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Administrative Cost Allowance: How It Works and Who Benefits

Post-secondary institutions have to keep up with administrative costs that make cutting down on student aid distribution expenses difficult. The Administrative Cost Allowance (ACA) provision can help programs reduce the costs of managing student aid programs. 


Here, we discuss administrative cost allowances in-depth, including which programs are eligible to receive them and how they offset program costs. 

What Is the Administrative Cost Allowance?

The administrative cost allowance provision reimburses post-secondary schools participating in federal student aid distribution. Higher education institutions must participate in one of the following programs to be eligible to receive it.


  • Federal Pell Grant 
  • Federal Work-Study
  • Federal Supplemental Educational Opportunity Grant 


Institutions participating in these programs are entitled to ACA funds if they distribute financial aid awards to their students in an academic year. The funds are not part of the school’s funding level, or the total amount of funding given to an institution at any point in a year. Instead, the U.S. Department of Education provides the funds based on a program’s student recipient information. 

How Does the Administrative Cost Allowance Work?

To calculate the amount a program can receive in ACA funds, the U.S. Department of Education accounts for a school’s total number of Pell Grant recipients. This number includes students who have received and accepted at least one disbursement award. 


However, the U. S. Department of Education does not consider all students when determining how much programs can receive in allowance payments. Exclusions apply to students that:


  • Are ineligible for a Pell Grant award
  • Have been rejected by the Central Processing System
  • Have not received their disbursements despite being accepted into the Central Processing System


Generally, the administrative cost allowance equals:


  • Five percent of a program’s $2,750,000 expenditures to students, plus
  • Four percent of expenditures to students between $2,750,000 and $5,500,000, plus 
  • Three percent of expenditures to students above $5,500,000. 


Administrative cost allowances work differently for schools with a Pell Grant program than those with campus-based programs.

Pell Grant Programs

Institutions in the Pell Grant Program receive a reimbursement of $5 for every Pell Grant awarded to each student in an academic year. The reimbursements are the school’s funds and should not be distributed to their students. 

Campus-Based Programs

Institutions participating in campus-based programs can take their administrative cost allowances from one or multiple programs. For example, they can take their ACA funds from the Federal Supplemental Educational Opportunity Grant or the Federal Work-Study program. They can also decide how much money they want to draw from each program.    

What Can the Administrative Cost Allowance Be Used For?

Institutions with Pell Grant programs can use ACA allowances to offset related expenses, as well as to cover costs associated with:


  • Consumer information requirements
  • Staff salaries
  • Aid administration software
  • Training costs for financial aid staff


Just like schools in the Pell Grant program, institutions in campus-based programs can use ACA funds to reduce student aid program costs. Additionally, ACA awards help post-secondary schools streamline their financial aid management tasks and fund operations that are critical to the success of their school.

Learn About Fame’s Financial Aid Services

Administrative cost allowances can get complicated, so you need a school management program like Fame to navigate these challenges. Check out our financial aid processing services if you need software solutions that streamline financial management tasks currently taking up valuable time. 


To get a glimpse of services in action, request a free consultation.


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