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Other Budget Issues

Last Updated: 2/10/2011
Budget Issue: Financial Aid Savings Options
Program: Student Aid Commission
Finding or Recommendation: Modify financial aid programs to better target resources and create GF savings. Options include eliminating non-need-based fee waivers ($25 million), raising minimum GPA for Cal Grant eligibility from 2.0 to 2.5 ($20 million), limiting Cal Grant competitive awards to stipends only (no fee coverage) ($30 million), adjusting Cal Grant financial eligibility criteria (variable), reducing the amount of fee revenue redirected to campus aid programs (variable), and modifying CCC fee waiver program.
Further Detail

Preserving the state’s comprehensive system of student financial aid—including Cal Grants, university grants, and CCC fee waivers—is key to maintaining the affordability of higher education in California. There are some aspects of these programs, however, that could be improved. In addition, there are some smaller financial aid programs that do not necessarily improve affordability for students. We recommend some changes to these programs, and offer additional modifications in the event the Legislature requires further General Fund savings from financial aid programs.

Eliminate Non-Need-Based Tuition Waivers. All three public higher education segments are required by state law to waive fees for survivors and dependents of deceased and disabled veterans and public safety workers. Federal assistance programs provide education benefits to these same populations. Some of these federal programs reduce awards by the amount of other governmental assistance—including fee waivers—that a student is eligible to receive. As a result, by providing fee waivers to these students the state is using state and institutional funds for costs the federal government would otherwise pay. (Other federal programs duplicate, rather than supplant, state benefits.)

In addition, California’s tuition waiver programs are available to students who are not financially needy (as typically defined). Because they provide benefits to non-needy students or duplicate existing benefits, these programs do not improve affordability of higher education. These mandatory waivers account for more than $50 million in forgone tuition revenue at public colleges and universities. While we recognize the desirability of honoring service and sacrifice, we believe that state financial aid resources should be targeted to students who would otherwise not be able to afford college. Students who currently qualify for state waivers could instead receive federal aid to cover tuition costs. Those with financial need could also qualify for existing state need-based aid. Given the magnitude of the state’s budget problems, we recommend eliminating the non-need based waiver programs and directing eligible students to the corresponding federal benefits and need-based state programs. (Our savings estimate of $25 million assumes that one-half of current recipients would qualify for state need-based financial aid programs.)

Increase Minimum GPA for Cal Grant Eligibility. Under the Cal Grant High School Entitlement program, students must attain a high school grade point average (GPA) of 3.0 to qualify for Cal Grant A awards, which provide full fee coverage for four years. Students may qualify for Cal Grant B awards, which provide stipends of $1,551 each year and full fee coverage after the first year, with a 2.0 GPA. Students with a GPA of 2.0 have extremely low rates of persistence and success in college. Estimates show fewer than 20 percent of CSU students who earned high school GPAs of 2.0 or less graduate from college. We recommend raising the minimum GPA for Cal Grant B awards to 2.5. Likewise, we recommend raising the minimum GPA for Cal Grant Transfer Entitlement awards--currently 2.4--to 2.5. These actions would reduce the number of Cal Grants by about 17,000 and save $20 million.

Limit New Competitive Cal Grant Awards to Stipends Only. Community college students receive three-quarters of new competitive Cal Grant awards but only one-third of new funding. Students at UC, CSU, nonprofit colleges and universities, and private career schools receive one-quarter of awards (about 4,000) with the majority of funding. This is largely because community college students do not receive fee coverage as part of their grant awards. (Instead, they qualify for campus-based fee waivers, and receive a $1,551 annual stipend to cover expenses other than fees.) Restricting all new competitive awards to this amount would not affect the three-quarters of new recipients who are CCC students. Other students would have the option to attend a community college with fee waivers and stipends, or seek additional financial aid at other institutions. This would create about $30 million in ongoing General Fund savings beginning in 2011-12. Continuing this policy for the first two years of undergraduate studies would result in additional savings in 2012-13 and beyond.

Adjust Cal Grant Financial Eligibility Criteria. For 2011-12, a dependent student from a family of four may qualify for a Cal Grant with a family income up to $78,100. (The threshold is lower for some Cal Grants.) This is approximately the median income for a family of four in California. The Legislature could adjust financial eligibility criteria to reduce the number of students who qualify for Cal Grants. For example, it could set maximum income levels at a lower amount, such as 90 percent of median family income, or a multiple of the federal poverty guideline (such as 250 percent). Alternatively, it could eliminate income and asset ceilings and use only the Expected Family Contribution (EFC), calculated through the federal aid formulas. The EFC reflects family resources (income and assets) as well as costs (including the number of family members attending college.) Cal Grant eligibility could be based on a maximum EFC, ensuring that funds are targeted to the students with the fewest financial resources. The savings from such actions would depend on the particular income or EFC level selected.

Reduce Amount of Tuition Revenue Redirected to Campus Aid Programs. In recent years, UC and CSU have redirected one-third of new revenues from tuition increases to augment campus aid programs. The universities provide about $900 million in campus aid to undergraduates—nearly $100 million more than their students receive in Cal Grants. Each segment sets its own policies for awarding campus aid, reflecting different priorities at UC and CSU.

Because they divert a portion of tuition revenue to aid programs, the segments must set tuition levels higher than they otherwise would in order  to achieve a given revenue target. This higher tuition, in turn, raises Cal Grant costs. Diverting somewhat less of the revenue to aid would permit lower tuition and reduce the impact on Cal Grants. This could be accomplished while preserving the structure of financial aid programs by requiring modest increases in all student contributions or targeting reductions to those with the least financial need.

Modify CCC Board of Governors Fee Waiver Program Requirements. The Community College League of California, in its “Commission on the Future” report, recommends aligning CCC Board of Governors (BOG) fee waivers with federal criteria for financial aid. Specifically, it would require that students be making satisfactory academic progress to qualify for continued aid. We think this idea has merit, and should be considered independently or in concert with other BOG fee waiver reforms, such as limiting waiver amounts to the amount of financial need demonstrated by each recipient. Potential savings are unknown at this time. Benefits would include targeting aid resources to students who are making progress toward their educational goals.