2009-10 Budget Analysis Series: Higher Education

Consolidation of Higher Education Commissions and Decentralization Of Financial Aid

The Governor proposes consolidating two state higher education commissions and decentralizing financial aid administration. Below, we recommend that the Legislature accept two components of the proposal that are directly related to student financial aid—decentralization and placement of oversight activities in the executive branch. In contrast, we advise the Legislature to reject a third part of the proposal—moving higher education coordinating board activities into the executive branch. In our view, this part of the proposal is incomplete and raises important questions that are left unaddressed. Finally, we encourage the Legislature to consider a more carefully planned reorganization of higher education support activities, including planning and coordination as well as other oversight functions.

Proposal Contains Three Distinct Initiatives

The Governor’s proposal would:

The first two components are closely related, because decentralization would significantly alter CSAC’s responsibilities. On the other hand, because there is minimal overlap between CSAC’s and CPEC’s activities, the transfer of CPEC’s responsibilities is in many ways unrelated to the other two components. Each of the three parts, however, could be implemented independently from the others. For this reason, we address each component separately in our analysis, beginning with decentralization of aid programs. The administration assumes the three components would yield a total of $2 million in savings in the budget year, growing to $4 million on a full–year basis.

Proposal Would Decentralize Financial Aid Programs

Public Segments Would Administer Cal Grants. The Governor proposes to decentralize financial aid program administration from CSAC to the higher education segments. Specifically, each of the public segments would administer Cal Grant entitlement awards for students attending its institutions. In addition, the Chancellor’s Office of the CCC would administer competitive awards for students at all segments and entitlement awards for students attending private institutions.

Other Programs Could Be Contracted Out. The CSAC administers a number of smaller financial aid and outreach programs in addition to Cal Grants (see Figure 20). The Governor’s proposal would authorize CSAC’s successor agency to contract with the public segments to administer the financial aid programs, and with the public segments or a not–for–profit agency to administer the outreach programs.

Figure 20

Student Aid Commission’s Financial Aid and Outreach Programs


Cal Grants

Entitlement Awards provide up to $9,708 to cover tuition and fees, and stipends up to $1,551 for books and other expenses. Awards are guaranteed for students who meet financial, academic, and other eligibility criteria and attend qualifying public or private institutions.

Competitive Awards provide grants up to the same amounts for students who do not qualify for the entitlement, often because they are older and have been out of high school longer. Grantees are selected based on financial need, academic merit, and other factors, such as parents’ educational level and high school’s college-going rate, for 22,500 new grants each year.

Cal Grant C provides 7,761 grants for eligible low-income students preparing for occupational or technical training. Grants cover tuition and fees up to $2,592, plus $576 for other costs.

Loan Assumption Programs

Assumption Program of Loans for Education (APLE) provides up to $19,000 toward outstanding student loans for graduates who teach a total of four years in a qualifying school.

State Nursing Assumption Program of Loans for Education (SNAPLE) for Nursing Faculty provides up to $25,000 toward outstanding student loans for graduates who teach nursing at eligible California institutions.

SNAPLE for Nurses in State Facilities provides up to $20,000 toward outstanding student loans for graduates who work as nurses in eligible state-operated inpatient facilities.

Child Development Teacher and Supervisor Grant Program provides loan assumption for participants who teach or supervise in the field of child care and development in a licensed children’s center. This program is funded from federal funds through an agreement with the State Department of Education (SDE).

Other Loan Assumption Programs include one for qualifying members of the National Guard, State Military Reserve, or Naval Militia and one for persons with graduate degrees who teach at eligible California colleges and universities. Neither of these programs is currently accepting new applicants.

Specialized Grant and Scholarship Programs

Law Enforcement Personnel Dependents Scholarship Program provides college grants equivalent to Cal Grant amounts to eligible dependents of law enforcement personnel who were killed or permanently disabled in the line of duty.

Robert C. Byrd Honors Scholarship Program provides $1,500 federal scholarships to exceptionally able students who show promise of continued academic excellence. The SDE contracts with California Student Aid Commission to administer this program.

California Chafee Grant Program provides grants up to $5,000 to eligible foster youth who are enrolled in college or vocational school. This program is supported by federal funds and the General Fund, through an agreement with the State Department of Social Services.

Outreach Programs

California Student Opportunity and Access Program provides financial aid outreach and tutoring services to disadvantaged K-12 students through consortia of school districts, community colleges, universities, and community groups.

Cash for College provides financial aid workshops to assist low-income students with the Free Application for Federal Student Aid (FAFSA) and the Cal Grant grade point average verification form, and provides other financial aid information.

