Three need-based Federal Student Aid (FSA) programs authorized under the Higher Education Act of 1965, as amended (HEA) —the Federal Supplemental Educational Opportunity Grant (FSEOG) program, the Federal Work-Study (FWS) program, and the Federal Perkins Loan program—are collectively referred to as the campus-based financial aid programs. The programs are called the campus-based programs largely because participating institutions of higher education (IHEs) have a significant role in administering the programs and because they must use institutional funds to match the federal funds they receive for the operation of the programs. In contrast to other need-based FSA programs in which aid is awarded to students according to non-discretionary criteria, the financial aid administrators of participating IHEs have discretion in determining the mix and amount of aid individual students receive from funds made available under the programs. The FSEOG program allows IHEs to provide grant aid to undergraduate students who have not yet earned a first baccalaureate degree. The FWS program supports undergraduate and graduate students through subsidized part-time employment. Under the Perkins Loan program, IHEs use federal capital contributions (FCCs) to help establish revolving loan funds from which they make low-interest loans to undergraduate and graduate students. Over $3.8 billion in financial aid is awarded annually to students under the three programs. The programs are popular with many IHEs and financial aid administrators because of the flexibility they provide to tailor aid to meet the specific needs of students and for the ability to shift funds between programs. The programs have come to be criticized, however, for the way in which the majority of funding provided for the programs is allocated to institutions in proportion to the amount they received in previous award years, as opposed to being allocated entirely according to the aggregate financial need of the students attending each institution. The programs have also been criticized because the current distribution of funds allows institutions that receive proportionately more funding on a per-student basis to give larger campus-based awards to more students and to students with higher incomes than can be awarded at other institutions. Some have proposed modifying the campus-based programs' funding procedures to gradually phase out the current practice of allocating the majority of funds to institutions on the basis of the amounts they received in prior years and to require that all funding eventually be provided in proportion to the aggregate financial need of students at participating institutions. Others have expressed concern that amending the allocation procedures without also providing increased funding for the campus-based programs overall might result only in making more aid available to needy students at some institutions at the expense of needy students at those institutions that would experience funding decreases. In the 109 th Congress, H.R. 609 , as introduced in the House, would have amended the allocation procedures for the campus-based programs to gradually phase out provisions that provide for the allocation of funds on the basis of the amounts institutions' received in prior years so that eventually all funds would be allocated to institutions on the basis of their aggregate student financial need. However, these provisions were removed during consideration of the bill, and H.R. 609 as passed by the House would have retained the current allocation procedures. The Senate bill to reauthorize the HEA in the 109 th Congress, S. 1614 , also would have retained the current allocation procedures. While the 110 th Congress will likely consider bills to amend and extend the HEA, it is unclear whether substantive changes to the allocation procedures to the campus-based programs will be proposed. (Additional information on the campus-based programs, including a history of appropriations and basic program data for each of the three programs, and a review and analysis of proposals to amend the programs under bills that would reauthorize the HEA can be found in CRS Report RL31618, Campus-Based Student Financial Aid Programs Under the Higher Education Act , by [author name scrubbed].) This report describes and analyzes the process through which federal funds are currently allocated to IHEs under the campus-based programs and also examines the subsequent distribution of aid to recipients of awards provided under the programs. The report begins with a brief overview of the procedures used to allocate funds to IHEs under each of the three programs. This includes a discussion of the development of the allocation procedures and significant changes to them over the history of the programs. Next, the report analyzes the allocation of funds to IHEs according to the current allocation procedures, focusing on key aspects of these procedures that largely affect the distribution of funds to institutions. The report then discusses issues related to the campus-based programs that may be considered as the 110 th Congress debates reauthorization of the HEA. In particular, it examines how the distribution of funds to institutions might be affected should the current allocation procedures for the programs be amended to phase out the allocation of funds on the basis of prior year allocations in favor of providing institutions with funding entirely on the basis of aggregate student need, as had been proposed in prior Congresses. The report concludes with a review and analysis of the distribution of campus-based financial aid to different types of students at participating IHEs and an examination of the role that the current allocation procedures may have in affecting the distribution of aid. Under each of the campus-based programs, the U.S. Department of Education (ED) allocates funds to participating IHEs according to a complex two-stage procedure. These allocation procedures are specified in the authorizing statute of each program. While there are slight differences between programs, the allocation procedures all share the same basic framework. In the first stage, an IHE that is a continuing participant in a program receives funding based on what it received in prior years. This is commonly referred to as the base guarantee . In general, an IHE's base guarantee is equal to some portion of the funds it received in FY1999; however, there are also procedures for allocating a base guarantee to IHEs that began participating in a campus-based program after FY1999. In the second stage, any funds remaining after the allocation of base guarantees are allocated to IHEs according to need-based formula allocation procedures. Under the allocation formulas for the programs, each IHE receives funding in proportion to its share of the national total of institutional need that is in excess of the amount it received as its base guarantee. (Institutional need is a program-specific measure of the total financial need of all eligible students at an IHE). Under each of the formulas, ED determines the amount of funds each IHE would receive if the entire appropriation for the program were to be allocated in proportion to its share of the national total of institutional need (supposing that no funds were allocated for base guarantees). This amount is referred to as an institution's fair share . If an IHE's fair share is greater than its base guarantee, it has a shortfall in funding and is eligible to receive additional funding—a fair share increase —to help reduce its shortfall. An IHE's total allocation is the sum of its base guarantee and its fair share increase. Figure 1 summarizes the allocation procedures for the campus-based programs. The basic structure for allocating campus-based program funding to institutions—first for base guarantees, and then for fair share increases—can be traced back to procedures developed in the late 1970's and first put into place for the 1979-1980 award year. Funding for the campus-based programs previously was allocated according to a different two-stage procedure in which funds first were apportioned on a state-by-state basis according to the student population in each state, and then sub-allocated to IHEs on the basis of the student need at institutions within each state according to a procedure called the panel review process . Under the panel review process, institutions would apply to receive a share of the funds allocated to their state based on the projected financial need of their students. A regional panel would then review the institutions' applications and determine the amount of funding each IHE would receive. In the mid-1970s, the panel review process became subject to criticism for being too complex and time-consuming, and for leading to inequities in the distribution of aid to students. In response, the U.S. Office of Education convened a panel of experts to study and make recommendations on how to allocate funds to IHEs under the campus-based programs. The panel's recommendations led to the implementation of new allocation procedures. Over time, these procedures have been modified slightly; however, the same basic structure remains. At the time the new allocation procedures were adopted, it was decided that in the first year of their implementation, IHEs would first be allocated funds in amounts comparable to what they had received in the past. Called the conditional guarantee , this was the precursor to the current base guarantee. Funds remaining after the allocation of conditional guarantees would be allocated according to the fair share formulas. In the first year of implementation, conditional guarantees were to be set at the greater of the amount of funds IHEs had expended in either the 1977-1978 or 1978-1979 award years. The next year, they were to receive 90% of that amount. In subsequent years, conditional guarantees were to be gradually reduced until ultimately all funds were allocated according to the fair share allocation procedures. Ultimately, however, conditional guarantees—now called base guarantees—were not phased out. The majority of the funds appropriated for each of the three campus-based programs continues to be allocated for institutional base guarantees. (It is important to note that as appropriations increase, a greater proportion of funding becomes available for fair share increases, while a decrease in appropriations results in proportionally more funding being allocated for base guarantees.) The capacity of an IHE to award campus-based aid to eligible students is directly related to the amount of funds it receives.