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REPORT NO. 11785STATE OF FLORIDAOFFICE OF THE AUDITOR GENERALPERFORMANCE AUDITOF THECOMMUNITY COLLEGEFINANCIAL AID PROGRAMADMINISTERED BY THEDEPARTMENT OF EDUCATIONJANUARY 13, 1992
Requests for copies of this report shouldbe addressed to:Office of the Auditor GeneralPost Office Box 1735Tallahassee, Florida 32302Please request by report name and number.Permission is granted to reproduce this report.
STATE OF FLORIDAOFFICE OF THE AUDITOR GENERALCHARLES L . LESTER. C .P.A.AUDITOR GENERALTELEPHONE:904/488-5534January 13, 1992S/C 278-5534The President of the Senate, the Speaker of theHouse of Representatives, and theLegislative Auditing CommitteeI have directed that a performance audit be made of the CommunityCollege Financial Aid Program administered by the Department of Education. Theresults of the audit are presented to you in this report. This audit was made inresponse to a request by the Joint Legislative Auditing Committee.Respectfully yours,Charles L. LesterAuditor GeneralAudit supervised by:Julie A. FerrisAudit made by:John P. Ellis111 WEST MADISON STREET POST OFFICE BOX 1735 TALLAHASSEE. FLORIDA32302
PERFORMANCE AUDITOF THECOMMUNITY COLLEGE FINANCIAL AID PROGRAMADMINISTERED BY THEDEPARTMENT OF EDUCATIONTable of ContentsChapterI.Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1Introduction: Purpose and Scope, Methodology . . . . . . . . . . . . . . .1Purpose and Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2II.Background: Program Design and Organization . . . . . . . . . . . . . . .5Program Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Program Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Program Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10III.Findings and Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . 11Section 1Grant Aid and Loans for Needy StudentsQuestion 1.1How do community colleges use the Financial Aid Fee to meetthe financial needs of (1) Pell Grant students and (2) Pell Grantstudents with academic merit? . . . . . . . . . . . . . . . . . . . . . . . 13Question 1. 2What effect do current community college Financial Aid Feepolicies and practices have on the distribution of grants andloans to community college students with demonstrated financialneed, such as Pell Grant recipients? . . . . . . . . . . . . . . . . . . . 21
Table of ContentsChapterQuestion 1. 3What effect do current state Financial Aid Fee policies, asestablished in statute, have on the distribution of grants andloans for community college students with demonstratedfinancial need, such as Pell Grant recipients? . . . . . . . . . . . . . 29Section 2Recommendations. . . . . . . . . . . . . . . . . . 35Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37A. Literature Reviewed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38B. Response From the Community College System . . . . . . . . . . . . 40
EXECUTIVE SUMMARYAudit Report No. 11785COMMUNI1Y COllEGEFINANCIAL AID PROGRAMThis audit reviews community colleges' use ofFinancial Aid Fee funds in meeting the needs of studentswith demonstrated financial needs.This audit wasrequested by the Joint Legislative Auditing Committee.This audit focuses on answering the followingquestions regarding the Community College Financial AidProgram: How do community colleges use the Financial AidFee to meet the financial needs of (1) Pell Grantstudents and (2) Pell Grant students with academicmerit? What effect do current community college FinancialAid Fee policies and practices have on thedistribution of grants and loans to communitycollege students with demonstrated financial need,such as Pell Grant recipients? What effect do current state Financial Aid Feepolicies, as established in statute, have on thedistribution of grants and loans to communitycollege students with demonstrated financial need,such as Pell Grant recipients?Similar issues for universities will be address in aseparate audit.-1-
EXECUTIVE SUMMARYFinancial Aid FeeTo help provide financial aid to postsecondarystudents, the Legislature established the Financial Aid Fee,which is partially used to assist community college studentswith financial need. Section 240.35(7)(a), F.S., authorizescommunity colleges to collect, for financial aid purposes,an additional amount up to, but not to exceed, 5 % of thetotal student tuition or matriculation fees collected. Of thefees collected, community colleges upon theirdetermination, may use up to 25% or 125,000, whicheveris greater, to assist students who demonstrate academicmerit or who participate in athletics, public service,cultural arts, and other curricular programs. Of thebalance of Financial Aid Fees collected, 50% shall be usedto provide financial aid to students on the basis of absoluteneed. Community colleges are authorized to use theremainder of the funds for academic merit and otherpurposes approved by the district board of trustees.Section 240.35(7)(c), F .S., requires the State Boardof Community Colleges to develop criteria for makingfinancial aid awards from the Financial Aid Fee. Section240.35(7)(c), F.S., requires community colleges to reportannually to the Florida Department of Education on thecriteria used to make awards, the amount and number ofawards for each criterion, and a delineation of thedistribution of such awards. Additionally, s. 240.418,F. S. , requires institutions to expend Financial Aid Feefunds, designated as need-based, with no preference givento students who also qualify for merit-based or otherfinancial aid awards.-ii-