Authority in Proposed Legislation. Legal authority for decentralization (and other elements of the reorganization) is contained in trailer bill language proposed by the administration. In addition, the Governor’s budget includes a new control section (Section 12.25) authorizing the Director of Finance to reallocate and transfer funding from CSAC and CPEC to other organizations as necessary to implement the reorganization.

Annual Savings Estimated at $2 Million. The decentralization component of the restructuring proposal accounts for about half the savings anticipated by the administration. The Department of Finance (DOF) estimates that approximately 20 CSAC employees are performing tasks that are largely duplicative of work performed in higher education campus financial aid offices. Eliminating these positions, and another 10 support positions (such as accounting, personnel and business services), would save an estimated $2 million annually.

Proposal Would Eliminate CSAC, Move Responsibilities to Executive Branch

CSAC Composition. The CSAC has 15 members, including 5 representatives of the higher education segments, a high school representative, 2 postsecondary students, and 7 public members. The Senate Rules Committee and Assembly Speaker each appoint two public members. The other 11 members are appointed by the Governor and confirmed by the Senate.

CSAC Responsibilities. The CSAC administers Cal Grants and other state financial aid programs for California students attending colleges, universities, and career training schools in the state. Other duties include reporting on the impact and effectiveness of its programs; reporting on the financial need and resources of students in the state, and the extent to which existing programs meet needs; and disseminating information about financial aid. The commission also serves as the federal student loan guaranty agency for California.

CSAC Resources. The proposed 2009–10 budget for CSAC includes $731 million from the General Fund, $18 million in federal funds, and about $1.5 billion in special funds for student loan operations. The budget includes 134.7 positions, excluding state positions related to EdFund, CSAC’s not–for–profit auxiliary organization for administering federal student loan programs.

Proposed Reorganization. The Governor’s proposal would establish a new executive branch department to administer financial aid and outreach programs. It would also establish an advisory board, with a composition and appointment process similar to those of the commission—but it would have no formal powers. The Governor would appoint a director and deputy director for the new department. The director would report to the Secretary of Education, and would “give great weight” to the advisory board’s recommendations in administering and regulating statutory programs.

The CSAC’s civil service staff would be transferred to the new department and the CCC Chancellor’s Office. The director would contract with the Office of State Audits and Evaluations of the DOF for compliance audits of financial aid programs. The administration estimates that the reorganization would lead to the elimination of 30 positions between CSAC and CPEC from administrative efficiencies (in addition to the 30 positions described above related to financial aid decentralization.)

Proposal Would Eliminate CPEC, Move Responsibilities to Executive Branch

CPEC Composition. The CPEC governing board has 16 members, including representatives of the state’s major educational systems (the three public segments, independent institutions, and the State Department of Education), 2 student members, and 9 public members. The public higher education segments designate their respective members. The Governor appoints the independent institution representative, the students, and three public members. The Assembly Speaker and Senate Rules Committee each appoint three public members. The President of the State Board of Education is an ex–officio member.

CPEC Responsibilities. The commission is the state’s higher education planning and coordinating body. Its statutory duties include long–range planning for higher education across segments; participating in the executive and legislative budget processes; advising the Legislature and the Governor on proposals for new campuses, institutions, and programs of public higher education and for changes in eligibility pools for the public segments; acting as a clearinghouse for postsecondary education information and data in the state; and developing criteria to evaluate the effectiveness of higher education programs. The commission also administers a federal grant program to improve teacher quality.

CPEC Resources. The proposed 2009–10 budget for CPEC includes $2 million from the General Fund and $9 million in federal funds (mostly for grants to institutions). The budget includes 20.8 authorized positions.

Proposed Reorganization. The Governor’s proposal would transfer CPEC’s functions to the new executive branch department described earlier, under the supervision of the Secretary of Education. The advisory board would provide recommendations to the department director (and to the Governor, Legislature, other governmental officials, and institutions of postsecondary education), but would have no direct authority to perform policy analysis, planning, or coordination of higher education independent from the executive branch.

While transferring all statutory responsibilities of CPEC, the proposed trailer bill instructs the director to prioritize the essential functions (although these functions are not defined). It authorizes the director to contract with the CCC Chancellor’s Office for data management and collection as necessary to facilitate accountability, planning, and policy development.

The three components of the Governor’s restructuring proposal would provide about $2 million in budgetary savings in 2009–10. In addition, some elements of the proposal would improve state services and responsiveness to students. In the next sections, we discuss the merits of each proposal on policy grounds and offer our recommendations.

Decentralizing Financial Aid

Campuses Provide Most Aid. Most student financial aid is awarded to students through campus financial aid offices based on a common, web–based application form (the Free Application for Federal Student Aid, or FAFSA). The federal Department of Education uses information from the FAFSA (including family income and assets, and number of children in college) to determine the expected family contribution (EFC). Campus financial aid officers use the EFC, in conjunction with information about the costs of attending their institutions—including books and living expenses—to determine each student’s financial need. They then “package” various types of financial aid to meet as much of the financial need as possible.

