Veterans' Education Benefits: Comparison of Federal Assistance Awarded to Veteran and Nonveteran Students
Published: 2002-02-25T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: The Montgomery GI Bill provides a monthly stipend to pay postsecondary education expenses for veterans and eligible service members. Concerns have been raised about whether GI benefits adequately cover educational costs and whether the receipt of GI benefits affects other federal financial assistance available to postsecondary students under Title IV of the Higher Education Act and the Internal Revenue Code. Under Title IV, GI benefits do not affect the amount of aid veterans receive under the Pell grant and subsidized Stafford loan programs but may affect the amount they receive in unsubsidized loans and through campus-based aid programs. Depending on the program, GI benefits may be considered as another source of financial assistance for students, which may decrease a veteran student's financial need and thus the amount of need-based aid provided. With regard to available federal tax incentives, the receipt of GI benefits does not preclude veterans from claiming such benefits but may affect the amount they would be eligible to claim. On average, veterans and nonveterans with comparable characteristics are awarded similar amounts of federal Title IV aid. When GI benefits are included, the total amount of federal assistance is greater for veterans than it is for nonveterans. Moreover, veterans' total aid, including Pell Grants, Stafford loans, and GI benefits has a lower proportion of loans compared with nonveterans' packages. On average, veteran students received slightly lower average campus-based aid awards than did nonveteran dependent students, but they received more than nonveteran independent students at four-year institutions. The actual amount of HOPE and Lifetime Learning tax credits by veteran and nonveteran students is unknown. However, the amount of tuition and fees paid, amount of GI benefits and grant aid received, and family income and taxes owed will affect the amount of tax credit one may claim.

section_title: Letter
paragraphs: The Veterans’ Education Assistance Act of 1984 created the Montgomery  GI Bill—known as GI benefits—(U.S.C. Title 38 Chapter 30), a benefit  program that provides a monthly stipend to pay for postsecondary  education expenses for veterans and eligible service members. Recently,  concerns have been raised about whether GI benefits adequately cover  educational costs and whether the receipt of GI benefits affects the  amount of other federal financial assistance available to postsecondary  students under Title IV of the Higher Education Act (HEA) and the  Internal Revenue Code. Through Title IV, about $46 billion was awarded to  students in the form of grants, loans, and work-study programs in the 1999- 2000 academic year. The primary Title IV programs consist of (1) Pell  grants; (2) subsidized and unsubsidized Stafford loans; and (3)  Supplemental Educational Opportunity grants (SEOG), Perkins loans, and  work study aid funded by the federal government and administered by  participating higher education institutions, commonly known as campus- based aid. Under the Internal Revenue Code, a variety of provisions are  available that are designed to help families pay for college. For example, in  1999, taxpayers claimed an estimated $5.2 billion in HOPE and Lifetime  Learning tax credits, which allow taxpayers to reduce the amount of taxes  owed by receiving a credit for tuition and fees paid.
Given the broad range of federal postsecondary financial aid available to  students, you asked us to (1) determine whether receiving GI benefits  affects veterans’ eligibility for other federal financial aid and (2) compare  the typical amount of federal financial aid awarded to veteran and  nonveteran students based on various student and family characteristics  that affect their eligibility for financial aid, including income and whether  students were dependent or independent of their parents. For our first  objective, we reviewed the HEA of 1965, as amended, and related  regulations to identify the type of federal aid available under Title IV  programs to all students, the methodology used to determine students’  eligibility for this aid, and how GI benefits are treated in federal  methodology. For our second objective, we used data from two U.S.  Department of Education databases for academic year 1999-2000 to  determine the amount of Title IV aid awarded to all students. We asked  Education to estimate the amount of Title IV aid awarded to the following  populations: (1) veteran students; (2) nonveteran independent students;  and (3) nonveteran dependent students who were in their first year of  enrollment on a full-time basis at a public 2-year, public 4-year, and private  4-year institution. Over 90 percent of veteran and nonveteran students are  enrolled in such institutions. For each of these populations, we identified  the 25th, 50th, and 75th family income percentiles and the amount of Pell  grant and Stafford loans awarded to students at these income levels, based  on the average cost of attendance for each type of institution. We also  asked Education to calculate the average campus-based aid award made  to each student population at each type of institution. We did not  independently verify data collected or analyzed by Education, however  this is the only source of data available. We did verify Education’s  calculations of estimated Pell grant and Stafford loan aid awarded. Since  tax forms do not collect information on a taxpayer’s veteran status, there  is no data on the exact amount of HOPE and Lifetime Learning tax credits  claimed by veteran and nonveteran students. Therefore, we calculated the  amount of tax credits for which students or families may be eligible based  on a variety of factors, such as family income and amount of grant aid  received. We did not include data on the amount of financial aid a student  may receive from a state or an institution. We performed our work in  accordance with generally accepted government auditing standards from  July 2001 to January 2002.