EXECUTIVE SUMMARYPell Grant StudentsTo specifically address how community colleges useFinancial Aid Fees to assist needy students, we selectedPell Grant recipients as our population of needy students. 1The Pell Grant is a federal need-based grant that isconsidered the first source of financial aid for needystudents. Pell Grant awards are limited by law to no morethat 60% of the student's cost of education. Thus, the PellGrant by itself is insufficient to meet a students financialneed. The remaining 40% of a students cost of educationcan be met through other grants, loans, or employment.We selected Pell Grant recipients as our needy populationbecause they are determined financially needy by the U.S.Department of Education using a standardired needsanalysis methodology that is consistent across allinstitutions. Also, we defined Pell Grant students with a3.00 or higher grade point average as our population ofneedy students with academic merit.In 1989-90, community colleges awarded a total of 5,945,999 in Financial Aid Fees. For that same academicyear, community colleges reported to the FloridaDepartment of Education that they awarded 49.5 millionin total grant aid including Financial Aid Fee funds and 16.2 million in student loans to community collegestudents.The State Community College System of Floridaconsists of the State Board of Community Colleges, theDivision of Community Colleges, and the 28 communitycolleges located throughout the State of Florida. The Statecommunity colleges consist of all public educationalinstitutions operated by community college district boardsof trustees which report directly to the Division of1 In this audit, Pell Grant students and Pell Grant recipients are used interchangeably and refer to those lludenta who received thePell Grant award.-m-
EXECUTIVE SUMMARYCommunity Colleges within the Florida Department ofEducation. The State Board of Community Colleges servesas the director of the Division of Community Colleges, andshall be subject at all times to the overall supervision of theState Board of Education. As of January 1991, 28community colleges had been established to serve thecitizens of Florida by offering the first two years of abaccalaureate degree, vocational education, and adultcontinuing education. In 1989-90, community collegescollected and transferred 2 a total of 6,100,084 inFinancial Aid Fee funds.Community colleges are generally complying withthe provisions of s. 240.35(7), F.S.; in distributing aportion of their Financial Aid Fees to students withfinancial need. In awarding needy Pell Grant students,community colleges are also in compliance withs. 240.418, F.S., as they do not appear to give preferenceto meritorious over non-meritorious students.In the absence of a systemwide Financial Aid Feepolicy, community college Financial Aid Fee practices arelargely driven by the minimum distribution requirementsestablished in statute. We found that community collegesdistribute Financial Aid Fee funds in a manner that satisfiesminimum statutory distribution requirements. In so doing,they may have had some impact on the level of needystudent loan indebtedness, since the receipt of any amountof grant aid influences the additional amount of money the2 Tranafen arc funda taken from the current general fund and tranaferred to the acholanhip fund per1.240.3S(7)(a), P.S . Thecurrent general fund is uaed to account for thoae rcaource which may be uaed IO accomplilh the primary and 111pportln, objective o( the coll 11 .The acholanhip fund i1 uaed to account for rc10Urcc1 available for award, to atudenta, 1uch as for grant, and acholanhip1.-iv-
EXECUTIVE SUMMARYstudents needs to fulfill the cost of education. However, ifcommunity college policies and practices regarding thedistribution of Financial Aid Fee funds were intended toprimarily serve needy students, then this objective has notbeen met, since additional monies could have been directedto the needy.The more grant aid distributed to needy students,the less loan assistance will be needed to help finance theireducational cost. Current state policies established in theFlorida Statutes influence the distribution of grants andloans to needy students in two ways.First, thosecommunity colleges collecting 125,000 or less are notrequired to make awards to financially needy students.Secondly, the statutes do not indicate an acceptable level ofloan indebtedness for needy