The U.S. Government Accountability Office (GAO) recently released a report on the Department of Education's "Update of the State and Other Tax Allowance for Student Aid Award Year 2005-2006" (GAO-05-408R). The report shows in which ways the update will decrease the availability of aid to large numbers of students.
In a March 22 letter, the GAO responded to a request from Rep. David Obey (D-Wisc.), ranking minority member of the House Committee on Appropriations. Obey requested that the agency update certain analyses included in a January 2005 report on the state and other tax allowance.
The annual state and other tax allowance tables--which are based on IRS information and required by Congress--list specific percentage values, or rates, that are used to exclude a portion of students' and families' incomes in determining their estimated family contribution (EFC).
Despite the requirement for a yearly update to those tables, ED had not updated them since 1993. That changed last winter, however, when the Department of Education on December 23, 2004 published updated tax tables, over the objections of many higher education advocates.
The new rules, which take effect in Fall 2005, are in violation of the Higher Education Act's "Master Calendar" statutory provisions. Experts believe a likely result of the update will be tens of thousands of Pell Grant recipients losing their awards entirely and more than a million Pell recipients having reduced eligibility.
In his request, Obey asked GAO to determine how ED's update will affect, with respect to the 2005-2006 award year:
- the state and other tax allowance, by state and dependency status;
- the average EFC, by state;
- eligibility for Pell Grants, by state, household income, and dependency status;
- the amount of the average Pell Grant award, by state, household income, and dependency status; and
- aggregate Pell Grant expenditures and overall student eligibility for Pell Grants.
In providing the updated information for this update, GAO replicated the methodology used in the January 2005 report, and came up with nine tables outlining the state-by-state data concerning the allowances published in 1993, proposed in 2003, and eventually published in 2004.
The updated analyses found that the 2004 update to the state and other tax allowance will:
- increase EFCs by about $440 on average for those with an increase, with EFC changes being larger for students from states with larger changes in their allowance.
- likely result in a decrease in Pell Grants for about 35% of students, and an additional 81,000 applicants (1.5%) will no longer be eligible for the grant; taken together, the average reduction amongst those with a decrease in their amount will be about $130.
- decrease overall Pell Grant expenditures by about $250 million.
- affect Stafford and PLUS loan award amounts. The GAO analysis shows that, as EFCs increase, those with income above $25,000 are most likely to have their subsidized Stafford loan awards affected.
However, "the overall impacts on EFC, Pell Grants, and loans will be slightly less when compared to what would have occurred under the proposed update of 2003," that was never implemented, GAO projects.
By Elizabeth B. Guerard
NASFAA Assistant Director for Communications
Posted April 25, 2005 on www.NASFAA.org, the Web Site of the
National Association of Student Financial Aid Administrators (NASFAA).
Copyright 2005. Redistribution to non-NASFAA institutions is prohibited
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