The Office of Federal Student Aid: The Federal Governments First Performance-Based Organization

CRS Report for Congress
Received through t he CRS W e b
The Office of Federal Student Aid:
The Federal Government’s F irst
Performance-Based Organization
October2,2003
Charmaine Jackson
Analys t in Social Legislation
Domestic Social Policy Division

Congressional Research Service ˜ The Library of Congress

The Office of Federal Student Aid: The Federal
Government’s First P erformance-Based Organization
Summary
The Office of Federal S tudent Aid (FS A) manages and administers al l federally
funded s tudent financial assistance programs authorized under Title IV of the Higher
Education Act of 1965 (HEA). The Title IV programs have grown s ignificantly since
the enactment of the title in 1965. Currently, an estimated $55 billion i n grants and
loans i s p rovided t o s tudents annually. There are approx imately 5,300 schools, 4,100
lenders, and 36 guaranty agenci es that p a rt i c ipat e i n t he Title IV programs.
Furthermore, 1 3 separate computer system s, operated by m ultiple contract ors, are
used to administer t he programs.
In the 1998 Am endments to the HEA of 1965 (P .L. 105-244), C ongress
authoriz ed the establishment o f t he federal government’s first p e r f o rmance-based
organiz ation (PBO), t he Office of Federal S tudent Aid, as a way to improve the
effi cacy and effi ci ency of st udent ai d d el i v ery, a n d m ake i t l ess ex p ensi ve. A s a
P B O , F S A receives wider discretion i n a reas such as hiring of personnel a n d
equi pm ent acqui si t i on, i n ex change f o r est abl i s hi ng m o re easi l y m easured
perform ance go al s and obj ect i v es.
Since its inception as a PBO, FS A has used three broad meas ures to gauge its
success: cust om er sat i s fact i on, em pl oyee satisfaction and a reduction i n t he cost of
administering the s tudent financial assi st ance program s . It h as been 5 years s i n ce
C ongress desi gn at ed FS A as a P BO and t h e o ffi ce has ex p eri enced varyi n g d egrees
of success i n each area.
This repor t p rovides an overview o f t he authorizing l egislation for the P BO,
including the o rganiz ation’s purpose, stru cture and go als. The report concludes with
a d iscussion of program and policy m atters related t o FSA’s status as a P BO over t he
last 5 years. It will be rev i s e d t o reflect any s ubstantive changes in the office’s
structure o r goals.

Contents
In troduction ......................................................1
TransformingStudent FinancialAssistance: FSABecomesaPBO ...........1
Performance-BasedOrganizations .................................1
ImprovingStudent AidDelivery ..................................2
Organization ..................................................3
MeasuringPerformance .........................................5
CustomerSatisfaction ......................................5
EmployeeSatisfaction ......................................6
ReducingCosts ...........................................6
RewardingResults .............................................9
FSAasaPBO: 5YearsLater ........................................9
PolicymakingandPromulgationAuthority ..........................9
Independence ................................................10
FAFSAontheWeb ...........................................10
ListofFigures
Figure1. Student FinancialAssistanceOrganizationChart .................5
ListofTables
Table1.Student AidAdministrationAppropriations: Selected Years .........7

