Legislative Analyst's Office Analysis of the 2003-04 Budget Bill

Intersegmental: Financial Aid

Financial assistance for students in higher education comes in many forms and is offered by many entities. The major forms of financial assistance include grants (scholarships and fellowships), loans, work study, investment accounts, and tax credits. The major providers of financial assistance are the federal government, state government, universities, and private benefactors. California has several state programs to help students obtain financial assistance for college—including the Governor's merit scholarships, the Cal Grant entitlement and competitive programs, the University of California (UC) and the California State University's (CSU) institutional aid programs, the California Community Colleges Board of Governors' fee waiver program, and the Scholarshare Trust program.

The Governor's budget includes four major financial aid proposals.

• Modifies Funding Schedule for Governor's Scholarship Programs to Pay Award Winners After They Have Completed Eleventh Grade. The Governor's budget includes $43 million to fund eleventh grade students who qualify for Governor's Scholarship awards. The Governor's budget proposes to postpone funding ninth and tenth grade students who qualify for awards in 2003-04 until the award winners have completed the eleventh grade.
• Increases Value of Cal Grant Awards for Students Attending UC and CSU. The Governor's budget includes a $35 million Cal Grant augmentation to compensate for increases in student fees at UC and CSU. The augmentation would ensure that Cal Grant recipients attending UC and CSU continue to receive sufficient financial aid to cover all educational fees.
• Reduces Value of Cal Grant Awards for Students Attending Private Colleges. The Governor's budget proposes to reduce the maximum Cal Grant award amount for students attending private colleges by 9 percent. This proposal generates a total of $10 million in savings. The maximum award amount would be reduced from its current level of $9,708 to $8,832 for new Cal Grant recipients attending private colleges. Existing Cal Grant recipients would continue to receive the higher current award level of $9,708.
• Assumes One-Third of Additional Student Fee Revenue Is Directed to UC and CSU's Institutional Aid Programs. Continuing a recent practice, the Governor's budget assumes that UC and CSU will direct one-third of additional student fee revenue to needs-based financial aid programs within their respective systems. This set-aside would augment UC and CSU's institutional aid budgets by $95 million and $71 million, respectively. This represents a 62 percent and 58 percent increase for UC and CSU, respectively, over their current-year institutional aid budgets (prior to the fee increase).

In the following sections, we provide an alternative to the Governor's financial aid proposals. Figure 1 compares the Governor's budget proposals with our alternative. We recommend the Legislature: (1) eliminate the Governor's Scholarship programs, (2) approve a Cal Grant augmentation for students attending UC and CSU, (3) reject the proposed Cal Grant reduction for students attending private colleges, (4) amend the proposed set aside for UC and CSU's institutional aid budgets, and (5) provide fee assistance to all first-year Cal Grant B recipients. 

Governor's Scholarship Programs

In 2000-01, the state established two new merit-based scholarship programs.

• Governor's Scholars Program Provides $1,000 Scholarships. This program provides a $1,000 scholarship to each high school student who obtains high combined reading and mathematics scores on state achievement tests. Specifically, students are eligible for these scholarships if they score either in the top 5 percent of test takers in their grade level statewide or in the top 10 percent of test takers in their grade level at their public high school.
• Governor's Distinguished Mathematics and Science Scholars Program Provides Supplemental $2,500 Scholarships. This program provides an additional $2,500 scholarship to each high school student who earns a Governor's Scholars award and obtains high scores on advanced mathematics and science achievement tests. Specifically, students must attain the highest possible score on an advanced placement calculus exam and an advanced placement exam in biology, chemistry, or physics. (If students do not have access to advanced placement exams or they are involved in alternative educational programs, they may qualify by obtaining comparably high scores on Golden State exams or International Baccalaureate exams.)

State Has Provided More Than $100 Million Annually Since Programs' Inception. In 2000-01 and 2001-02, the state provided $118 million annually for the Governor's scholarship programs. In 2000, approximately 106,000 students qualified for the $1,000 awards and approximately 500 qualified for the supplemental $2,500 math and science awards. In 2001, approximately 114,000 students qualified for the $1,000 awards and approximately 1,300 qualified for the supplemental $2,500 math and science awards. Since the programs' inception, slightly more than 80 percent of qualified students have claimed their awards. In 2002-03, the state provided $28 million in the budget act and the Department of Finance authorized an augmentation of $93 million—for a total funding level of $121 million.

