need, for purposes of calculating a fair share under the allocation formula, the Secretary would no longer be required to establish an expected family contribution (EFC) for each income category. This change would reduce administrative burden on institutions, which must currently add several items on the output documents in order to comply with this requirement, even though the official EFC is already indicated on these documents. These changes would provide flexibility so that the Secretary can continue to collect income information that is not available elsewhere and derive the EFCs needed for the allocation formula.

Section 415(5) of the bill would amend section 413D(e) of the Act to combine all returned funds from all of the Federal campus-based programs, and reallocate them according to the current reallocation rules in the FWS program. Institutions would only receive reallocated funds if they have spent at least ten percent of their FWS allocation on community service. Additonally, they must spend all of the reallocated funds for community service. Section 462(j) of the Act would retain the current allocation reduction provisions for an institution returning more than 10 percent of its allocation. This amendment would simplify the reallocation process for institutions, and for the Department, and would put more funding into the community service component of the FWS program. The effect on the FSEOG and Perkins Loan programs, however, would not be significant, in that nearly seventy-five percent of returned funds are already in the FWS Program funds. A similar change is proposed to the Perkins Loan Program in section 462 of the bill.

Section 416. Section 416 of the bill would amend section 413 of the Act to allow an institution to carry back to the previous award year, or carry forward to the upcoming award year, up to ten percent of its FSEOG allocation. This flexibility, already available in the FWS Program, would give institutions the flexibility to handle minor shortfalls, or surpluses in the FSEOG program funds. Further, it would eliminate the need for an institution to "spend" FSEOG funds at the last minute, and would prevent institutions from having to cancel FSEOG awards, or to cover FSEOG committments with their own funds, when they were slightly off on their award projections.

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Last updated: April 3, 2002 by [pss] Up Arrow Return to HEA Bill Language page