The O ffice of Federal Student Aid:
The Federal Government’s First
Performance-Based Organization
Introduction
In the 1998 Amendments to the Higher Education Act of 1965 (HEA, P .L. 105-
244) Congress authoriz ed the establishm ent o f t he federal governments’s first
perform ance-based o rgani z at i o n (P BO), t h e Office of Federal S tudent Aid (FS A).¹
The l egislation t o create t he PBO r e s p onded t o a widespread belief t hat t he U.S.
Depart m ent of Educat i o n (ED), and FS A speci fi cal l y, n eeded si gn i f i c a n t
rest ruct uri n g. C ongress desi gn at ed FS A as a P BO t o rel ease i t f rom m any o f t he
t radi t i o n al const rai nt s associ at ed wi t h a governm ent agency, and t o enabl e FS A t o
focus o n p rogram s and cust om er servi ce. As a P BO, FS A recei ves w i d er di scret i o n
in ar eas s u ch as hiring of personnel and equipment acquisition, in ex change for
est abl i s hi ng m easurabl e perform ance go a l s and objectives, reducing t he costs o f
administering the s tudent financial assi stan c e programs and improving customer
satisfaction.
This report p rovides an overview o f P BOs i n general and FS A s p e ci f i cal l y,
including FS A’s purpose, structure a n d go als. The report concludes with a
discussion of selected program and policy m atters related t o FSA’s stat us as a P BO
over t he last 5 years.
Transforming Student Financial Assistance:
FSABecomesaPBO
Performance-Based Organizations
PBOs in the United S tates federal government are m odeled after the British
public service reform efforts o f t he late 1980s. P BOs are results-driven o rganiz ations
that attempt t o deliver the bes t possible s ervices to thei r customers. P BOs are to have
cl ear obj ect i v es and m easurabl e go a l s t hat are i n t ended t o i ncrease t he agency’s
accountability and improve performance. In ex change, P BOs are granted d iscretion
to operate more l i k e p r i vate sector corporations, h aving m ore control over t heir²
budget, p ersonnel d ecisions and p rocurement. Th e est abl i s hm ent o f P BOs i n t he

¹ HEA, T itle I, Sections 141-143.
² For additional r eading on performance based organizations see Al a s d air Roberts,
(continued...)

Uni t ed S t at e s g o v ernm ent was a p art o f t he government reform efforts during t he
Clinton A d m i n i s tration. Under t he ausp i ces of t h e N at i onal P erform ance R evi ew
(NPR, also known as t he National P artnership for R einventing Government), Vice-
President Gore p roposed the establishment o f P BOs as a means o f s aving m oney and
providing more effici ent and improved s ervices to customers. NPR literature on the
implementation o f P BOs quotes the Vice- President endorsing PBOs, “For t hese
PBOs, we’re going t o t oss out th e r es t r ictive rules that keep them from doing
business like a business. All t he red t ape, personnel rules that keep managers from
using p eople effectively, the budge t restri ctions that make planning or allocating
resources almost impossible.”³ Although t he Ex ecutive Branch did not initial l y
consider FS A a candi d a t e f o r c o nversion t o a PBO C ongress design ated FS A as a
PBO i n t he 1998 Amendments to the HEA, m aking i t t he federal government’s first
perform ance-based o rgani z at i on.
I m pr ovi ng S tudent Ai d Del i ver y
FS A m anages and administers all federa lly funded s tudent financial assistance
programs auth o r i z ed under Title IV of the Higher Education Act. W hen C ongress
enacte d the HEA in 1965, two n ew financial aid programs were also created-
Guaranteed Student Lo ans and Education O pportunity Grants-and administration o f
t h e Federal W o rk-S t udy program was assi gn ed t o t h e Offi ce of Educat i on. Over t h e
years, Congress est a b l i s hed additional federal financial aid programs, which
produced an operation t hat annually provides an estimated $55 billion i n grants and
loans t o s tudents, and i nteracts with approx imately 5,300 school s, 4,100 lenders and
3 6 gu a rant y agenci es.⁴ Fu rthermore, this operation u ses 1 3 s eparate comput e r
systems and s e v e r al contractors. In addition, FS A’s p rograms continue to be
included i n t he General Accounting Office’s (GAO) list o f high risk programs.⁵
During the 1998 reauthoriz ation, Congress acted to improve ED’s management
of the federal financial aid programs.⁶ The 1998 Amendments to the HEA created
the P BO as a way to more effectivel y administer t he programs. As noted in the
House C ommittee on Education and the W orkforce’s R eport o n H . R . 6 (Higher
Education Act Amendments of 1998), “The n eed for t his p rovision [ creating a PBO]