students. Without state policyguidance on what the distribution of grants and loansshould be, or what is an acceptable level of loanindebtedness for needy students, the community collegesare not able to assess whether more or less grant fundsshould be directed to students with financial need. Statepolicy is especially important considering that changesproposed by the U.S. Department of Education to the PellGrant Program could cause increased loan indebtedness forsome needy community college students.Some Financial AidFee Awards Were onthe Basis ofFinancial NeedIn distributing Financial Aid Fee funds to Pell Grantstudents and Pell Grant students with academic merit, wefound that community college are generally complying withthe statutory requirements for awarding a portion of theirFinancial Aid Fee funds on the basis of financial need.F.ach community college is allowed by statute to award thefirst 125,000 of Financial Aid Fee funds to students who-v-
EXECUTIVE SUMMARYdemonstrate academic merit or participate in athletics,public service, or cultural arts, before awarding any portionof their Financial Aid Fee funds to students with financialneed. We found that a majority (16 of 27) of thecommunity colleges that collect Financial Aid Fees collectless than 200,000 annually. Because community collegesare allowed to distribute the first 125,000 of Financial AidFee collections on a non-need basis, we found thatcommunity colleges distribute a smaller portion ofFinancial Aid Fee funds to Pell Grant students than tonon-Pell Grant students. The statutes direct communitycolleges to devote no less than 50 % of amounts received inexcess of 125,000 to needy students.Therefore,community colleges are authoriz.ed to devote a largerportion of funds to needy students than the statutoryminimum. Finally, we found that for Pell Grant students,community colleges are in compliance with s. 240.418,F.S., which requires that need based financial aid shall bebased upon need and without regard to any otherqualification a student may have.Community CollegesDo Not HaveSystemwide FinancialAid Fee PoliciesThe State Board of Community Colleges has notestablished systemwide Financial Aid Fee policies. In theabsence of such policy, we analyz.ed community colleges'expenditure of Financial Aid Fee funds to determine theeffects of Financial Aid Fee practices on the distribution ofgrants and loans to needy students. We found that absenta systemwide policy, community college Financial Aid Feepractices are largely driven by the minimum distributionrequirements established in statute. As a result, threefactors influence the distribution of grants and loans toneedy students. First, in compliance with the statutes, notall community colleges award Financial Aid Fee funds toneedy students. Secondly, because of the provisions ofs. 240.35(7), F.S., and the level of fees collected,community colleges devote more Financial Aid Fee funds-VI-
EXECUTIVE SUMMARYto non-need-based aid than need-based aid. In 1989-90,community colleges devoted approximately 3.5 million tostudents on the basis of athletics, public service, culturalarts, merit, or other activities. For the same year,community colleges awarded approximately 2.5 million onthe basis of need. Thirdly, several community collegesaward lower amounts, per student, to Pell Grant studentsthan non-Pell Grant students.State Policies for theDistribution ofFinancial Aid FeesNot ClearState Financial Aid Fee policies established instatute have not prevented Pell Grant students fromreceiving a larger percentage of loans than non-Pell Grantstudents. Current state policies influence this distributionof grants and loans to students in two ways. First, not allcommunity colleges are required to award Financial AidFee funds to needy students. Secondly, the Florida Statutesdo not indicate an acceptable level of loan indebtedness forneedy students.Federal policies also influence thedistribution of grants and loan for community collegestudents. The U.S. Department of Education has proposedchanges to the Pell Grant Program that could causeincreased loan indebtedness for some needy communitycollege students. State policy guidance concerning the useof Financial Aid Fee funds is especially importantconsidering these proposed changes to the Pell GrantProgram.Recommendationsto the LegislatureAccording to s. 240.437(2), F.S., state policyprovides that financial aid should be provided primarily onthe basis of financial need. Because of the provisions ofs. 240.435(7), F.S., and the level of fees collected, wefound that community colleges award the majority of-vii-