Eliminate Governor's Scholarship Programs

We recommend the Legislature eliminate the Governor's Scholars Program and the Governor's Distinguished Mathematics and Science Scholars program because neither program is likely to enhance access to college. Moreover, the state already has longstanding, well-developed programs designed to reward academic achievement. (Eliminate Item 0954-101-0001, for a savings of $43 million.)

The Governor's Scholarship programs are relatively new and high cost. Moreover, the state's fiscal situation has deteriorated substantially since the programs' inception in 2000. Given this background, we recommend the Legislature eliminate the programs because: (1) neither program is likely to enhance access to college; (2) the state already aids all qualified middle-income and low-income students through the Cal Grant A and Cal Grant B entitlement programs; and (3) the state already has a well-integrated higher education system with selective admission standards, relatively low student fees, and relatively generous financial aid packages for deserving students.

Governor's Scholarship Programs Unlikely to Enhance Access. The Governor's Scholarship programs provide financial awards only to top-ranking students, as defined by scores on achievement tests. As years of research has shown, a very high correlation exists between students' academic achievement and their parents' level of education and family income. Thus, the Governor's Scholarship programs are likely to benefit many students from relatively high-income families with college-educated parents. These students are the most likely already to be highly motivated and planning for college. In many cases, these scholarships therefore will not be a major factor in students' decision to attend college. Thus, these programs are unlikely to increase access—that is, they are unlikely to help students who would not otherwise be able to afford college.

Middle-Income Students Already Benefit From Cal Grant A Program. One concern might be that the Governor's Scholarship programs provide important financial aid benefits to middle-income students. California, however, has a well-developed Cal Grant A program aimed at meritorious, middle-income students. Moreover, this program is now an entitlement for recent high school graduates who are younger than 24 years old. To receive a Cal Grant A award, students must meet both academic and financial criteria. Academically, students must have a minimum grade point average (GPA) of 3.0. Financially, students must have some need, but the program's income and asset ceilings are relatively generous. For example, the income ceiling for a dependent student with a family size of four is $66,200 and the asset ceiling (excluding the principal residence) is $51,200. In 2002-03, almost 20,000 students received Cal Grant A awards.

State's Financial Aid Program Now an Entitlement for All Qualified Students. Through the establishment of the Cal Grant entitlement program in 2000, the state now guarantees that all qualified students with financial need receive financial resources for college. The entitlement program includes both the Cal Grant A program (mentioned above) and the Cal Grant B program, which targets low-income students meeting minimum GPA requirements. The state therefore already has financial aid programs specifically designed for both meritorious low-income and middle-income students. An additional scholarship program is not necessary either to help promote achievement or ensure access for financially needy students.

Public Higher Education System Already Designed to Promote and Reward Merit. Even before the state established the Governor's Scholarship programs, the state already had taken strong actions to promote and reward meritorious students. Indeed, the Master Plan for Higher Education in California: 1960-1975 was based on the fundamental principle that UC and CSU would have selective admission standards—serving the top one-eighth and one-third of high school graduates, respectively. If students do meet these admission standards, the state generously subsidizes their education regardless of financial need. On average, the state provides approximately $18,600 and $9,900 in General Fund support per full-time equivalent student at UC and CSU, respectively. Selective admission standards, generous subsidies, and relatively low student fees are indeed the cornerstones of the state's higher education system. In short, the state already has designed an integrated higher education structure that encourages and rewards academic achievement.

In conclusion, we recommend the Legislature eliminate the Governor's Scholarship programs because they distribute scarce resources in an inefficient manner—aiding all students, rich and poor, even if additional financial resources are not needed and will not promote access. Additionally, the state already has a well-designed postsecondary system that both promotes academic achievement through rigorous admission standards and provides deserving students with monetary resources to help them pay college-education costs.

Option—Convert Entirely to Pay-As-You-Go System

If the Legislature decides to retain the program, we recommend converting it to a pay-as-you-go system and having the Student Aid Commission (SAC) administer the program.

Current System Funds Award Recipients While Still in High School. Under the current funding system, ninth, tenth, and eleventh grade students take an achievement exam in the spring. If they qualify for a Governor's Scholarship award, they are notified the following winter. Funding for all awards is provided to the Scholarshare Investment Board, which establishes an account for each student (once he or she "claims" an award by filing the necessary paperwork). Money in these accounts is owned by the state but held in the award recipient's name. Funds from these accounts are invested and earn interest. The principal and interest remain assets of the state until used by a recipient for qualified higher education expenses. If an award recipient has not attended college by the age of 30, the funds then revert to the General Fund. Consequently, the state could reserve monies in an account for up to 16 years and then the funds could revert to the General Fund—never having benefited any student.