² (...continued)
“Performance-Based Organiza t i ons: Assessing the Gore Plan,” Public Admi nistration
Review, vol. 57, 1997, pp. 465-478.
³ Ib i d .
⁴ General Accounting Office, Federal Student Aid: Additi onal Management Improvements
Would Clarify Strategic Direction and Enhance Accountability, GAO-02-255. ( Her eaf t er
c i t e d a s GAO, Federal Student Aid.)
⁵ In 1990, GAO b e ga n r e viewing and r eporting on f ederal programs that were considered
high risk because they were especially vulnerable to fraud, waste, and abuse.
⁶ For additional r e a d i n g s e e the Advisory Committee on Student Fi nancial Assistance’s
reports: The PBO and Moder n ization: Progress t o Date (Nov. 1999) and The Advisory
Committee’s PBO Recommendations to the Congress and the Secretary of Education (Nov.
30, 1999). For copies of these documents contact the Advisory Committee on Student
Fi na nc i a l As s i s t a n c e a t [ h t t p : / / www.ADV _COM SFA@ED.GOV ] .

arises from t he inability of the Department of Education t o adequately manage over
$40 billion i n s tudent financial aid .... Also, t he Department’s budget for s tudent aid
information s ys tems has t ripled over t he last 5 years and instead of consolidating its
ex isting dat a s ys tems, t he Department has i ncreased the number o f s ys tem contracts
that cannot share d ata with each other.” T he Committee m aintained t hat converting
FS A t o a PBO, managed by a Chief Operating Officer (COO), would s ignifica n t l y
i m p rove t h e effi cacy and effi ci e n c y of st udent ai d d el i v ery, and m ake i t l ess
expensive.
As noted in the HEA, S ection 141(a)(2), FS A’s purposes as a P BO are t o:
^! improve service t o s tudents and ot her participants in the student
financial assis t ance programs au thorized under Title IV, i ncluding
making those p rogra m s m o r e understandable t o s tudents and their
parents;
^! reduce t he costs of administering Title IV programs;
^! increase accountability of the p ersons responsible for administering
the operations of these p rograms;
^! provide great er fl ex ibility in the m anagem ent of t he student ai d
programs;
^! integrate t he information s ys tems supportin g t he student aid
programs;
^! implement an open, common, i n t e gr a t ed system for s tudent aid
delivery;and
^! develop and maintain a student ai d system t hat contai n s complete,
accurate, and timely data to ensure program i ntegrity.
FS A operat es as a “di s cret e m anagem ent ” uni t w i t h i n ED, but t h e S ecret ary o f
Education m aintains responsibility for t he development and promulgation o f policy
and regul at i ons rel a t i n g t o t hese program s . H owever, t he S ecret ary i s d i rect ed t o
cons ult with the C hief Operating Officer of FS A i n d eveloping policies and
regu lations that pertain t o t hese program s (di s cussed l at er i n t h i s report ). FS A
maintains i ndependent contro l o f its budget allocations an d ex p enditures, personnel
decisions and p rocesses, procurement and other administrat i ve and management
functions.
Organization
Upon recei vi ng P BO d esi gnat i on, al l o f t he operat i ons and em p l o yees from t he
O ffice of Postsecondary Education (OPE) that pertained t o s tudent fina n c i a l
assi st ance were rel o cat ed t o t h e n e w l y c reat ed P BO. C ongress speci fi ed t h at FS A
should b e h eaded by a non-partisan, i ndependent, chief operating o fficer. E ach COO
is to be appointed by the S ecretary o f Education, and s erve for a term of not less than
3 years and no more than 5 years; however, h e/she can be reappointed for s ubsequent
terms with the s am e time restrictions. The COO i s ex pect ed to have demonstrat ed
management ex perience and ability in inform ation t echnology and fi nancial s ys tems.
The C OO serves under t h e terms o f a pre-sp ecified performance agreement t hat
i d ent i fi es m easurabl e go al s and ex pect ed resul t s .

