Summary: Campus-Based Programs Funding Formula Changes for the 2000-2001 Award Year.
SUBJECT: Campus-Based Programs Funding Formula Changes for the 2000-2001 Award Year.
REFERENCE: Higher Education Amendments of 1998 to the Higher Education Act of 1965
Dear Financial Aid Administrator:
The Higher Education Amendments of 1998 (the 1998 Amendments) made several changes to the funding formulas that are used to calculate awards made to institutions that participate in the Campus-Based Programs. This letter details those changes and explains how your institutions Federal Perkins Loan, Federal Work-Study (FWS), and Federal Supplemental Educational Opportunity Grant (FSEOG) Program funding allocations for award year 2000-2001 will be calculated. In addition, this letter requests that you verify the enclosed new 2000-2001 guarantee for each of the Campus-Based Programs for your institution.
Elimination of the Pro Rata Share
Prior to passage of the 1998 Amendments, we distributed 25 percent of the funds that remained after meeting the base guarantees to participating institutions on a pro rata share basis and 75 percent on a fair share basis. An individual institutions pro rata share of the remaining funds reflected the ratio of the institutions base guarantee to the national total of base guarantees. The 1998 Amendments eliminated the pro rata calculation and, effective with the 2000-2001 award year, all funds remaining after base guarantees have been funded will be distributed on a fair share basis. The fair share distributions will be based on an institutions need compared to the total of all institutions needs. This change will apply to each of the Campus-Based Programs.
Federal Perkins Cohort Default Rate Penalty
For the Federal Perkins Loan Program, the 1998 Amendments eliminated the series of graduated penalties that reduced an institutions Federal Capital Contribution (FCC) if its cohort default rate met certain levels in favor of one penalty factor of zero if an institutions cohort default rate equals or exceeds 25 percent. Thus, institutions with a cohort default rate that equals or exceeds 25 percent as of June 30, 1999, will receive no FCC for the 2000-2001 award year, while institutions with a cohort default rate below 25 percent will not be penalized.
Conditional and Base Guarantees
The amendments also changed the conditional and base guarantee amounts that will be used for 2000-2001 and future award year calculations. Our implementation of the new conditional and base guarantees is based on the premise that a school should not have a reduced 2000-2001 base guarantee because it had requested less than it could have received, based on the schools full potential 1999-2000 base or conditional guarantee and pro rata share.
For the FSEOG program, the law states that the amount of the new base guarantee an institution receives is the amount of the base guarantee and the pro rata share that the school received in the 1999-2000 award year. For the vast majority of institutions, the new FSEOG 2000-2001 base guarantee will be equal to the base guarantee (line 6) plus initial pro rata share (line 12) from your 1999-2000 final funding worksheets. If your base guarantee and/or initial pro rata share on the worksheet was limited by your request amount, we recalculated these figures before a request limitation was applied. Thus, your new base guarantee will be higher than the base guarantee plus initial pro rata amounts shown on your 1999-2000 final funding worksheets.
For the FWS program, the law states that the amount of the new base guarantee an institution receives is the amount of the base guarantee, the pro rata share, and, if applicable, the additional FWS funds issued from the $17 million set aside (see CB letter 99-5) that the institution received in the 1999-2000 award year. For the vast majority of schools, the new FWS 2000-2001 base guarantee will be equal to the base guarantee (line 6) plus initial pro rata share (line 12) from your 1999-2000 final funding worksheets. If your base guarantee and/or initial pro rata share on the worksheet was limited by your request amount, we recalculated these figures before a request limitation was applied. Thus, your new base guarantee will be higher than the base guarantee plus initial pro rata amounts showing on your 1999-2000 final funding worksheets. Also, if your school received any of the additional $17 million set aside for the 1999-2000 award year, we included those funds in your new base guarantee.
Federal Perkins Loan Program
For the Federal Perkins Loan Program, the law states that the amount of the new base guarantee an institution receives is the amount of the base guarantee and the pro rata share the institution received in the 1999-2000 award year, multiplied by the institutions default penalty for the appropriate award year. The new Federal Perkins Loan Program 2000-2001 conditional guarantee for each participating institution will be equal to the institutions conditional guarantee (line 6) multiplied by the institutions cohort default penalty factor (line 8) from your 1999-2000 Perkins Loan institutional final funding worksheet, multiplied by a reduction factor. No funding was available to provide pro rata share increases for the 1999-2000 award year. The reduction factor reflects the total funding authorized and appropriated by Congress for the 1999-2000 Federal Perkins Loan Program awards. The reduction factor is equal to $100,000,000 divided by the sum of all the new 2000-2001 Perkins Loan conditional guarantees before the reduction factor is applied. The reduction factor applied was equal to 60.77%.
If the conditional guarantee that appears on your Perkins Loan worksheet is zero because you did not request any 1999-2000 Perkins Loan funds or your award was limited by the request amount, we calculated your 2000-2001 conditional guarantees based on the value that would appear as a conditional guarantee before a request limitation was applied. We reduced all new Perkins Loan 2000-2001 conditional guarantees so that the sum of all these conditional guarantees would equal the 1999-2000 Perkins Loan appropriation of $100,000,000. Thus, any future year appropriations larger than $100,000,000 will most likely result in fair share distributions of Perkins Loan funds depending on the number of new schools requesting Perkins Loan funds.
Enclosed is a listing of your new 2000-2001 base guarantees for FWS and FSEOG and your conditional guarantee for Perkins. Schools that have merged or became free-standing after the 1999-2000 final worksheets were calculated or will merge or become free-standing before the 2000-2001 awards are calculated have special enclosures showing the derivation of your new 2000-2001 base and conditional guarantees.
Please verify the enclosed new 2000-2001 guarantees calculated for your institution. Questions regarding your new 2000-2001 guarantees should be referred to Rich Bennett at 202-260-6074 by December 1, 1999.
Michele L. Selvage, Director
Institutional Financial Management Division
Accounting and Financial Management Service