EXECUTIVE SUMMARYFinancial Aid Fee funds to non-needy students. If theLegislature wishes to ensure that financial aid is providedprimarily on the basis of need, it may want to considerrevising the Florida Statutes to change the distribution ofFinancial Aid Fee funds among needy and non-needystudents. A shift of Financial Aid Fee funds could resultin decreased loan indebtedness for needy students as moreof their financial need is filled with grant aid rather thanloans. However, increasing the amount of Financial AidFee funds awarded to needy students could also increaseloan indebtedness for non-needy students. If communitycolleges devote a larger percentage of Financial Aid Feefunds to needy students, without increasing the overall levelof Financial Aid Fee funds, institutions will have to awardproportionately less money to non-needy students. With adecrease in grant aid to theses non-needy students, loanindebtedness for this population may rise.The Legislature should provide policy guidance tothe Division of Community Colleges regarding anacceptable level of loan indebtedness for needy students.Recommendationsto the DepartmentIn consultation with the Legislature, the Division ofCommunity Colleges should develop systemwide policiesregarding the Financial Aid Fee and its use in maintainingan acceptable level of loan indebtedness for needy students.The Executive Director of the Community CollegeSystem of the Florida State Board of Community Collegesdisagreed with our recommendations to the Legislatureregarding student loan indebtedness. He did not concurthat Financial Aid Fees should be used to maintain a-vm-
EXECUTIVE SUMMARYdefined level of loan indebtedness. He also indicated thatthe Community College System supported the creation ofthe Financial Aid Fee, because a need existed for a sourceof funds that would allow them to make awards in areasthat have been identified as important to their overallmission and their community.-ix-
CHAPrERIIntroduction: Purpose and Scope, MethodologyPurpose and ScopeThe Auditor General conducts audits as part of the Legislature's oversightresponsibility for public programs. The primary objective of performance audits is to provideinformation the Legislature can use to improve programs and allocate limited public resources.This audit was requested by the Joint Legislative Auditing Committee. This auditfocuses on answering the following questions regarding the Community College Financial AidProgram: How do community colleges use the Financial Aid Fee to meet thefinancial needs of (1) Pell Grants students and (2) Pell Grant students withacademic merit? What effect do current community college Financial Aid Fee policies andpractices have on the distribution of grants and loans to communitycollege students with demonstrated financial need, such as Pell Grantrecipients? What effect do current state Financial Aid Fee policies, as established instatute, have on the distribution of grants and loans to community collegestudents with demonstrated financial need, such as Pell Grant recipients?To answer these questions we defined our population of needy students as thosereceiving Pell Grants. The Pell Grant is a federal need-based grant that is considered the first- 1-
source of financial aid for needy students. We selected Pell Grant recipients as our needypopulation because: Pell Grant students have been determined financially needy by theU.S. Department of Education using a standardized needs analysismethodology that is consistent across all institutions; Pell Grant students can attend any chosen institution without losingeligibility. Therefore, Pell Grant student's eligibility is not dependent onthe school attended; Community colleges in our sample maintain identifiable and accessibledata on Pell Grant students in their financial aid data base; All institutions must regularly verify a portion of Pell Grant studentfinancial data to the federal government. This required verification helpsto ensure the validity of the data; and The determination of financial need for programs other than the Pell GrantProgram can vary by institution since financial aid administrators arepermitted to make adjustments to students' level of financial need basedon their own analysis.The minimum grade point average needed to qualify for State merit-basedfinancial aid programs varies depending on the particular scholarship or grant program.Therefore, we defined students with a Pell Grant and a 3.00 or higher grade point average asneedy students with academic merit. We selected this standard based on s. 240.35(7)(c), F.S. ,which stipulates that a Financial Aid Fee award for academic merit shall require a minimumoverall grade point average of 3.00 on a 4.00 scale.MethodologyThis audit was made in accordance with generally accepted government auditingstandards and accordingly included appropriate performance auditing and evaluation methods.Audit fieldwork was conducted from February through July 1991.-2-
