Addressing Disparities in Campus-Based Aid
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Introduction
Campus-based aid programs are an important source of financial aid for many low- and middle-income students. The two campus-based aid programs, Federal Work-Study (FWS) and the Supplemental Educational Opportunity Grant (SEOG), collectively allocate approximately $2 billion annually to colleges and universities, providing aid to more than 2.2 million students (as of 2021-22). FWS offers part-time employment opportunities for eligible students, while SEOG provides grants to students with exceptional financial need to supplement other forms of financial aid. There is evidence that these programs, especially FWS, can boost student outcomes. Studies suggest that FWS recipients have higher rates of completion than their peers, with the strongest effect for low-income recipients and students at public institutions.
This explainer describes the methodology for distributing campus-based aid, highlights disparities in its allocation, and discusses proposed solutions for more equitable distribution of funding.
Distribution of Funds
Unlike most federal financial aid, which is distributed to students based on a fixed calculation of financial need and college costs, FWS and SEOG funds are allocated to institutions, which then determine how much aid is awarded to each eligible student. The availability of FWS and SEOG funds for students therefore depends on the amount of aid allocated to the institution they attend. While policymakers have modified the methodology for allocating campus-based aid funds on several occasions since their creation in the mid-1960s, the current allocation formulas are little changed since 1986.
There are two primary factors in campus-based aid funding formulas:
- Historical Funding Levels: Institutions receive a substantial portion of their funding based on previous years’ amounts. This base guarantee ensures institutions receive at least as much funding as they did in prior years—currently based on allocations from Fiscal Year 1999—regardless of changes in student enrollment or financial need. Although policymakers originally conceived of the base guarantee as a provision that would phase out, it continues to determine the core of institutional allocations.
- Fair Share Calculation: After the base guarantee is determined, remaining FWS and SEOG funds are allocated through a fair share formula. The formulas for FWS and SEOG differ, but both allocate funding based on each institution’s share of total national financial need as determined by evaluating the institution’s average cost of attendance and the average expected family contribution (EFC) for students attending the institution. The Education Department uses income bands that were last updated in 1994 to estimate students’ EFC, a measure of how much a student and their family can afford to pay for college.
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Sources: Federal Student Aid Office of the U.S. Department of Education, National Center for Education Statistics
Although financial aid aims to enhance access to learning opportunities for students who might otherwise be unable to afford college, current campus-based aid allocations do not target institutions serving the largest number of low-income students. Instead, the base guarantee tends to benefit institutions that have long participated in campus-based aid programs. The use of cost of attendance to determine institutions’ fair share allocations, meanwhile, tends to favor institutions that have higher tuition prices. Newer institutions, those whose enrollments have increased in recent decades, and lower-cost institutions generally receive smaller awards.
The result is that private institutions receive a disproportionate share of campus-based aid dollars. In 2021-22, private, nonprofit four-year institutions enrolled about 18% of all degree/certificate-seeking undergraduate students but received a disproportionately high share of SEOG (32%) and FWS (41%) funds. Conversely, 28% of the degree/certificate-seeking undergraduate student population is enrolled at public two-year institutions, which received just 22% of SEOG and 16% of FWS funds. Public four-year institutions, with 46% of degree/certificate-seeking undergraduate enrollment, also received a disproportionately low share of SEOG (35%) and FWS (37%) funding.
Notably, wealthy, private nonprofit institutions tend to receive significantly more FWS and SEOG funding compared to public institutions, even though they enroll a smaller share of low-income students. In a 2015 study, Robert Kelchen found that the 322 most selective private nonprofit institutions received 17% of SEOG and 22% of FWS dollars in 2013-14, while accounting for only 4% of Pell grant funds. More recently, in 2021-22, the 12 Ivy-Plus institutions (the eight Ivies plus Duke University, the Massachusetts Institute of Technology, Stanford University, and the University of Chicago) collectively received more campus-based aid funding than four of the nation’s five largest community college systems. These examples demonstrate that institutions with more affluent student populations and greater capacity to provide students with financial aid often receive more federal campus-based aid dollars than public institutions with more low-income students and fewer resources.
Source: Federal Student Aid Office of the U.S. Department of Education
In addition, the current methodology for allocating campus-based aid often fails to deliver dollars to the students with the greatest financial need. This issue is especially notable for FWS; Robert Kelchen found that three times as many FWS awards in 2011-12 went to students at private nonprofit colleges who did not qualify for Pell grants as went to community college Pell recipients. In 2021-22, the FWS program provided aid to roughly the same number of dependent undergraduates from families making over $100,000 as to dependent undergraduates from families making under $24,000 annually.
Proposed Reforms for Campus-Based Aid Allocations
To address the entrenched disparities within the campus-based aid funding formula, experts have proposed various recommendations towards greater institutional and individual equity and efficacy.
In 2014, the National Association of Student Financial Aid Administrators (NASFAA) called for eliminating the base guarantee, restructuring the SEOG formula based on Pell funding received by institutions, and updating the income bands used to calculate institutions’ share of national financial need. More recently, BPC’s Higher Education Task Force released recommendations to improve the allocation of campus-based aid programs so a larger share of federal resources would be directed to institutions that effectively serve large numbers of low- and moderate-income students. BPC also proposed several specific strategies, including targeting those institutions that effectively serve significant populations of students with demonstrated financial need and limiting FWS allocations to undergraduate students.
Source: Robert Kelchen, “Campus-Based Financial Aid Programs: Trends and Alternative Allocation Strategies,” Educational Policy 31(4): 448-480, 2015. Available at: https://journals.sagepub.com/doi/abs/10.1177/0895904815604213
Robert Kelchen examined the distributional effects of possible reforms to the campus-based aid formula. One includes basing allocations on the number of Pell recipients enrolled at an institution, prioritizing those colleges and universities serving more students with higher levels of financial need. Adopting a formula based on Pell Grant recipients would heavily tilt funds towards public two-year institutions. Kelchen also considered adjustments to the campus-based aid formula using either the fair share formula alone or with tuition cutoffs, such that the cost-of-attendance measure factors in tuition only up to specified thresholds. Currently, institutions with higher costs tend to receive larger fair share allocations. Kelchen considered different tuition cutoff thresholds, using the 25th, 50th, and 75th tuition percentiles for two- and four-year institutions. Due to the fair share formula’s emphasis on cost of attendance, fully adopting this approach without tuition limits would increase fund allocations at private nonprofit institutions. Conversely, employing a fair-share formula with tuition limits would shift funds towards public institutions.
Reforming Campus-Based Aid Allocations
There is longstanding recognition among experts that campus-based aid allocations do not effectively direct dollars to students who could benefit from them the most and provide a disproportionate share of resources to wealthier institutions. Nevertheless, because reforms would benefit different types of institutions to different degrees, it has been challenging to build agreement on how best to update allocation formulas. For example, wealthy and prestigious colleges and universities are likely to oppose adjustments that reduce the funding they receive from campus-based aid programs.
A first step toward building momentum for reform lies in providing current data on disparities in the allocation of campus-based aid and updated estimates on the impact of changes to the allocation formulas. In collaboration with Robert Kelchen, BPC is updating those figures, with which policymakers can recalibrate allocation mechanisms and reevaluate assumptions to move towards a more equitable distribution of aid, ensuring that assistance reaches those students most in need.
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