As mentioned earlier, as a P BO, F S A ha s s ole d iscretion over its personnel
decisions. The COO i s authoriz ed to determine t he number o f s enior m angers that
he/she needs, as well as make appointments. T h e s e l ected senior managers are
appointed without regard for t he provisions of the federal government’s competitive
service rules. Under t he first C OO, Greg W oods, FSA was o rganiz ed into channels
that focus o n t yp es of customers as opposed to programs. The channels are: schools,
st udent s, and fi n anci al part ners. By o rgani z i n g t he offi ces and s ervi ces by cust om er
types as opposed to program areas, customers receive a s ingl e point of contact for all
financial aid matters, which is ex pect ed to i m p ro v e customer satisfaction. For
ex ample, the “schools channel” is responsib le for all aspects o f t h e f i nancial aid
process t hat p ertain to schools, s u c h a s financial aid origination and disbursement.
Each of the channels is headed by a general manage r , who i s responsible for
overseei ng al l of t he activities i n his/her respective channel.
Congress also required t h a t t he newly appointed COO s elect a S tudent Lo an
Ombudsman who is responsible for providing assistance to student loan borrowers.
The Ombudsman i s charged with informally resolving complaints regarding student
loans and compiling and anal yz ing dat a and making p olicy recommendations as
necessary.
To support t he efforts o f all of the n ewly establi s h e d d ivisions, an Enterprise
Serv i c e division was created. This division consists of offices, s uch as Human
Resources, that are re s pons ible for hiring new pers onnel, trai ning and devel oping
current personnel an d acquiring technology equipment. Similar t o private sector
corporations, FSA also has a ch i e f f i n a n c i al officer (CFO), who i s responsible for
management of FS A’s finances, and a chi ef information o fficer (C IO) who handles
the acquisition and management of the i nformation s ys tems w i thin FS A. As
illustrated by Fi gure 1 (prepared b y E D), t he offices shown at t he bottom o f t he chart
constitute the Enterprise S ervices. They provide support and assistance to all o f t he
offi ces wi t h i n FS A. F u r t her, ED pl aces t h e channel m anagers at t he t o p o f t he
organiz ational chart to highlight the importance o f t h e i r w o rk — s erving FS A’s
customers.

Figure 1 . S tudent Financial Assistance Organizati on Chart
S tudent s C ha nnel S c ho ol s C ha nn el F ina nc ia l Pa rtners C ha nnel
C hie f Inform a tion Offic er C hie f Ope rating Offic er Chief F inancial Offic er
Ombudsm an S F A Int e rn P rogram
Ac c qui sit i ons & Cont ra c ts Hu ma n Re s o urc es An a l y sis Comm unications SF A Unive rsity
^Source:^O^f^fⁱ^ce^of^F^e^deral^S^t^u^den^t^Aⁱ^d,^2002.
M easuring Performance
S i nce i t s i n cept i o n FS A has h ad t h r e e b r o ad m easures t o gauge i t s success:
customer satisfaction, empl oyee satisfaction and reduction of t he administration costs
for t he st udent financi al assi st ance program s . In consul t at i o n wi t h t h e S ecret ary, each
year the C OO prepares an annual p erforman ce plan that outlines the t asks that FS A
ex pect s t o accom p l i s h i n t he upcom i n g year. C urrent l y i n i t s fi ft h year, FS A
continues t o work t owards achieving these o b j ect i v es, w i t h varyi n g d egrees of
successineach.
Customer Satisfaction. As noted earlier, FS A’s customers are s tudents,
financial i nstitutions and s chools. Although each of these g r oups has a common
interest — financial assistance — t he organiz ation o f OPE, poor commu n i c a tion
between programs and poor customer service were general complaints from all
groups of customers p rior to 1998. Because the i nterests of customers v a r ied,
di fferent syst em s w ere requi red t o cat er t o each channel ’s respect i v e cust o m ers. In
addition t o a ligning the o ffices and t herefore the p rograms within each office to
address t he needs o f its customers, a general manager was appointed to each channel
and gi v en speci fi c and m easurabl e obj ect i v es t o i m p rove servi ce. For ex am p l e, i n
the 2003 Annual P lan, the C FO was charged w ith addressing the ex i sting weaknesses
and conditions that were reported from p re vious audit s . S p e cifically, t he CFO i s
charged with improving the conditions that have contributed to the federal aid
programs being i ncluded o n GAO’s list o f h igh risk p rograms.⁷ This task is intended
to improve customer satisfaction, reduce costs, and improve program i ntegrity.

⁷ According t o ED’s FY2002 Performance and Accou n t ability Report, although FSA has
made and continues t o make considerable progress, the f ederal aid pr o gr a ms r emain on
GAO’ s l i s t o f h i gh r i s k p r o gr a ms .