Governor's Proposal Also Funds Award Recipients While They Still Are in High School. Under the Governor's proposal, the state would place each student's total award in a state account once he or she is in the eleventh grade. Because some students might choose not to attend college, the state still could hold their award funds up to 14 years before reverting them to the General Fund. Again, during all this time, the funding never would have benefited any student.

If Retained, Convert to Pay-As-You-Go System. If the program is retained, we recommend converting it to a pay-as-you-go system, whereby the state would maintain a list of eligible award recipients and would pay the awards only once a recipient had entered college and actually needed the monies for qualified higher education expenses. As corollary adjustments, we recommend the state offer a set award amount without an interest-earning component and have SAC administer the program. As a result of this conversion, very few award recipients would be eligible for payment in 2003-04, thereby yielding approximately $43 million in General Fund savings. The state would begin to incur more sizeable costs in 2004-05 as the first award cohort under the new payment schedule entered college. Costs would then grow as more award cohorts entered college, but, even at full implementation, the cost always would remain lower than it currently is because no monies would unnecessarily be reserved for students who do not attend college.

Cal Grant Awards for Private-College Students

We recommend the Legislature reject the Governor's proposal to reduce the Cal Grant award for students attending private colleges because these awards, in many cases, actually provide the state with fiscal advantages and strengthen educational accountability among public universities. (Increase Item 7980-101-0001 by $10 million.)

Although we recommend the Legislature approve a Cal Grant augmentation for UC and CSU students, we recommend the Legislature reject the proposed Cal Grant reduction for students attending private and independent colleges. The Governor's budget proposes to reduce the maximum Cal Grant award for students attending private and independent colleges by 9 percent. This would reduce the maximum award from its current rate of $9,708 to $8,832.

Value of Cal Grant Award for Private-College Students Already Has Eroded Since 2000-01. The last time the state raised the maximum Cal Grant award for students attending private and independent colleges was in 2000-01—when the award was raised from $9,420 to $9,708. Since that time, inflation has eroded the value of the award by 5 percent (see Figure 2). In real dollars, the Governor's 2003-04 proposal would result in a 16 percent decline since 2000-01. By comparison, the Governor's budget proposes increasing the value of the Cal Grant award for students attending UC and CSU by 35 percent and 38 percent, respectively. 

In Many Cases, Cal Grant Awards for Financially Needy Students Attending Private Colleges Can Reduce Overall State Costs. In many cases, the state provides less funding for a financially needy student who attends a private rather than a public university. Figure 3 compares the level of funding the state provides for a financially needy student attending UC, CSU, an independent college, and a private-career college.

State Pays More for Financially Needy Students Who Attend UC Rather Than Private Colleges. The Governor's budget proposal provides approximately $13,700 for each additional full-time, financially needy student attending UC. This amount does not include capital outlay funding or institutional financial aid UC provides to financially needy students. Even without including these components, the amount is approximately $4,800, or 55 percent, more than the amount the Governor proposes providing for a financially needy student who attends an independent or private college. Even if the private-college Cal Grant award was maintained at the existing level of $9,708, a financially needy student at UC still would receive almost $4,000, or 41 percent, more than a financially needy student who attends a private college. Despite this disparity, many financially needy students attend private colleges that are similar to UC in cost and quality. For example, in 2002-03, 820 Cal Grant recipients selected to attend the University of Southern California (USC) and 407 recipients attended Stanford University. More Cal Grant recipients attended USC and Stanford University in 2002-03 than any other private or independent college.

State Pays Slightly More for Financially Needy Students to Attend Private Colleges Rather Than CSU. The Governor's budget proposal provides approximately $8,600 for each additional full-time, financially needy student attending CSU. This amount also does not include capital outlay funding or institutional financial aid CSU provides to financially needy students. This amount is roughly $300 below the private-college Cal Grant award proposed by the Governor and $1,100 below the existing award level. Although slightly higher, the private-college Cal Grant award still is a wise fiscal investment because, to the extent it encourages students to attend private rather than public universities, it increases the overall capacity of the system and allows more individuals to receive the benefits of higher education. 