Campus financial aid officers make awards for most categories of need–based gift aid. They award Pell grants based on federal eligibility criteria, and invoice the federal government for just–in–time payment through electronic funds transfer. They award institutional funds, following campus or system policies and guidelines. The main exception is Cal Grants. Financial aid officers can estimate the amount of funding students are likely to receive from the Cal Grant entitlement program, but they are not authorized to approve the awards.

Cal Grants Require Many Extra Steps. The CSAC awards Cal Grants from its office in Sacramento. To determine eligibility for awards, CSAC uses information from the FAFSA, as well as a specially defined high school GPA. Most California high schools transmit GPA to CSAC electronically, but about 65,000 high school seniors file paper GPA verification forms to apply for Cal Grants. The CSAC determines eligibility for various types of grants, and awards the most advantageous grant to each student. For example, if a student meets the criteria for two types of grants, but would receive more funding over four years with one type, CSAC will award the grant that provides more funds to that student. After requesting supplemental information if needed, CSAC sends award letters (the California Aid Report, or CAR) to students by e–mail, offering the Cal Grant awards. To release awards, CSAC requires verification of high school graduation, which can be supplied by high schools or students. The actual payment of Cal Grants is made through the campuses. The campus financial aid offices confirm student enrollment and verify eligibility, and CSAC pays the campus for each eligible student. Campuses use the funds to pay the students’ fees, and to pay stipends directly to students.

Process Is Fragmented. From the student’s perspective, this process is fragmented and often confusing. Students may have to submit information to the CSAC office in addition to their campus financial aid office. They receive correspondence from CSAC, which sometimes duplicates information they have already received from the campus office, and sometimes contradicts it, when the campus communication is based on new information. In addition, a student’s contact with the local financial aid office is usually face–to–face, with an individual counselor, whereas communication with CSAC is through a web application, mail, e–mail, or call center. From the campuses’ perspective, the Cal Grant award process is duplicative and labor–intensive, and often creates additional work for financial aid counselors to resolve conflicting information.

Decentralization Would Improve Service Delivery to Students. Decentralization would improve delivery of Cal Grant awards to students by giving them a single point of contact—the campus financial aid office—for most financial aid matters. It would also streamline activities for campus financial aid offices.

Decentralization Could Increase Some Costs for Segments… Campus financial aid offices are already performing most of the tasks required to identify eligible students and make grant awards. They have systems in place to estimate Cal Grant eligibility as part of their financial aid packaging. They are also responsible for verifying student eligibility before disbursing grants. In some areas, decentralization will reduce the workload of financial aid offices and reduce administration costs.

There are some tasks, however, that could create new costs for the campuses. Currently, CSAC collects verification of GPA and high school graduation centrally. Many high schools transmit the required data electronically for all students. Some, however, do not have the capacity to transmit the data, and must provide it manually or leave it up to students to submit. Students are ultimately responsible for ensuring that their information is submitted. The CSAC keeps track of submissions, and notifies students of missing or incomplete information. Most campus financial aid offices (and segment offices) do not have systems in place to assume tracking of these data, and developing the systems could be costly.

…But Options to Avoid the Higher Costs. Part of the reason it may be costly to develop these systems is that the Cal Grant requirements do not match those for other financial aid or academic programs. For example, the methodology used for calculating the high school GPA for Cal Grant eligibility differs from that used for nearly any other purpose, such as college admissions.

There are several options for reducing compliance costs for the campuses for these requirements. These include:

Some Functions Should Remain at CSAC. The Governor’s proposal recognizes that some financial aid functions, such as administering specialized programs and conducting compliance audits, should remain centralized. Another important function is tracking remaining eligibility for students. Because Cal Grants are portable, and can be moved from one institution to another, students may use a portion of their eligibility at several different institutions. Currently, CSAC tracks utilization, and campus financial aid offices—as well as grant recipients—can access this information on a web–based system. To maintain portability of Cal Grants and ensure that students do not exceed their maximum utilization periods, it would be important to maintain centralized tracking of utilization and remaining eligibility.

Funding Distribution Can Be Improved. Under the administration’s proposal, Cal Grant funds would be appropriated to the public higher education segments—and to the CCC Chancellor’s Office for private institutions and competitive awards—based on current utilization patterns. (The Director of Finance could transfer unexpended funds among institutions.) The system offices would have to establish methods to distribute the grants to their campuses. While this model could accomplish some of the goals of decentralization, we believe there are important advantages to the federal aid distribution model. In that model, campuses make awards to students, and the federal government promptly transfers funds to the campuses based on invoices for approved awards. This process bypasses the system offices, and avoids extensive payment and reconciliation cycles required under the current Cal Grant model. It would keep General Fund cash in the State Treasury until it is needed, and minimize overpayments and underpayments to the campuses. Another benefit of this model is that it would maintain a clearer distinction between state Cal Grant funds and institutional aid funds. It would also facilitate tracking of individual student utilization and remaining eligibility across institutions. Implementation of such a system, however, could take a year or more.