To measure customer satisfaction FSA utilizes the American Customer
Satisfaction Index (ACSI), a s urvey d evel oped by t he University of Michigan. ACSI
provides o rganiz ations with a s core (0 to 100) that is based o n customer s atisfaction
with the company’s services. To ascertain its per f o r m ance FS A s urveyed 250
customers from each channel about specific p ractices and p rocedures. According t o
ED’s Annual P rogram Performance report, FS A’s l a s t r e ported s core was 72.9 for

2001; the average annual s core for federal agencies is 68.9.⁸

Employee Sati sfaction. The i nitial C OO , G r eg W oods, b elieved t hat
em pl oyees had b ecom e m echani cal i n deal i n g w i t h t h e w ork t hey w ere p erform i n g.
He fel t t h at m any em pl oyees vi ewed t h ei r j obs as si m p l y processi ng l o an and grant
papers, rather t han h elping their customers “realize t hei r d r eam s .” After he
developed a mission statement “W e help put America t hrough s chool,” he sought to
ensure that all employees understood how th eir j ob contributed to the overall mission
and b ecame m ore d edicated to their work. W oods utiliz ed FSA’s s core from a survey
conducted b y t he National P erformance Review (FSA ranked 3 3 out of the 4 9
part i ci p at i n g federal agenci es, i n t erm s of how em pl oyees vi ewed t h e agency), as a
benchmark t o gauge the s tate of employee satisfaction when h e arrived (W oods was
the Director of NPR at t he time the s urvey was conducted). T he N P R s u r v ey also
indicated that: only 60% of FS A employees were satisfied with their j obs, one out of
fo ur could not identify any of the organization’s goals that related t o sat i s fyi n g
customers, and h alf o f t he respondents i ndicated that they needed more training.⁹
O n e o f t he solutions FS A implemented to deal with the disconnect between
employee’s understanding of his/her position and the agency’s overall mission was
the use o f b a l anced scorecards . Bal anced scorecards enabl e t h e agency t o ret ai n
traditional m easures of success s uch as re duction of costs, and supplement t hem with
non-traditional m easures such as employee satisfaction. FS A’s m odel consists of
the original t hree m easures of success — cust om er sat i s fact i on, em pl oyee satisfaction
and reduced unit costs — added t ogether; the output is the p erformance score. It is
ex pected that by placing equal emphasis upon each measure, all employees, i ncluding
senior managers, will work to ensure succe s s i s ach i e ved i n all three areas . In
addition t o emphasiz i ng balance, the s cor ecard also i ncludes a roster of the n ames of
al l p ersons worki n g o n a part i cul ar proj ect , t he scores t h ey recei ved i n p revi ous years
on each of t h e m easures, and a d el i n eat ed l i s t o f al l proj ect s t hat t he t eam i s worki n g
on. The s corecards are i ntended t o p rovide a concise and unambiguous measure o f
how t h e group i s perform i n g and how each em pl oyee’s work rel at es t o t h e agency’s
mission. In 2000, FS A began utilizing t he Ga llup S urvey o f W orkplace management
instead of the p reviously used NPR s urvey. Th e l ast reported Gallup s urvey s core for

2001 was 3.74 out of a possible 5 (the private s ector average i s 3.6).

Reducing C o s t s . Reducing costs is a m easure o f p erformance that did not
ex ist at FSA prior t o t he agency being d esignated as a PBO. As previously noted, t he
financial aid programs have been lis t e d o n GAO’s list o f h igh risk p rograms s ince

1990. One o f t he main reasons the p rograms h ave b een included i s due to the h igh

⁸ U.S. Departme nt of Education, Strategi c a nd Annual Reports at [http:// www.ed.gov/about/
reports/annual/index.html ?src=ln].
⁹ Br ian Friel, “Gr eat Expectations,” GovExec.com, M ar. 1, 2000.