subsections: section_title: Background
subsections: section_title: Montgomery GI Bill Education Benefits
paragraphs: The Veterans’ Education Assistance Act of 1984 created the current  Montgomery GI bill program. Under the GI bill program (Title 38 United  States Code Chapter 30), veterans who have met their duty obligation and  were honorably discharged are eligible to receive GI benefits. Active-duty  personnel are also eligible to use GI benefits. In fiscal year 2000,  approximately $923 million was paid to veterans through the GI bill  program. The GI bill program is a contributory program, which requires  service members, upon enlistment, to contribute $100 per month for their  first 12 months of service. Although service members have the option to  decline participation at enlistment, almost all are enrolling in the GI bill  program. In fiscal year 1999, 96 percent of all active-duty eligible enlistees  enrolled in the GI bill program. GI benefits end 10 years from last  discharge, and if veterans do not use their GI benefit within that time  period, the amount is not refunded to them.
Veterans may use GI benefits for a variety of postsecondary education  programs, including an undergraduate or graduate degree; courses that  lead to a certificate or diploma from a business, technical, or vocational  school; correspondence training; on-the-job training or apprenticeships;  and vocational flight training. The monthly benefit amount will vary  depending on the type of coursework in which the veteran enrolls and  whether the student attends part-time or full-time. For veterans who enroll  full-time in an undergraduate degree program in academic year 2001-02,  the monthly GI benefit is $672 per month for a maximum of 36 months—a  total of $6,048 for each of 4 academic years.  The Veterans Education and  Benefits Expansion Act of 2001 (P.L. 107-103) increases the monthly GI  benefit to $800 per month as of January 1, 2002.  Additionally, the law  increases the GI benefit to $900 per month on October 1, 2002 and to $985  per month beginning on October 1, 2003—a total of $8,100 in 2002-03 and  $8,865 in 2003-04.  Most veterans use their GI benefits to pursue an  undergraduate degree.  For example, in fiscal year 2001, 88 percent of GI  bill beneficiaries were pursuing an undergraduate degree. In addition, 62  percent of GI bill beneficiaries were enrolled in school full-time.
section_title: Federal Financial Aid for Postsecondary Education
paragraphs: Title IV of HEA of 1965, as amended in 1998, authorizes the federal  government’s financial aid programs for postsecondary education. Title IV  programs include the following:
Pell grant—grants to undergraduate students who are enrolled in a  degree or certificate program and have financial need.
Subsidized Stafford loan—loans made to students enrolled at least half- time in an eligible program of study and have demonstrated financial need.  The federal government pays the interest costs on the loan while the  student is in school.
Unsubsidized Stafford loan—loans made to students enrolled at least  half-time in an eligible program of study.  Although the terms and  conditions of the loan (e.g., interest rates) are the same as those for  subsidized loans, the federal government does not pay the interest costs  on the loan while the student is in school.  Students are therefore  responsible for all interest costs.
PLUS loans—loans made to parents of dependent undergraduate  students enrolled at least half-time in an eligible program of study.  Borrowers are responsible for paying all interest on the loan.
Campus-based aid—allocated to participating institutions by the U.S.
Department of Education. The institutions then award the following aid to  students:
Supplemental Educational Opportunity Grant (SEOG)—grants  for undergraduate students with financial need. Priority for this aid is  given to Pell grant recipients.
Perkins loans—low-interest (5 percent) loans to undergraduate and  graduate students. Interest does not accrue while the student is  enrolled at least half-time in an eligible program. Priority is given to  students who have exceptional financial need.
