This is the sixth in a series of 10 blog posts related to the Top 10 Audit Findings of the U.S. Department of Education.
Pell Grant over/under payments are caused mainly by application of an incorrect Pell Grant formula, overall incorrect calculations, and errors connected to changes in enrollment status.
According to the Higher Education Act of 1965, Title IV, Part A, Subpart 1, the Federal Pell Grant program is designed to help ensure access to postsecondary education for low and moderate income undergraduate students by providing grants that help meet postsecondary education costs.
According to a White House report in January 2014, titled “Increasing College Opportunity for Low-Income Students,” overall gains in U.S. college attainment have declined while other countries have continued to increase their share of citizens that complete college.
The Federal government has taken some action over the years to help keep college affordable for students and families. One of the steps taken includes increasing the maximum Pell Grant award from year to year, which expanded Pell Grant access to millions of students since 2008.
According to a “Payment Accuracy” publication from an official website of the United States Government, in FY 2015, gross improper payments in the Pell Grant Program were estimated to be $562.29 million, or 1.88% of total program outlays. Estimated Pell Grant over-award improper payments were $457.59 million and the estimated under-award improper payments were $104.70 million. Indicated major root causes of improper payments in the Pell Grant Program included incorrect self-reporting of an applicant’s income, which leads to incorrect awards based on Expected Family Contribution (EFC); incorrect processing of student data by institutions during normal operations; student account data changes not applied or processed correctly; ineligibility for a Pell Grant (e.g., validity of high school attended, history of degrees obtained); satisfactory academic progress not achieved; and, incorrectly calculated return records by institutions returning Title IV student aid funds.
There are a number of components to consider when figuring the amount of Pell Grant available to students. Pell Grant awards are based on Expected Family Contribution (EFC), the structure of an academic year, and the cost of attendance for a full-time student for a full academic year. The Scheduled Award amounts are specified on the Pell Payment Schedules released by the Department. For term-based programs, awards for part-time students are also based on enrollment status, using the part-time charts in the Pell Grant Disbursement Schedules.
Packaging and awarding Pell Grant funds seems like it should be a straight forward process but there is a lot to consider before making this assumption. For example, there are multiple Pell Grant Formulas that one should consider; various calculations to consider, including those related to proration, Expected Family Contribution (EFC), and those involving number of weeks/hours to use. A student’s enrollment status also needs to be considered. It doesn’t surprise me that these are the very areas mentioned by the U.S. Department of Education as part of the cause of one of the top 10 audit findings connected to Pell Grant over/under payments.
According to the SFA handbook, regulations specify five different formulas for calculating Pell Grants; the formula your school uses depends on the type of program. Each formula has the same basic number of steps in its calculation.
Formulas 1, 2 and 3 are available for credit-hour term-based programs. Formula 4 is available for clock-hour or non-term programs. Formula 5 is available for correspondence programs. Along with the five formulas to consider, there are five basic steps included in each formula.
It can be a challenge to select the appropriate formula to apply when calculating Pell Grants not to mention getting the five calculation steps correct. There are plenty of areas to accidently go astray. Consider some of the requirements involved in applying Formula 1, for example. For a program with a traditional academic calendar, the program:
- - Must have an academic calendar that consists, in the fall through spring, of two semesters or trimesters, or three quarters (note that summer may not be a standard term)
- - Must have at least 30 weeks of instructional time in fall through spring terms
- - Must not have overlapping terms; and
- - Must define full-time enrollment for each term in the award year as at least 12 credit hours and must measure progress in credit hours
Other types of Pell errors are connected to proration, for example, or incorrect calculation of a student’s Expected Family Contribution (EFC), or using an incorrect number of weeks or hours in your calculations.
Change in enrollment status
In awarding a Pell Grant, a student’s enrollment status is yet another critical area to think about. Some enrollment status issues involve:
- - Variations in enrollment status standards
- - Enrollment status for students taking regular and correspondence courses
- - The enrollment status of a student attending more than one school
I think all of us appreciate the objective of the Higher Education Act of 1965 related to the Federal Pell Grant program, specifically to help ensure access to postsecondary education for low and moderate income undergraduate students. In consideration of this objective it’s imperative, in my opinion, that we all strive to encourage execution of this program efficiently and effectively to help ensure its existence.
Remember to consider the following to minimize audit and/or program review findings:
- - Regularly monitor your processes
- - Perform internal quality control file reviews
- - Maintain a policy, and documentation of supervisory review and approval
- - Maintain focused continuing education and training for staff
- - Encourage applicants to use the IRS Data Retrieval Tool
- - Consider FSA Assessments tools
If you need assistance with your institution’s Pell Grant calculations or other accounting, auditing or consulting issues related to your institution of higher learning contact me at [email protected] or call 714.990.1040.