cost s o f adm i n i s t eri ng t h e fi n anci al ai d p rogram s. As not ed by Table 1 ,the
administration costs have risen from $43.8 million i n F Y 1992 to the current
administration’s FY2004 request for $947 million (for further discus s i o n see
following section). FSA has implemented several p rograms and procedures to assist
wi t h reduci n g cost s , and t wo i n p art i cul ar have recei ved s i gni fi cant at t ent i on:
implementing a web-based version of the Free Application for Federal S tudent Aid
( F A FSA), and reducing t he multiple t echnology i nformation s ys tems used to
administer t he financial aid programs.
Table 1. Student Aid Administration Appropriations:
SelectedYears
(dollarsin000s)
F Y 1992 F Y 1995 F Y 1998 F Y 2001 F Y 2004**
Student Aid $43,870 $345,660 $578,482 $875,634 $947,000
Administration
^*^*^D^eⁿ^o^t^e^s^P^resⁱ^den^t^’^s^requ^es^t^e^d^a^m^o^uⁿ^t^,ⁿ^ot^t^h^e^a^m^o^uⁿ^t^appropri^a^t^e^d.
Free Application for Fede ral S tudent Aid on the Web. Students who
are i nt erest ed i n appl yi ng for federal fi nanci al assi st ance and for m any st at e form s of
assistance must complete and s ubmit the Free Application for Federal S tudent Aid
(FAFSA). The FAFSA can be submitted via a web-bas ed application, a paper form,
or electronically with the assistance of a school financial aid administ r a t o r . T he
information t hat s tudents and parents provide on the FAFSA is utilized to determine¹⁰
thei r eligibility for financi al assistance.
In an effort t o reduce t he cost s associ at ed wi t h adm i n i s t eri ng federal fi n anci al
ai d p rogram s, a w eb-based fi nanci al ai d appl i cat i o n w as i n t roduced. T he web-based
application allows applicants to complete and submit thei r financi al ai d application
online. In addition, the web-bas ed application has in t e rnal end-of-entry data edits
built into the application t hat elimin at e m any of t he mistakes associ at ed with the
paper version. The i nternal edit s ys tem prevents applicants from omitting essential
information t hat i s used i n cal culating t he ex pect ed family contribution and reduces
the possibility of entering illogi cal information. For ex ample, i f a fam ily has an
adjusted gross i ncome of $25,000, it is not possible t o have paid t he same amount in
tax es; the i nternal edits force t he applicant t o resolve these i nconsistencies p rior to
submitting t he application. As a res ult, ED spends less money processing multiple
applications and returning applications due to errors. In a draft P erformance P l an for
FS A, it was noted that el ect ronic applications are as m uch as 25 times l es s likel y t o
contain errors than paper applications.¹¹

¹⁰ Fo r more i nformation on t he need analysis system used to calculate eligibility see CRS
Report RL3208 3 , Federal Student Aid Need Anal ysis: Background and Selected
Simplification I ssues , by Adam Stoll and J ames B. Stedma n.
¹¹ U.S. Departme nt of Education, Office of Federal Student Aid, The Performance Plan f or
Student Financial Assistance , a t [ ht t p : / / www.ed.gov/ PDFDocs/ 5 yr body.pdf ] .

Bu t t he conversion to the web-based FAFSA has not gone smoothly. At the
2001 National Association o f S tudent Fi na n c i al Aid Administrators annual
conference, t h e C OO urged adm i n i s t r a t o r s t o s t o p o rderi n g s o m any p aper
applications and t o i nstead direct their s tudents t o t he In ternet. Greg W oods stated
that because colleges and universities continue to request the s ame quantities o f p aper
applications as they had i n p revious year s, students are not being encouraged to use
the web-bas ed application; this, i n t urn, prevents FS A from reducing t he number o f
appli c a t i o ns produced.¹² As a result o f t his and other contributing factors, such as
increas ed student participation, the costs of administering the financi al ai d program s
have actually increased. In a 2002 report b y GAO,¹³ FS A’s unit costs¹⁴ for FY1999
were $18.72 per aid recipient and in FY2001 (the most recent d ata available) the unit
cost increased to $19.57.
Technology Systems. The addition of f ederal financial aid programs at
different times produced multiple nonintegrated t ec hnology s ys tems to operate the
programs a s well as multiple contractors t o m anage t he systems. Because the
systems are nonintegrated t hey cannot co mmunicate with each other, which requires
FSA t o access m ultiple systems t o retrieve accurate information for each applicant,
and i n m any i nstances there i s i nformation redundancy. T h i s i s also true for t he
institutions utiliz ing t hese systems. Institutions are o ften required t o access m ultiple
systems t o enter and retrieve s tudent fina ncial aid data for one student. In 1993, the
National S tudent Lo an Data System (NSLDS) was developed as a way t o i ntegrate
thes e dat a and simplify t he process. However, NSLDS functions as a repository for
each o f t h e separate databases as opposed to one integrated database. Because the
systems cannot communicate w i t h each other, each database must first b e updated
andthentransferredtoNSLDS,andwithdifferent contractors and different
scheduled database updates, conflicting data are still a possibility.
Maintaining m ultiple system s with several contract ors al s o s ignificantly
contributes to the c o s t s o f administering the financi al ai d program s. Rather than
purch as e one system that could m anage all Title IV programs — an ex pensive
alternative — FS A opted to utilize middleware. M i ddl eware i s a syst em t h at serves
as a conduit b etween multiple technology s ys tems, and enables t hem t o communicate
wi t h each ot her. If used i n conj unct i o n w i t h a w eb-based i n t erface, m i ddl eware
p r esents the user with an integrat ed view. One of the m ost important feat u r es o f
middleware i s t hat dat a can be retrieved from m ultiple sources in a timely manner.
FS A’s t echnology m od e r n i z ation effort has t aken several s teps to achieve full
integration and interoperability of ex isting s ys tems. Thus far t h e act u a l s avings of
t h ese effort s h as not been ful l y real i z ed or report ed.¹⁵

