Report: Millions in Federal Campus-Based Aid Go to Less Needy Students Due to Outdated Policies

By Allie Arcese, Director of Communications

By Allie Bidwell, Communications Staff

Most federal financial aid goes directly to the pockets of needy students, but some programs that first filter the money to institutions actually favor established and costly private colleges and universities due to outdated funding formulas, according to a new research paper.

In a paper to be published in Educational Policy, Robert Kelchen, an assistant professor of higher education at Seton Hall University, examines how the nearly $2 billion in annual financial aid from two programs – the Supplemental Educational Opportunity Grant (SEOG) and the Federal Work-Study (FWS) Program – has historically been disproportionately disbursed to benefit high-cost institutions.

Two funding formulas specified in the Higher Education Act (HEA) – a “base guarantee” and a “fair share allowance” – have changed little since the late 1970s, Kelchen writes. The base guarantee formula ensures that institutions receive roughly the same amount of funding as the previous year, which benefits institutions that have participated in the programs for a longer period of time. The fair share allowance divides any remaining funds between institutions based on unmet financial need. That means the institutions that have high sticker prices and high levels of unmet student need benefit the most.

“It also results in students from middle-income families at more expensive institutions receiving more campus-based aid than very low-income students at community colleges,” Kelchen writes.

Although the majority of SEOG funds go to high-need students – as determined by those who also receive Pell Grants – a significant percentage of FWS money goes to students from higher-income families, according to the paper. In fact, at four-year private institutions, fewer than half (47 percent) of FWS recipients were also Pell Grant recipients.

Overall, Kelchen found that the 322 most selective private colleges receive 4 percent of all Pell Grant funds – indicating a smaller low-income student population – but receive 17 percent of all SEOG funds and 22 percent of FWS funds.

While the funding disparity has caused some to call for a change to the funding formulas, it’s a difficult balance to strike, Kelchen writes.

“[U]nless funding for these programs increases significantly, some colleges will have to lose funds for others to gain,” Kelchen writes.

Kelchen gathered more than 20 years of data on FWS and SEOG funding allocations from more than 3,000 postsecondary institutions to study trends in how the funds are distributed, and how changing the funding formulas could impact different institutions.

Under the current allocation formulas, the analytic sample done for the study showed:

  • Community colleges received about one-quarter (26 percent) of the SEOG funds and 20 percent of the FWS funds in 2013-14, despite enrolling about 40 percent of students included in the sample.
  • Private four-year colleges, on the other hand, received 32 percent of SEOG funds and 38 percent of FWS funds, despite serving about 15 percent of students included in the sample.
  • One of the different scenarios Kelchen applies is allocating the funds solely based on the number of students who receive Pell Grants. Under that approach, community colleges were found to receive 45 percent of the total SEOG and FWS funds.
  • Private four-year colleges would receive about 11 percent – a distribution that more closely mirrors the student population.

Another option would give all SEOG and FWS funds based on the existing “fair share” formula, which would result in even more funds being directed toward private and for-profit colleges and universities, due to the reliance on cost of attendance, Kelchen writes. But limiting the cost of attendance measure would shift the allocations more in favor of public institutions.

“The political road to changing campus-based allocation formulas is likely to be a difficult one if past efforts are any indication,” Kelchen writes.

“Even though reallocating campus-based funds will be politically difficult, another push should be made to update the formulas to better reflect actual student need rather than posted tuition and fees,” Kelchen adds. “The next reauthorization of the Higher Education Act, which is due to be reauthorized but will likely extend beyond 2017, is an opportunity for this sort of policy change.”

NASFAA also convened a Campus-Based Aid Allocation Task Force to examine the formulas for distributing SEOG, FWS and Federal Perkins Loan program funds, and in June 2014 released a report with a series of recommendations intended to inform the upcoming reauthorization of the Higher Education Act.

The four recommendations include:

  • Reconstructing the income bands used to determine institutional need for campus-based programs to more accurately report student need.
  • Eliminating the “base guarantee” formula, and implementing a phase-in protection to prevent large swings in allocations from year to year.
  • Basing the SEOG formula on the amount of Pell funding each institution receives, and implementing a phase-in protection.
  • Increasing the percent of self-help assumed in the undergraduate institutional need calculation of the FWS and Perkins Loan formulas to 35 percent, and implementing a phase-in protection.


Publication Date: 8/12/2015

Lisa C | 8/12/2015 9:48:12 AM

Another group of college students that get left out are ones who attend newer colleges. Our college is celebrating our 20th anniversary this year, which means we were founded after the 1970s when the initial formula was created. This academic year we had 350 students receiving Pell Grant but only had enough funding for 10 students to use FWS.

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