Work-study—students are provided on- or off-campus jobs in which  they earn at least the current federal minimum wage. The institution or  off-campus employer pays a portion of their wages.
Education is responsible for administering $46 billion a year through these  programs. As shown in figure 1, most of these funds are subsidized and  unsubsidized Stafford loans.
In addition to the Title IV programs, there are tax provisions that students  and their families may be eligible to use for postsecondary education. The  Taxpayer Relief Act of 1997 (P.L. 105-34) created several provisions to  help families pay for postsecondary education, such as the HOPE tax  credit, Lifetime Learning tax credit, and the student loan interest  deduction. The act also created tax-exempt savings accounts, called  education individual retirement accounts (IRA), to help families save for  college. See table 1 for further detail about the tax provisions created  under the Taxpayer Relief Act. The act also made changes to the tax  treatment of state tuition savings plans, extended the exclusion for  educational assistance provided by employers from students’ taxable  incomes, and exempted IRA distributions for qualified higher education  expenses from early withdrawal penalties.
In 2001, the Economic Growth and Tax Relief Reconciliation Act (P.L. 107- 16) expanded and modified several of the tax provisions previously  mentioned. Most notably, the act created a new tax deduction for tuition  and fees for taxpayers, even those who do not itemize. In 2002 through  2005, taxpayers will have the option of using either the HOPE tax credit or  the tuition deduction. The 2001 act also made changes to the student loan  interest deduction and education IRAs.
section_title: Federal Methodology for Determining Financial Need for Title IV Programs
paragraphs: To obtain financial aid under Title IV programs, students must apply using  the Free Application for Federal Student Aid (FAFSA). Information from  the FAFSA is used to determine the amount of money—called the  expected family contribution (EFC)—that a student, or student’s family, is  expected to contribute to the student’s education. A student is classified as  either financially dependent on his or her parents or independent in the  financial aid process. This classification is important because it affects the  factors used to determine a student’s EFC. For dependent students, the  EFC is based on both the student and parent’s income and assets, as well  as whether the family has other children enrolled in college. For  independent students, the EFC is based on the student’s and, if married,  spouse’s income and assets and whether the student has any dependents  other than a spouse. By law, veteran students are automatically classified  as independent students, and GI benefits are not included as veterans’  income for purposes of calculating EFC.
Once EFC is established, this information is compared to the cost of the  institution at which the student will attend to determine a student’s  financial need. In the federal financial aid process, an institution’s cost of  attendance includes tuition and fees, room and board, books, supplies,  transportation, and miscellaneous personal expenses. The type of  institution that a student attends will affect the cost of attendance.  Typically, public 2-year institutions cost significantly less than public 4- year institutions or private 4-year institutions. For example, on average,  the annual cost to attend a public 2-year college as a commuter student  was $7,024 compared with $11,338 for resident students at public 4-year  institutions and $24,946 for resident students at private 4-year institutions.
If the EFC is equal to or greater than the cost of attendance, then the  student is not considered to have financial need for federal aid programs.  If the EFC is less than cost of attendance, then the student is considered to  have financial need. Financial aid administrators at the school the student  is attending then create a federal financial aid package that could include  grants, loans, and work-study. The basic premise for awarding need-based  aid is that a student’s “total financial aid package must not exceed a  student’s need.” Veterans are an exception to this rule, and in some cases,  those who receive GI benefits may receive a combined federal aid package  of GI benefits and need-based aid, such as Pell grants and subsidized  Stafford loans, that is greater than their financial need. Figure 2 highlights  these key steps in determining a student’s financial need for Title IV  programs.