Meaningful Choice Vital to Holding Public Universities Accountable. The value of a Cal Grant award should be sufficient to enable financially needy students to base their college selection on the comparative quality of universities rather than merely on the monetary incentive provided. Based on this rationale, the state should provide neither an overly generous nor a too paltry Cal Grant award for students attending private institutions. If the award amount is overly generous, students may select a private institution even if the quality of education is inferior to public institutions. Similarly, if the award amount is too low, students may attend a public rather than private institution even if the quality of education is lower at the public institution.

• Promoting Student-Driven Accountability. Providing an appropriately sized Cal Grant award to students considering private colleges is vital to maintaining accountability in higher education. This accountability mechanism is particularly significant given the absence of a formal accountability system in higher education. Unlike K-12 education, UC and CSU are given considerable latitude in allocating their state General Fund monies and are not required to establish and report on specific performance targets. In the absence of a state-driven accountability system, having a student-driven accountability system whereby students, including financially needy students, have the ability to make meaningful choices among colleges is significant.
• Maintaining Appropriate Incentives, Treating Students Consistently. Reducing the Cal Grant award for private-college students by almost $900 while at the same time increasing the award by $1,200 for UC students and almost $550 for CSU students weakens this accountability system. Ideally, Cal Grant award amounts for all students—those attending private colleges, UC, and CSU—would be adjusted in a consistent manner, to account for inflationary increases in fees and tuition costs. Given the fiscal difficulties the state is facing in the budget year, we recommend maintaining the existing Cal Grant award level for private students. 

In conclusion, we recommend the Legislature reject the Governor's proposal to reduce the Cal Grant award for students attending private colleges. Instead, we recommend the Legislature maintain the award at its existing level because the existing level, in many cases, is fiscally advantageous for the state. That is, the state provides considerably less funding for a financially needy student attending a private college than it provides for students of all income levels who attend UC. It provides approximately the same amount for a financially needy student attending a private college rather than CSU. In addition to the fiscal benefit, Cal Grant awards for financially needy, private-college students promote meaningful choices among college campuses and encourage better educational accountability among public universities.

UC and CSU's Institutional Aid Programs

In 1993-94, both UC's Board of Regents and CSU's Board of Trustees adopted new fee and financial aid policies. As part of the new policies, UC and CSU would divert one-third of additional student fee revenue to their institutional financial aid programs. Institutional financial aid programs are developed and administered directly by UC and CSU, and each system has a different set of rules regarding how aid is apportioned among students.

Even prior to the new 1993-94 fee and financial aid policies, UC and CSU had a practice of setting aside some revenue each year to use for their institutional financial aid programs. Over time, both General Fund monies and student fee revenues have been used to support institutional aid programs. Annually, the state and systems determine exactly how much funding to set aside and what funding sources to use. However, neither statute nor budget bill language controls how UC and CSU are to use financial aid monies.

Reexamining the Rationale for Institutional Aid Programs

The initial rationale for setting aside funds for institutional financial aid programs was to help financially needy students cover fee increases. The UC's institutional aid program was established in 1968-69—the same year UC instituted its registration fee, thereby increasing the total student fee from $220 to $300. Similarly, CSU's institutional aid program was established in 1982-83—the same year CSU instituted its education fee, thereby increasing the total student fee from $206 to $430. Because the Cal Grant entitlement program now guarantees that all financially needy students (as defined by the state) can receive aid to cover registration and education fees at UC and CSU, the initial rationale for institutional aid is no longer valid.

Because institutional aid programs are no longer needed to help financially needy students cover education fees, we think the Legislature should reexamine its objectives in supporting institutional aid programs. Specifically, we recommend the Legislature consider the following three issues.

• Should the state support institution-specific rather than student-centered financial aid programs?
• If the state should have institutional aid programs, then how should it fund these programs?
• When and how should it adjust these budgets?

The Case For and Against Institutional Financial Aid. In thinking about the case for and against institutional financial aid programs, we have identified three conditions under which the state should support institution-specific programs rather than statewide programs. The state should support institution-specific programs if: (1) the cost of education at UC and CSU is different, (2) the financial needs of UC and CSU students are different, and (3) the state is less able than UC and CSU to understand fully how these costs and needs vary. Under such circumstances, the state would do a qualitatively poorer job than UC and CSU in designing a financial aid system that rightly accounted for these differences. Considering the cost of education does vary at UC and CSU, and UC and CSU's student bodies do vary in terms of available financial resources, the pivotal question is whether the state is better or less able than the segments to design an appropriate financial aid system.