¹² Stephen Burd, “Education Department Official Prods College s t o Have Students Apply
for Aid Online,” The Chronicle of Higher Education, Aug. 3, 2001.
¹³ GAO, Federal Student Aid.
¹⁴ FSA calculates unit c osts as the a mount of money s pent on admi nis t ering t he financial
aid progr ams divided by the number of r ecipients.
¹⁵ For a dditional r eading o n middleware usa ge at FSA, s ee Ge neral Accounting Office
report, Student Financial Aid: Use of Middleware f or Systems I ntegration Holds Promise ,
GAO-02-7.

Rew arding Results
The C hief Operating Officer and t he senior managers of FS A are authoriz ed to
receive bonuses for t h e a c h ievement of the p re-specified go als and objectives
discussed earlier. The C OO’s bonus is based on t he Secretary’s evaluation o f h is/her
performance, and cannot ex ceed 50% of the b as e s alary for the position. In addition,
the C OO’s t otal annual compensati o n , including the bonus, cannot ex ceed the
President’s s alary (currently $400,000). S en ior l evel managers are also authoriz ed
to receive performance bonuses. Their total compensati on, including locality pay,
cannot ex ceed 125% of the m ax imum b asic pay for members o f t he S enior Ex ecutive
Service (currently base pay for ES-6 is $134,000). The bonuses serve as an i ncentive
for t he C OO and al l s eni o r m anagers t o i nsure adequate progress for t heir respective
goals and those of t he PBO.
FSA a s a P BO: 5 Years Later
The Office of Federal S tudent Aid h as functioned as a PBO for 5 years. During
this period several i ssues have arisen regarding FSA’s PBO s tatus. This section
presents a b rief discussion of sel ected program and policy m atters.
Policymaking and Promulgation Author ity
Title I, Part D, Section 141(b) of the HEA states that the S ecretary “shall
m a intain responsibility for t he development and promulgation of policy and
regu lations relating t o t he programs of student financial assistance under Title IV.”
This language has b een interpreted t o d efine FSA’s responsibilities as programmatic
or operational , and ED’s, o r m ore s peci fi cal l y OP E’s, as pol i cy o ri ent ed. In t h e earl y
development s tages o f t he PBO, some concern w a s e x p r essed t hat t he del i n eat ed
roles for the P BO an d OPE were bein g b lurred.¹⁶ Offices, s uch as Guarantor and
Lender Oversight Service, were moved t o t he PBO, although t hese offic e s c l e arly
dealt with policy and promulgation. Subsequently, m any o f t he offices were moved
back t o OP E; however, a few o ffi ces wi t h po licym aking and promulgation functions,
such as institutional eligibility, rem ai n i n t he PBO.
The Advisory Committee for Student Fi nancial Assistance (ACSFA) contends
that al l policym aking functions s h ould res ide with OPE. In a l etter t o S enat or
Kennedy (J anuary 10, 2002), ACSFA recommended t hat all policy functions should
be returned to OPE, but that the Assistant S ecretary o f OPE should consult with FS A
to ensure that proposed policy d ecisions s upport t he operations of the financial aid
program s . A l t ernat i v el y, form er S ecret ary R i l ey m ai nt ai ned t hat h avi n g t he C O O
oversee interrelated t asks of student aid delivery s uch as program management and
oversi ght enabl ed FS A t o achi eve “aggressi ve perform ance st andards.”¹⁷

