Witness Testimony of Allison Jones, U.S. Department of Education, Member, Advisory Committee on Student Financial Assistance, and, Assistant Vice Chancellor for Academic Affairs, California State University System
Chairwoman Herseth Sandlin and members of the Subcommittee on Economic Opportunity:
On behalf of the Advisory Committee on Student Financial Assistance (Advisory Committee) Chairperson, Judith Flink, and other committee members, thank you for the opportunity to provide testimony on the Montgomery GI Bill education benefits (MGIB) and Title IV federal financial aid. My name is Allison Jones, and I am testifying as a member of the Advisory Committee. As Assistant Vice Chancellor for Academic Affairs, Student Academic Support for the California State University System, I am also involved in the California Troops to College initiative and an ardent supporter of efforts to increase veterans' access to postsecondary education.
The Advisory Committee was authorized by Congress in the 1986 amendments to the Higher Education Act. For more than twenty years, we have provided independent and objective advice and counsel to Congress and the Secretary of Education on federal student aid policy. Our most important legislative charge is to make recommendations that maintain and improve college access and persistence for low- and moderate-income students. In fulfilling that charge, we have played an active role in keeping federal, state, and institutional student aid policy focused on access and persistence, thereby protecting the best interests of our nation's low- and moderate-income students. Although we have traditionally worked most closely with the House Committee on Education and Labor and the Senate Committee on Health, Education, Labor, and Pensions, we appreciate this opportunity to share our knowledge of financial aid programs with you and your subcommittee in order to assist our nation's veterans.
Your letter requests that testimony be offered in the following three areas:
- the current state of the MGIB for Active Duty and Selected Reserve,
- recommendations to update the MGIB,
- legislative action that might be considered by your Subcommittee in relation to Title IV.
Given the Advisory Committee’s previous work and expertise in federal student aid, my testimony will be limited to your third request: legislative action that might be considered in relation to Title IV. More specifically, I will explain the interaction between the MGIB and Title IV federal student financial aid programs. The question I will be addressing is whether MGIB restricts in any way eligibility for need-based Title IV student aid. I would note that my statements are not directed at whether MGIB education benefits are an adequate reward for the service of our brave men and women.
Students receive financial aid from various sources, including the federal government (i.e., Pell Grant, campus-based aid, federal student loans), state governments, institutions, and private sources. In 2005-06, nearly $135 billion dollars of financial aid from all sources was distributed to students. The federal government represents the largest share of student aid from all sources, approximately 70 percent.
Although there are various sources and types of aid, my testimony will focus on the relationship between the MGIB and need-based Title IV aid, including Pell Grants, loans, and campus-based aid. My testimony is based on four sources: the knowledge and experience of our members; a review of guidelines and regulations published by the Office of Federal Student Aid, U.S. Department of Education; discussions with financial aid administrators across the country; and an analysis of the 2002 Government Accountability Office report on Veterans’ education benefits.
Effect of MGIB on Title IV Student Aid
A student’s eligibility for need-based federal aid depends on his or her ability to contribute to college expenses—the expected family contribution (EFC). To determine EFC, the Department of Education (ED) requires financial aid applicants to submit the Free Application for Federal Student Aid, commonly referred to as the FAFSA. This form requests information on the previous year's income, taxes, and assets (excluding the value of the student's home), and uses the federal need analysis formula to make an assessment of what a student can contribute financially to college expenses. The formula also takes into account whether the student is married or has dependents. The EFC is used to determine two key amounts:
- a student’s Pell Grant award,
- a student’s total need for student aid (cost of attendance minus EFC).
In addition, Title IV prohibits an over award: the sum of EFC and aid from all sources cannot exceed the cost of attendance (COA).
Effect of MGIB on EFC and Pell. For Veterans, the monthly MGIB he or she receives is reported on the FAFSA, but that amount is not used in the calculation of the EFC. That is, the amount of MGIB does not affect how much the student is expected to contribute to college expenses. Consequently, since the EFC is used to determine the student’s Pell Grant award, the amount of MGIB a Veteran receives does not affect the Pell Grant award to which he or she is entitled. Also, since MGIB benefits do not affect the EFC, they do not affect a student’s total need (COA minus EFC).
Effect of MGIB on Student Loans. While the effect of MGIB on Pell Grant and EFC is straightforward, the effect of MGIB on eligibility for loans is complicated and depends on the category of benefit, the type of loan, the year of enrollment, and the student’s EFC.