State Is Better Able to Appropriately Account for Differences in Cost of Education and Students' Financial Needs. We think the state is better positioned than UC and CSU to make critical redistribution decisions. This is because the state is entrusted with promoting the interests of all students statewide and it has broad budgetary responsibility to consider overall trade-offs in state spending priorities. By comparison, UC and CSU are entrusted with promoting the interests of students on their particular campuses and they are not required to assess the consequences of statewide redistribution policies and spending priorities. Moreover, the state already makes critical fiscal judgments regarding how much funding to provide for each additional UC and CSU student. The state also already tailors the Cal Grant program to individual students' needs, offering UC students larger awards than CSU students to account for UC's higher fee rate. 

Redistribution Should Be State Responsibility. Given the importance of financial aid and the significant ramifications financial aid decisions have on students' access to higher education, we think the state, rather than UC and CSU, should weigh the merits of alternative aid principles and establish appropriate financial aid policies. Otherwise, important financial aid and redistribution policies will be made outside the purview of state policymakers and without consideration of overall state trade-offs.

Institutional Aid Principles Should Be Established in Statute and Funding Should Be Adjusted Annually Through Budget Bill Provisions. Left within the sole purview of UC and CSU, institutional aid policies are and will continue to be difficult for the Legislature to monitor, assess, and modify. Indeed, few policymakers at the state level can explain what types of students benefit from UC and CSU's institutional aid programs. In contrast, the state's Cal Grant policies are expressly stated in statute and high school students know whether they meet the academic and financial requirements for receiving state aid. We think institutional aid principles also should be expressly declared at the state level. General guidelines should be established through statute and annual adjustments should be expressed through related budget bill provisions.

In conclusion, we think the state should have financial aid policies that account for differences in college costs and students' needs. We believe the state, however, should make these policies publicly, in a transparent fashion, and should document these policies through statute, making appropriate annual adjustments through corollary budget bill provisions.

Governor Proposes Massive Augmentation to UC and CSU's Institutional Aid Budgets

The Governor's budget assumes that both UC and CSU will set aside a portion of new student fee revenue for their institutional financial aid programs. The UC plans to set aside one-third of all student fee revenue above the current-year level—including additional revenue generated from proposed fee increases as well as revenue generated as a result of enrollment growth. The CSU plans to set aside one-third of only student fee revenue resulting from proposed fee increases. It does not plan to set aside one-third of fee revenue generated from enrollment growth. Instead, CSU plans to use this revenue to help support instructional activities and fund mandatory budget-year costs.

Institutional Aid Budgets Increasing by Excessive Proportion. Figure 4 shows proposed changes in UC and CSU's institutional aid budgets from the enacted 2002-03 budget to the proposed 2003-04 budget. 

The proposed augmentation at UC is $95 million, which is 62 percent more than was budgeted in the current year (prior to the fee increase). Similarly, CSU plans to designate an additional $71 million for its institutional aid program—an augmentation of 58 percent over the current year (prior to the fee increase). The budget provides no justification for such increases. Certainly there is no evidence that students' financial need increased by so much so quickly.

Appropriate Augmentation in Budget Act, Specify General Policy Guidelines

We recommend the Legislature provide additional guidance in the development of institutional financial aid policies. To begin these efforts, we recommend the Legislature appropriate General Fund and student fee revenue for institutional aid in the budget act, including budget bill language stating general guidelines on how the University of California (UC) and the California State University (CSU) are to distribute any budget-year augmentation for institutional aid. We further recommend the Legislature begin working with UC, CSU, and other interested parties to develop legislation that would establish appropriate financial aid principles for serving financially needy students at the various higher education segments. (Establish new UC Item 6440-001-0498 and new provision in CSU Item 6610-001-0498.)