Most students, whether receiving a GI benefit or not, enroll in a public 2- population and 89 percent of GI bill students enroll in a public institution,  while 19 percent of all students and 11 percent of GI bill students enroll in  a private institution. Due to the fact that small proportions of the general  student population and GI bill students enroll at private 2-year institutions,  we focused our analysis on the other three types of institutions.
section_title: Receiving GI Benefits May Affect Eligibility for Some Federal Financial Aid
paragraphs: Veterans’ eligibility for some federal grants, loans, and tax incentives may  be affected by the receipt of GI benefits. Veterans can apply for federal  Title IV aid; however, receiving GI benefits may affect their eligibility for  some Title IV aid. Pell grant aid is awarded to students based mainly on  income.  The amount awarded to students is the difference between the  maximum Pell grant award for that academic year and the student’s EFC.  GI benefits are not included in the formula used to calculate EFC and  therefore receiving them does not affect veterans’ eligibility for Pell grants.  For all other Title IV aid, EFC and the amount of other financial assistance  students receive is subtracted from the cost of attendance to determine  financial need. Depending on the aid program, GI benefits may or may not  be considered as another source of financial assistance for veteran  students, thus affecting veterans’ eligibility for these programs. By law, GI  benefits are specifically excluded as another source of assistance for  veteran students when awarding subsidized Stafford loans. Since GI  benefits are excluded from the calculations used to award subsidized  Stafford loans, veterans and nonveterans are equally eligible for these  loans. On the other hand, when determining eligibility for unsubsidized  Stafford loans and campus-based aid, GI benefits are considered another  source of assistance. Regulations issued in 1999 allow financial aid  administrators some flexibility to exclude the value of GI benefits in the  calculations for campus-based aid, but only if the GI bill student also  receives a subsidized Stafford loan. If this flexibility is used, veteran  students’ eligibility for campus-based aid may not be affected by receipt of  GI benefits. With regard to various federal tax incentives available for  postsecondary education, receiving GI benefits does not prevent veterans  from claiming such benefits, but may affect the amount they would be  eligible to claim.
section_title: Generally Veteran Students Receive the Same or More Federal Assistance than Nonveteran Students with the Same Characteristics
paragraphs: On average, veterans and nonveterans with similar characteristics are  awarded about the same amount of federal Title IV aid, and when GI  benefits are included, the total amount of federal assistance for  postsecondary education is greater for veterans than nonveterans. When  GI benefits are combined with Pell grant and Stafford loan aid, veterans  receive aid packages that include a lower proportion of loans than  nonveterans.  Veterans receive smaller campus-based aid awards than  nonveteran dependents, but more than nonveteran independent students  at 4-year institutions. Although the actual amount claimed in HOPE and  Lifetime Learning tax credits by veteran and nonveteran students is  unknown, there are several factors that affect the amount a student may  be eligible to claim.
subsections: section_title: Veterans’ Total Aid Packages of Pell Grants, Stafford Loans, and GI Benefits Are Larger Than Nonveterans and Include Smaller Proportions of Loans
paragraphs: At each type of institution, veterans are awarded total federal aid packages  of Pell grant, Stafford loans, and GI benefits that are greater than those  awarded to nonveteran students. When veterans and nonveterans have  similar characteristics, such as family income, they are awarded on  average the same Pell grant and subsidized Stafford loan aid. In contrast,  veterans and nonveterans who have similar characteristics are awarded  different amounts of unsubsidized Stafford loans. This is largely due to the  fact that GI benefits are included in the formula used to award  unsubsidized Stafford loans. The only exception is at private 4-year  institutions where veteran and nonveteran independent students are  awarded the same amount of unsubsidized Stafford loan aid because the  average cost of attendance is much greater at these institutions, thus  making veterans eligible for unsubsidized Stafford loans.
When comparing total federal aid packages of Pell grants, Stafford loans,  and GI benefits, veterans’ aid packages have a lower percentage of loans  and a larger percentage of grant aid than nonveterans’ at each type of  institution. As shown in figure 4, among students who attended public 2- year institutions, veterans received aid packages that were greater than  nonveterans and consisted of primarily grants. Both nonveteran  independent and dependent students at public two-year institutions  typically received federal aid packages that were comprised primarily of  loans.
Among students attending public 4-year institutions, veterans also  received federal aid packages that were larger than nonveterans and most  veterans’ packages had a lower percentage of loan aid than nonveteran  students, as shown in figure 5. Only low-income, nonveteran dependent  students received an aid package with a greater proportion of grant aid  than loan aid. Among middle-income students, nonveteran independents  were awarded almost the same amount of aid as veterans; however,  nonveteran independents’ aid package was 78 percent loans while  veterans’ aid package was 39 percent loans. Middle-income nonveteran  dependents’ federal aid package was comprised entirely of loans.