¹⁶ Letter from Representatives Goodling, Hoekstra and M cK eon, House Education a nd the
Workforce Committee, to Secretary of Education Riley, Dec. 16, 1998.
¹⁷ Letter from Secretary Riley t o Chairman Goodling, J an. 12, 1999.

Independence
In 2001, the change i n administration, an d t he appointment of a n ew Secretary
of Education i ntroduced the question o f how much independence FSA possesses. An
article in the Chronicle of Higher Education,¹⁸ describes a memorandum from
Education S ecret ary P ai ge to the C OO of FS A t hat p rohibits the o ffice from awarding
contracts i n ex cess o f $100,000 or hiring senior - l evel employees and consultants
without prior Department approval. Section 141(b)(4) grants t he PBO i ndependent
control over its budget allocations and ex p end i t u r e s , personnel d ecisions and
processes, procurement and other administrative functi ons; however, t he PBO i s also
“subj ect t o t h e d i rect i o n o f t he S ecret ary. ”
To address t h e i s s u e o f i ndependence, form er S ecret ary R i l ey d raft ed a
memorandum of understanding (MOU) that ar ticulated the s pecific funct i o n s the
PBO would oversee. In addition, the M OU details how the P BO interact s with other
offices in ED. For ex ample, because the C OO has s ole d iscretion over its personnel
deci si ons, s ubj e c t t o t h e d i rect i o n o f t he S ecret ary, a M OU bet w een t h e C OO and
Secre t a r y R iley s pecified that FS A coul d h ire n eeded personnel, but must consult
with the Department about changes that impact ED’s co llective b argaining agreement
(See footnote 13). According t o t he aforementioned GAO report, employees of both
FS A and ED admitted t hat t he absence of a MOU bet ween the t wo under t he current
administration has p resented a s truggl e over t he PBO’s i ndependence and how it fits
into the agency’s s tructure.
FAFSAontheWeb
FS A p rom o t es t he usage o f FAFS A on t h e w eb as a m eans o f reduci n g t he cost s
of adm i n i s t eri ng t h e fi n anci al a i d p rogram s. In addi t i on, because t h e web-based
application provides an effici ent and reliable way to complete and s ubmit the
financial aid application, institutions and applicants are strongly encouraged to utilize
the online application. While the number o f onl i n e f ilers continues t o i ncrease
yearly, t here are s till numerous families t hat d o not have access t o t he In ternet. In a
recent P ew In t ernet and A m eri can Li fe S u rvey (Apri l 2003) i t was found that
i ndividuals with lower i ncomes and l ess education are still significantly less l i k el y
to use t he Internet . S tudents from families with lower i ncomes and l es s education are
al so m o re l i k el y t o n eed fi nan c i a l a s s i st ance t o at t end col l ege. T he Advi sory
Committee on S tudent Fi nancial Assistance recommended t hat ED continue to make
t h e p aper FAFS A avai l abl e.
ED must continue to make the paper FAFSA available i n a timely and efficient
manner. Fi rst-generation college students and t h e i r f amilies may be
uncomfortable completing t he web-based f orm and prefer to complete the paper¹⁹
form.
The t ensi on t h at t h e P BO confront s i s b et ween cost reduct i o n and ensuri ng t h at
t h e fi n anci al needs o f l ow-i nc ome s tudents are addressed.

¹⁸ “Rift Eme rges Over Independence of Federal Financial-Aid Office,” Oct. 19, 2001.
¹⁹ Letter from Advisory C ommittee Chairperson, Dr . J uliet V . Garcia, to Senator Edward
K e nnedy, J an. 10, 2002.