To determine how community colleges use Financial Aid Fee (F AF) funds to meetthe financial needs of Pell Grant students and Pell Grant students with academic merit, weanalyzed reports on the collection and expenditure of F AF funds submitted by communitycolleges to the Florida Department of Education (FDOE). When aggregate data was availablefrom FDOE, we examined reports on all 28 community colleges. When aggregate data was notavailable, we used information from selected community colleges. We selected 14 communitycolleges for review of data tapes containing detailed student financial aid data for the Fallsemester of 1990. To verify the accuracy of these data tapes, we matched a random sample ofstudent financial aid files with the information contained on the data tapes.Through theverification process, we found that one of the institutions selected for review, Daytona BeachCommunity College, did not update the information in its student financial aid files when awardamounts changed. Because we were unable to verify the accuracy of Daytona Beach's data tapeinformation with student financial aid files, we did not include it in our data analysis, reducingthe sample size to 13 community colleges. To assess the reliability of the student financial aiddata analyzed, we screened for data errors and conducted normality distribution tests to identifyabnormalities in the data. Additionally, we interviewed the financial aid directors of the selectedinstitutions to determine how the F AF funds were used to meet the financial needs of studentsat their institution.To determine what effect current community college F AF policies and practiceshave on the distribution of grants and loans to community college students with demonstratedfinancial need, such as Pell Grant recipients, we interviewed Division of Community Collegestaff to determine what polices and procedures they have established regarding the F AF and itsuse.We also analyzed financial aid data from the community colleges in our sample todetermine how community colleges use FAF funds and loans to assist community collegestudents with financial need.To determine what effect state F AF policies, as established in statute, have on thedistribution of grants and loans to community college students with demonstrated financial need,such as Pell Grant recipients, we reviewed relevant sections of the Florida Statutes and the-3-
Florida Administrative Code. We also analyzed aggregate loan data to determine the currentlevel of loan indebtedness among community college students and to identify trends in thedistribution of loans for Pell Grant and non-Pell Grant students. We also conducted a surveyof 139 randomly selected needy students to determine their views on the distribution of grantsand loans to needy students.-4-
CHAPrERIIBackground: Program Design and OrganbationProgram DesignStudent financial aid comes in three basic forms: grants, loans, and employment.Grant aid requires students to meet eligibility requirements, but does not require repayment.Loans, on the other hand, must be repaid following college along with interest and, in somecases, loan processing fees as well.Employment includes working at federal, state, andinstitutional programs while enrolled in college for the purpose of financing college attendancecosts.School financial aid administrators are responsible for using available resourcesto give each student the best possible financial aid package. Financial aid packaging is theprocess of finding the best combination of aid that meets the students' financial need, given theconstraints of available funds. In this audit we focused on the use of the Financial Aid Fee(FAF) in meeting the financial need of needy students.To help provide financial aid to postsecondary students, the Legislature establishedthe FAF, which is partially used to assist community college students with financial need.Section 240.35(7)(a), F.S., authorizes community colleges to collect for financial aid purposesan additional amount up to, but not to exceed, 5 % of the total student tuition or matriculationfees collected. Of the fees collected, community colleges upon their determination, may use upto 25% or 125,000, whichever is greater, to assist students who demonstrate academic meritor who participate in athletics, public service, cultural arts, and other curricular programs. Ofthe balance of the fees collected, 50% shall be used to provide financial aid to students on thebasis of absolute need. Community colleges are authorized to use the remainder of the fundsfor academic merit and other financial aid purposes approved by the district board of trustees.-5-