Among students attending private 4-year institutions, veteran students  were awarded total aid packages that were greater than those awarded to  nonveterans. As shown in figure 6, veterans’ aid packages were more  evenly balanced between grants and loans, with the exception of high- income veteran students whose aid package was comprised of slightly  more loans than grants. In several cases, nonveteran students at private 4- year institutions received aid packages that were entirely loans. See  appendix I for detailed data on estimated federal Title IV aid awarded to  veteran and nonveteran students at each type of institution.
section_title: Amount of Campus-Based Aid Awarded to Veteran and Nonveteran Students Varies by Type of Institution Attended
paragraphs: The amount of campus-based aid awarded to veteran and nonveteran  students varied across type of institution attended and by a nonveteran  student’s dependency status. As shown in table 2, in academic year 1999- 2000 veteran students received lower awards than nonveteran dependent students at all institutions and nonveteran independent students at public 2-year institutions, while veterans who attended public 4-year and  private 4-year institutions received larger campus-based aid awards than  nonveteran independent students.
section_title: Amount of Education Tax Credits and Deductions Claimed by Veteran and Nonveteran Students is Unknown
paragraphs: Information on the exact amount that veteran and nonveteran students  claimed for the HOPE and Lifetime Learning tax credits and the student  loan interest deduction is not known; nonetheless there are several factors  that are known to affect the amount one may be eligible to claim. The  amount of HOPE or Lifetime Learning tax credit one may be eligible to  claim is affected by several factors, including the amount of tuition and  fees paid, amount of GI benefits and grant aid received, and family income  and taxes owed. Generally, veteran and nonveteran students who pay  higher tuition and required fees, such as students who attend private 4- year institutions or those with a tax liability greater than the HOPE credit,  may claim the full credit of $1,500. Veterans and nonveterans who pay  lower tuition and required fees may claim a partial HOPE tax credit.  Additionally, veterans who receive GI benefits or nonveteran students who  receive grants that equal or exceed the amount of tuition and fees paid  may not claim a HOPE tax credit. Likewise, veterans and nonveterans who  pay higher tuition and fees may claim the full Lifetime Learning credit of  $1,000; while veterans who receive GI benefits or nonveterans who receive  grant aid that equal or exceed the amount of tuition and fees paid may not  claim a Lifetime Learning tax credit. Any student whose income is not  higher than $55,000 ($75,000 if a joint filer) and who pays interest on a  qualified education loan is eligible to deduct up to $2,500 per year for the  first 60 months that interest has been paid on an education loan.
section_title: Agency Comments
paragraphs: In written comments on our draft report the Department of Veterans  Affairs generally agreed with our reported findings.  Veterans Affairs  suggested that we include education awards provided through the  AmeriCorps program in our review as well.  Our analysis focused on  comparing benefits that students receive in exchange for their military  service to benefits that are awarded under Title IV of HEA and for which  no service is required.  We did not include AmeriCorps education awards  in our review because they are not part of Title IV and because education  awards are provided in exchange for community service.  In addition, the  number of students who earn AmeriCorps education awards is small  compared to students who receive benefits through Title IV aid programs.  In fiscal year 2000, about 27,000 participants earned an AmeriCorps  education award compared to approximately 7.6 million students who  received aid through Title IV programs in fiscal year 2001.  Veterans  Affairs’ written comments are printed in appendix II.
The Department of Education provided technical clarifications on our  draft report and we have incorporated these where appropriate.
We are sending copies of this report to the secretary of education and  secretary of veterans affairs and other interested parties. We will also  make copies available to others upon request.  The report is available at  GAO’s homepage, http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  on (202) 512-8403. Other major contributors include Jeff Appel and Andrea  Romich Sykes.
section_title: Appendix I: Estimated Federal Title IV Aid Awarded to Students
paragraphs: The following three tables provide estimates of the amount of Pell grant,  subsidized Stafford loan, and unsubsidized Stafford loan aid awarded to  veteran and nonveteran students at public 2-year, public 4-year, and  private 4-year institutions and the amount of GI benefits available in  academic year 1999-2000.