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Last Updated: 2/23/2012
Budget Issue: Longer-term financial aid reforms
Program: Student Aid Commission
Finding or Recommendation: Consider longer-term reforms to state aid programs, including (1) instituting more consistent, comprehensive approach to aid across segments; (2) differentiating award amounts based on specific student needs ; (3) developing rational policy for award levels at different types of institutins; (4) setting limit on awards for lower-division studies; and (5) decentralizing Cal Grant delivery.
Further Detail

Longer–Term Reforms. In addition to options that would provide immediate budgetary savings, we have identified some longer–term reforms for the Legislature to consider. These are more extensive changes that would reshape the state's financial aid programs. All require further development, analysis, and deliberation to determine their long–term costs and impacts for California. We include them here so that the Legislature can maintain a longer view of the changes needed in its financial aid programs, in addition to stopgap changes it may need to implement in the short–term.

  • Instituting a More Consistent and Comprehensive Approach to Financial Aid Across Postsecondary Segments. Under this approach, the state would consider federal, institutional, and state aid along with student and family responsibility to meet a targeted level of student financial need. Rather than focusing mainly on tuition costs, as the current Cal Grant program does, this approach would consider total costs of attendance. Oregon and Minnesota are among states that have recently instituted more holistic strategies for meeting financial need. This reform would not necessarily reduce costs, but could improve allocation of financial aid resources whatever the level of state funding.
  • Changing the Award From a Flat Tuition and Fee Amount at the Public Institutions to a Varying Amount That Is More Sensitive to Student Need Levels. As part of a more comprehensive approach, the state could make Cal Grant award amounts more flexible. For example, several states have a maximum award for students with the greatest financial need, and the awards decline with higher family income or lower student need. Although such a change could have significant drawbacks—it could complicate the financial aid outreach message and hamper campuses' ability to fully protect financially needy students from tuition increases—it would also have clear benefits. This approach could help to avoid a cliff effect whereby a student may receive more than $12,000 in one year and zero the following year because of a very small increase in income. It could also help to control automatic spending growth driven by tuition increases and facilitate the comprehensive approach described in the first item.
  • Establishing a Rational Policy Basis for Maximum Award Levels at Different Types of Institutions. As discussed earlier, the state could link award caps to average subsidy levels, as was done in the past. Another option is to differentiate among institutions within each sector based on program types, program outcomes, or other objective factors. A related change could involve tightening requirements for institutions that participate in Cal Grants, perhaps incorporating measures of educational outcomes.
  • Establishing a Limit on Awards for Lower–Division Studies. Currently a student can use all four years of Cal Grant eligibility at a community college, leaving none for the junior and senior years at a university. Restricting utilization to the first two years at a community college could create an incentive for students to complete their lower–division studies and move on to a senior institution. While this change could increase costs in the short term, it could also reduce state spending on students who are taking excess course units and improve program completion rates and time to degree.
  • Improving Delivery of Cal Grants. We have previously recommended decentralizing Cal Grant delivery to campus financial aid offices to improve service to students without increasing costs. (Please see our recent publication, Report on Cal Grant Alternative Delivery Pilot.)
  • Learning From Ongoing Research and Evaluation. Current research in selected community colleges in the state is testing various strategies for improving the effectiveness of financial aid, including performance incentives and alternative payment schedules. Similarly, studies in other states are exploring various aspects of financial aid policy and practice. Policymakers should continue to monitor the results of these studies and consider their implications for Cal Grant programs. The state should also continue to pursue improvements in its longitudinal data system, including developing the ability to analyze the effects of financial aid and other factors on student outcomes.

We will continue to develop these ideas, and provide information and assistance to the Legislature as it explores them. We believe these more fundamental reforms could improve the effectiveness of state financial aid, and better align it with the state's overall goals for postsecondary education.