The Florida Statutes further establish requirements that the State Board ofCommunity Colleges and individual community colleges must meet in the administration of F AFfunds. Section 240.35(7)(c), F.S., requires the State Board of Community Colleges to developcriteria for making financial aid awards from the FAF. Section 240.35(7)(c), F.S., requirescommunity colleges to report annually to the Florida Department of Education on the criteriaused to make awards, the amount and number of awards for each criterion, and a delineationof the distribution of such awards.Additionally, s. 240.418, F.S., requires institutions toexpend FAF funds, designated as need-based, with no preference given to students who alsoqualify for merit-based or other financial aid awards.In 1989-90, community colleges awarded a total of 5,945,999 in Financial AidFees. For that same academic year, community colleges reported to the Florida Department ofEducation that they awarded 49.5 million in total grant aid including Financial Aid Fee fundsand 16.2 million in student loans to community college students.Program OrganizationThe State Community College System of Florida consists of the State Board ofCommunity Colleges, the Division of Community Colleges, and the 28 community collegeslocated throughout the State of Florida. (See Exhibit 1, page 7.) In the state organizationalstructure, the State community colleges consist of all public educational institutions operated bycommunity college district boards of trustees which report directly to the Division of CommunityColleges within the Department of Education. The State Board of Community Colleges servesas the director of the Division of Community Colleges, and shall be subject at all times to theoverall supervision of the State Board of Education. The State Board of Community Collegesappointed Mr. Clark Maxwell, Jr., to serve as Executive Director of the State CommunityCollege System on March 12, 1984.-6-
Exhibit 1The 28 Community Colleges Within theState Community College Systemorth Florida Lake Qty Santa Fe Central Florida Lake Sumter p South Florida The 13 community colleges included in our sample. The remajning 15 community colleges.Palm Beach"Fl da ;on KeysSource: Developed by the Office of the Auditor General based on Florida Department of Education documents.-7-
The State Board of Education approves all rules and policies adopted by the StateBoard of Community Colleges, and exercises overall supervision over the State Board ofCommunity Colleges. The State Board of Education is the chief policy-making and coordinatingbody of public education in Florida, and consistS of the Governor and the Cabinet.TheGovernor is chairman of the board, and the Commissioner of Education is its secretary andexecutive officer.The State Board of Community Colleges was established in 1983 when it replacedthe State Community College Coordinating Board. The State Board of Community Colleges iscomprised of the Commissioner of Education, one student, and eleven lay citizens appointed bythe Governor. It exercises responsibility for statewide leadership in overseeing and coordinatingthe individually governed public community colleges. The Board strives to continue the localautonomy in the governance and operation of individual community colleges, while at the sametime establishing systemwide policies and coordination.Community colleges are operated by local district boards of trustees.As ofJanuary 1991, 28 community colleges had been established to serve the citizens of Florida byoffering the first two years of a baccalaureate degree, vocational education, and adult continuingeducation. The organization of the State Community College System is shown in Exhibit 2,page 9.-8-
Exhibit 2Chairman: GovernorSecretary: Commissioner of EducationMembers: Secretary of StateAttorney GeneralComptrollerTreasurerCommissioner of AgricultureLocal District Boards of Trustees(for each of the following 28 communily colleges)Brevard Community CollegeBroward Community CollegeCentral Florida Community CollegeChipola Junior CollegeDaytona Beach Community CollegeEdison Community CollegeFlorida Community College at JacksonvilleFlorida Keys Community CollegeGulf Coast Community CollegeHillsborough Community CollegeIndian River Community CollegeLake City Community CollegeLake-Sumter Community CollegeManatee Community CollegeMiami-Dade Community CollegeNorth Florida Junior CollegeOkaloosa-Walton Community CollegePalm Beach Community CollegePasco-Hernando Community CollegePensacola Junior CollegePolk Community CollegeSt. Johns River Community CollegeSt. Petersburg Junior CollegeSanta Fe Community CollegeSeminole Community CollegeSouth Florida Community CollegeTallahassee Community CollegeValencia Community CollegeSource: Developed by the Office of the Auditor General based on Department of Education document, and Florida Statute,.-9-
Program ResourcesSection 240.35(7)(a), F.S., authorizes community colleges to collect for financialaid purposes an additional amount up to, but not to exceed, 5 % of the total student tuition ormatriculation fees collected. The district board of trustees for each community college sets thetuition and fees for that institution. Since the tuition and matriculation fees can vary from onecollege to another, the charge per credit hour for the FAF can also vary. Section 240.35(7)(a),F.S., states that a community college that collects less t
a system wide policy, community college Financial Aid Fee practices are largely driven by the minimum distribution requirements established in statute. As a result, three factors influence the distribution of grants and loans to Florida Community College College . students: of .
