Fin. aid act confuses officials

The federal government this summer enacted a five-year reauthorization of the Higher Education Act to govern the way federal student aid programs operate and set the qualifications students must fulfill before receiving financial aid. The Act establishes guidelines for student financial aid procedures, but is still not completely understood by college administrators. Among a number of changes, the Act raises the aid cap on Pell Grants and requires students to fill out an additional form to receive federal aid. But the most radical change in the five-year reauthorization is the creation of a pilot program which will eliminate the need for third-party lenders. In the past, students who received Guaranteed Student Loans dealt with three separate groups: the university they attended, the government or guarantor and an outside lending agency such as a bank. That system will continue under the new act, but the 1992 Higher Education reauthorization has created a pilot program of 300 schools which will eliminate the lending agency. For those institutions, which will be selected by the Department of Education, the government will borrow and fund federally-guaranteed student loans. Under the test system, universities will still determine the financial need of students based on pre-existing federally-determined guidelines. But, instead of receiving money through a bank to give the students, universities will get money directly from the federal government, said Jean Frohlicher of the National Council of Higher Education Loan Programs. Frohlich, who is president of the NCHELP, said that the new funding procedures seek to solve two problems: to make the loan program appear cheaper and to simplify the process. Currently, federally-funded student aid programs are recorded as part of the budget and therefore add to the national debt. But under the pilot programs, the government would be able to borrow money from lending institutions without recording the transactions as part of the deficit. Supporters of the pilot program said they hope it will simplify the processing procedure by removing an entire party -- the lending institution -- from the system. But Frohlicher said yesterday that she believes the pilot program will merely serve to complicate the work for universities, who would handle loan applications. "I think that it will be a lot of additional work for schools to ensure that everything is done correctly," Frohlicher said. Director of Student Financial Aid William Schilling said yesterday that colleges can volunteer or be drafted into the pilot program by the Department of Education. "Congress has mandated that there be a sample, a cross-section including large schools, small schools, private schools," Schilling said. The selection of schools and the specific regulations relating to the pilot program will be released this April, Schilling said. At the end of the five-year term of the Act, the pilot program will be evaluated by Congress, Frohlicher said. But five years may not be long enough to evaluate the effectiveness of the program, Schilling said. Although students are generally in college for four years, there is an additional repayment period of six years. Therefore, it would take a 10-year-long pilot program to truly test the system, he said. Frohlicher said that at the end of the first five years, Congress may decide to extend the length of the program. The pilot program, set to begin during the 1994-5 academic year, has a $500 million funding limit. Moreover, the Higher Education Act has added to the paperwork students must complete. The Financial Aid Form, which some students may still be required to complete, is handled by the College Scholarship Service, a multi-data entry firm. The form is processed by CSS, which then sends the information to schools indicated by the student. But, in an effort to eliminate the cost of applying for federal aid programs, Congress created a separate form which asks aid applicants for the same information, but which has no fee. University students who apply for aid will still be required to complete the FAF form, Schilling said. Finally, Congress altered the funding for Pell Grants, a type of aid which is based on student financial need. In the past, a $2,100 cap was placed on the aid, but some in Congress sought to change the Pell system into an entitlement program, Frohlicher said. An entitlement program is one which fully funds recipients regardless of the amount of money it will cost the government. After President Bush threatened to veto the bill and congressmen threatened to oppose the measure, the plan to create a new Pell entitlement program was scrapped. The Pell Grant has been re-instituted in its previous form. In a concessionary move, the aid limit was raised from $2,100 to $2,700 in yearly aid per student, Frohlicher said. But the $2,700 cap is illusory, Frohlicher and Schilling said. Even at the $2,100, Congress has failed to appropriate enough funds to allow students to receive that funding. And despite the higher cap, Congress has appropriated even less funds this year, so that the largest grant any one student would receive would be $1,300. The complexity of the new law has led the Department of Education to release a 128-page "Dear Colleague" letter, to be released later this winter, spelling out its interpretation of grey areas in the new law.

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