Given the concerns we have outlined regarding making important redistribution decisions outside of the state's purview and given the extremely large augmentations scheduled in the budget year for UC and CSU's institutional aid programs, we recommend the Legislature: 

• Appropriate all institutional aid funding—both General Fund and student fee revenue—explicitly in the 2003-04 Budget Act.
• Reduce the proposed augmentation for institutional aid to a more reasonable level that reflects the actual costs UC and CSU are likely to incur as a result of enrollment growth. Increasing UC and CSU's institutional aid budgets by 4 percent—consistent with our recommended enrollment growth rates—results in an augmentation of $16 million for UC and $15 million for CSU. This is $79 million and $55 million less than the augmentation assumed for UC and CSU, respectively, in the Governor's budget proposal. The UC and CSU would retain this additional student fee revenue, which they could use to further offset proposed reductions.
• Adopt budget bill provisions that provide UC and CSU with general guidelines regarding how the augmentation for institutional aid is to be used to benefit students in 2003-04.
• Begin working with UC, CSU, and other interested parties to develop legislation that more clearly expresses the objectives of financial aid policies and more clearly identifies the intended beneficiaries of these financial aid monies. In developing this legislation, we recommend the Legislature consider an array of options—including retaining specialized UC and CSU programs, expanding and modifying existing statewide programs, such as the Cal Grant B program and the competitive Cal Grant program, and creating distinct programs for graduate and undergraduate students.

Fee Assistance for First-Year Cal Grant B Recipients

We recommend the Legislature provide fee assistance to all first-year Cal Grant B recipients to ensure these students are not affected adversely by fee increases at the University of California and the California State University. We estimate this would cost approximately $95 million.

The state's Cal Grant B program is designed to serve the financially neediest students in the state. The program provides a subsistence award of up to $1,551 during a student's first year of college. In the second, third, and fourth years of college, the Cal Grant B program provides a student with both the subsistence award and financial aid to cover educational fees and tuition (of up to $9,708). However, state law includes a special provision known as the "2 percent rule" that permits up to 2 percent of new Cal Grant B recipients enrolling in college for the first time to receive both a subsistence award and fee assistance during their first year of college. Priority for first-year fee assistance is given to students with the greatest financial need and the highest level of academic merit. The remaining 98 percent of first-year Cal Grant B recipients receive only a subsistence award.

Most First-Year Cal Grant B Recipients Will Be Affected by UC and CSU Fee Increases Unless Program Is Modified. Because only 2 percent of Cal Grant B recipients currently are eligible for fee assistance during their first year of college, most first-year Cal Grant B recipients—again, the financially neediest students in the state—will be affected by fee increases at UC and CSU. The proposed fee increases of 25 percent at both UC and CSU are of relatively large magnitude. (Elsewhere we recommend that this fee increase be reduced to 15 percent, which although more modest, still would be significant.) Depending on the severity of their financial circumstances, some students might find that they cannot afford the new fee levels and therefore might decide not to attend college. In these cases, students who are both academically meritorious and financially needy would be denied access.

Current Fee-Assistance Policies Generate Several Perverse Outcomes. Currently, although the state does not provide fee assistance to most first-year Cal Grant B recipients, it does provide fee assistance to all Cal Grant A recipients during all four years of college. Cal Grant A recipients are on average less financially needy that Cal Grant B recipients (that is, the income and asset ceilings are substantially higher for the Cal Grant A program). The state's current fee-assistance policies generate two perverse outcomes—both of which would be corrected if the state provided fee assistance to all first-year Cal Grant B recipients.

• The financially neediest students in the state (Cal Grant B recipients) would beaffected by UC and CSU fee increases whereas less financially needy students (Cal Grant A recipients) would not be affected. That is, the state would provide fee assistance to first-year Cal Grant A recipients, thereby removing any adverse effect of fee increases, whereas the state would not provide fee assistance to first-year Cal Grant B recipients.
• Currently, the state provides the financially neediest students who attend private colleges with fewer resources over their four years of college compared to less financially needy students. A Cal Grant B recipient currently attending a private college would receive a four-year aid package totaling $35,300. By comparison, a Cal Grant A recipient attending a private college would receive a four-year aid package totaling 38,800, which is $3,500, or almost 10 percent, more than a Cal Grant B recipient receives.

In conclusion, we recommend the Legislature provide all Cal Grant B recipients with fee assistance during their first year of college. This would ensure that these students are not adversely affected by fee increases at UC and CSU. It also would correct a couple of perverse outcomes resulting from the state's current fee-assistance policies. We estimate that providing fee assistance for all Cal Grant B recipients would cost approximately $95 million. To accommodate this amount of funding, we recommend various reductions to other higher education programs that, if taken in total, would be sufficient to fund this augmentation.