The Federal Stafford Loan program provides subsidized loans (government pays interest while you are in school) and unsubsidized loans (the student pays all the interest, but payments can be deferred until after college graduation) to students. To receive a subsidized loan, the student must demonstrate financial need. Briefly:
- for Active Duty personnel, MGIB does not affect the amount of subsidized Stafford loan the student is eligible to receive.
- for Selected Reservists, MGIB does limit, and can eliminate, the student's eligibility for subsidized Stafford loans.
- for both Active Duty and Selected Reserve, MGIB benefits do affect unsubsidized Stafford loans.
Effect of MGIB on Other Student Aid. There are three campus-based programs that allocate funds to each college to distribute to eligible students:
- the Federal Supplementary Educational Opportunity Grant (FSEOG),
- the Perkins Loan, and
- Federal Work-Study.
While MGIB benefits do not affect a student’s Pell Grant, EFC, or total need, they can affect awards under campus-based aid programs because of the prohibition against overawards. For example, if a student’s EFC, Pell Grant, and MGIB equal or exceed COA, awards under these other programs can be eliminated. However, an exception is allowed for subsidized Stafford loans, which can offset MGIB. Only in cases where the Veteran’s full need (COA minus EFC) is fully met by Pell Grant, state grants, MGIB, other resources, and subsidized loans can the prohibition against over awards limit campus-based awards. Even in this case, aid administrators can exercise their discretion to disburse campus-based aid up to the amount of subsidized Stafford loans that offset MGIB. Also, the student can borrow an amount equal to EFC in unsubsidized loans, Graduate PLUS loans (if a graduate student), and state-sponsored or private loans.
More research is needed to assess the interaction of MGIB on other sources of aid, including federal tax incentives, the Academic Competitiveness Grant (ACG) and National SMART Grant, and state grant aid.
Potential Legislative Actions
Three potential changes in Title IV might be considered:
- First, Selected Reserve benefits could be treated like Active Duty benefits in the consideration of subsidized Stafford loans. This benefit would improve parity between the two GI Bill programs—for Active Duty and Selected Reserve—and increase access to the subsidized loan program for Reservists.
- Second, the exception that allows for campus-based aid to be distributed up to the amount of subsidized Stafford loans, might be required, rather than discretionary. This benefit would increase Veterans’ access to the campus-based aid programs.
- Third, an exclusion for unsubsidized loans similar to the one for subsidized loans, could be implemented. This benefit would allow Veterans to borrow additional funds to cover educational expenses.
Whether such changes are necessary or desirable—including an assessment of unintended consequences—requires a thorough review by your Committee, relevant education committees in the House of Representatives and Senate, the Department of Veteran’s Affairs, Department of Education, and the financial aid community.
On behalf of Advisory Committee members, thank you again for this opportunity to testify before you today. We look forward to continuing to provide you with technical assistance on the matters discussed today.
 College Board. 2006. Trends in Student Aid 2005-06. Washington, DC.
 General Accounting Office. 2002. Veterans Education Benefits: Comparison of Federal Assistance Awarded to Veteran and Nonveteran Students. Report to the Ranking Member, Committee on Veterans Affairs, U.S. Senate. Washington, DC.
 Students must reapply for student aid by submitting the FAFSA form annually. All veterans are treated as independent students for the purposes of the FAFSA.
 Cost of attendance (COA) includes all tuition, fees, and living expenses. A student’s total need is determined by subtracting COA from EFC.
 The amount of Pell Grant a student is eligible for is equal to the maximum Pell Grant amount, currently $4,310, minus the EFC.
 Eligibility for unsubsidized Stafford loans is determined by subtracting the EFC and all sources of financial aid from the total cost of attendance of the institution of higher education in which the student enrolls.
 Campus-based aid programs are administered by the university. The federal government provides the university with a fixed annual allocation, which is awarded to needy students by financial aid administrators. Because the pool of available funds is fixed, not all eligible students receive aid.
 Unsubsidized and Graduate PLUS loans are provided by the federal government. State-sponsored loans vary according to state; private loans vary according to the lending entity.
 There are different types of tax incentive programs, including the HOPE and Lifetime Learning credits. These credits are non-refundable and the amount of the credits can vary depending on family circumstances and cost of tuition, among other factors. These credits are not legislated by Title IV, but are actually a part of the U.S. Tax Code.