The Effects of the 1992 Higher Education Amendments:
Evidence from Pell Program Data and a Survey of Pell Grant Recipients

Introduction

During the 1992 reauthorization of the Higher Education Act (HEA), a number of changes were made in the need analysis formulas that determine the expected family contribution (EFC) used in awarding Title IV Federal student aid. The higher the EFC, the lower a student's Pell Grant award and eligibility for other need based Federal student financial assistance.

The changes in the EFC calculation included merging the previously separate need analysis formulas for the Pell Grant and other Title IV student aid programs into a single formula, altering the definition of an independent student making it more difficult to qualify as an independent, lowering the family size offset for independent students without dependents, eliminating home equity from the need analysis formula, and raising the income limit for filing the simplified needs form from $15,000 to $50,000.

Prior to implementation of the HEA amendments, it was possible to simulate the effect of these need analysis rule changes on students' EFCs. What could not be ascertained until after the law was actually implemented, however, was what changes would occur in students' actual EFCs. The change in actual EFCs would depend not only on the effect of the changes made in the need analysis formulas by the 1992 HEA Amendments but also changes in students' financial and personal circumstances from one year to the next. We analyzed changes in EFC caused by the HEA and other factors using a merged sample of applicants who applied for Title IV aid before (1992-93) and after (1993-94) the HEA amendments took effect.

The results of this analysis revealed that:

• The change in the need analysis rules affected the majority of student aid applicants with more students losing (EFC increases) than gaining eligibility (EFC decreases). Seventy-two percent of students applying in both 1992-93 and 1993-94 experienced a change in their EFC due to the change in the need analysis rules. Forty percent faced higher EFCs and 32 percent lower EFCs.

• The major factor affecting changes in students EFCs from 1992-93 to 1993-94 was the change in the need analysis rules and not changes in students' circumstances. Among both year applicants, the median change in EFC attributable to the rules effect was much larger than the other effect caused by changes in students' personal and financial circumstances. However, the other effect did tend to ameliorate the effect of the rules change, decreasing EFCs for students whose EFCs increased due to the rules change and increasing EFCs for students whose EFCs decreased due to the rules change.

Additional analysis of the effect of the need analysis changes by dependency status revealed that:

• The group of students most adversely affected by the change in the need analysis rules were independent students without dependents. Among independent applicants without dependents with zero EFCs in 1992-93 (60 percent of the group), over one-half had an increase in EFC caused by the rules change with an average increase in EFC of $1,300. However, almost all independents with dependents and three-fourths of dependents remained at zero EFC.

• For the neediest dependent applicants and independent applicants with dependents, changes in their personal circumstances did significantly offset the effect of the rules changes. Dependent applicants with zero EFCs in 1992-93 who were affected by the rules change had approximately one-half their increase in EFC offset by other changes. Independent applicants with dependents with zero EFCs in 1992-93 who were affected by the rules change had approximately two- thirds of their increase in EFC offset by other changes. Contrary to other applicants, however, other changes exacerbated the rules effect for independent applicants without dependents with zero EFCs in 1992-93 who were affected by the rules change.

Also not ascertainable until after implementation of the new law was the effect of changes in EFC on educational decisions made by students concerning the continuance of their education. Given the methodology used, we could not evaluate whether potential first-time applicants in 1993-94 changed their behavior as a result of the changes in the HEA. We analyzed the behavioral responses of students to the need analysis changes using the merged applicant file and a survey of 1992-93 Pell Grant recipients conducted in 1995 and found that:

• In general, students' probability of reapplying for aid was not related to the rules changes. Models including the rules effect did not predict reapplication behavior better than models without the rules effect variable included. Among students whose first choice of school was a four-year institution, a large increase in EFC due to the rules effect (over $500) resulted in a significant decrease in the probability of a student reapplying controlling for the other explanatory variables in the model. However, while significant, the effect was not very large--the probability of reapplication decreased by only 1 percent if the applicant experienced an increase in their EFC of more than $500.

• Based on a survey of Pell Grant recipients, we were unable to show that the changes in the need analysis rules had much, if any, affect on students' educational behavior such as re-enrollment and school choice. Analysis of questions regarding students' re-enrollment, school choice, degree aspirations, financial aid receipt, and employment did not reveal any statistically significant difference between students whose EFC increased by more than $500 due to the rules change and other students. The one exception was in terms of enrollment status where only 3 percent of students whose EFC increased, increased their intensity of enrollment, while 10 percent of other students did so.

  One possible explanation for the lack of a significant relationship between EFC increases and changes in students' educational behavior is that postsecondary institutions may have adjusted their financial aid packages to compensate for the Federal need analysis changes. Unfortunately, it was beyond the scope of this study to collect the institutional financial aid data that would be needed to adequately test this hypothesis.

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