Competitive and Private Grants Should Be Centralized. Finally, the administration did not provide a rationale for its proposal to administer competitive and private college grants through the CCC Chancellor’s Office. This proposal appears to acknowledge that these functions should be performed centrally (and there are good reasons for this), but fails to explain why these duties should not remain with CSAC or its successor organization. Administration of financial aid programs for non–CCC students is not within the CCC mission. The administration’s proposal already leaves the smaller, specialized grant and loan programs within the purview of CSAC’s successor organization, ensuring that it will still be involved in administering financial aid.

Recommend Legislature Decentralize Cal Grant Award Process. Our recommendations mirror several of the recommendations from a 2002 task force report on decentralization (see box below). We recommend that the Legislature approve the Governor’s proposal to decentralize Cal Grant administration, with some modifications.

2002 Task Force Recommended Decentralization

The Legislature adopted supplemental report language in 2002 directing the California Postsecondary Education Commission (CPEC) to convene a task force to examine alternative delivery systems for the state’s Cal Grant programs. The CPEC submitted a report on the task force’s recommendations in 2003. The main recommendations from the task force were:

  • The state should undertake a transition toward a decentralized, campus–based model for the delivery of both Cal Grant entitlement and competitive awards, one that is more consistent with the federal student aid delivery system.
  • The California Student Aid Commission should convene a task force to develop a new definition of and methodology for calculating the Cal Grant high school grade point average that is more commonly available from high schools and more readily used by colleges.
  • The state needs to obtain complete and accurate information concerning the true costs of both the current Cal Grant delivery system as well as implementing the alternative decentralized model recommended.

Following submission of the report in 2003, Assembly Bill 1323 (Jackson), was introduced to implement the recommendations. The Assembly Higher Education Committee passed the bill unanimously, but the bill did not make it out of the Assembly Appropriations Committee.

Restructuring CSAC

Although we have some specific concerns about the Governor’s reorganization proposal for CSAC, we think it makes sense to move the commission’s duties into an executive branch department. Most of CSAC’s functions are ministerial and could appropriately be performed in an executive branch department. In addition, eliminating the independent governing board that oversees financial aid administration could resolve longstanding conflicts between it and the board of CSAC’s auxiliary organization.

Program Implementation Is Executive Responsibility. The CSAC’s primary responsibility is to administer programs governed by statute. While it also recommends changes to financial aid programs, most of its attention has been focused on program implementation and organizational issues, rather than policy matters. Such implementation of laws is fundamentally a responsibility of the executive branch.

Independent governing boards are useful when there is a need to protect an agency’s work from undue political influence, or when the primary audience for an agency’s work products includes both the legislative and executive branches, as well as the public. For CSAC, the risk of undue political influence is minimal because it administers programs that are governed by eligibility standards established in statute and detailed in regulations. Moreover, the agency’s main customers are students and higher education institutions, not the Governor or Legislature. For these reasons, it is not necessary for CSAC to have an independent governing board, and it could appropriately be constituted as an executive branch department. The placement of the department under the Secretary of Education, however, is problematic. The secretary’s office does not exist in state law and has not managed programs or regulatory activities.

In addition, the name and structure proposed by the administration are confusing, at best. Proposed trailer bill language would give the same name—The Higher Education Accountability and Financial Aid Advisory Committee—to both the advisory board and the executive branch department that administers programs. It would be more accurate—and less confusing—to give the administering department a more descriptive title, such as Department of Financial Aid Administration, that is different from that of the advisory board.

The advisory board itself would have no formal powers. It would be up to the director, who is answerable to the Governor and not bound by the recommendations of the advisory board, to carry out the department’s functions. This brings into question why a strictly advisory body with no actual authority should be statutorily created. Instead, it would be a better management practice for the director to regularly convene one or more advisory panels representing the higher education segments and other stakeholders for regular consultation about entity activities. If it wishes to ensure that this takes place, the Legislature could require the director to convene and consult with such panels. This could be done without creating a formal advisory board in statute.

Restructuring Could Eliminate Conflict With EdFund. As noted earlier, EdFund is an auxiliary organization through which CSAC administers federal guaranteed loan programs in partnership with the US Department of Education. EdFund is a nonprofit, public benefit corporation, and is exempt from state hiring and procurement rules so it can compete in the financial services industry. It remains, however, under the ultimate control of CSAC, which appoints the members of its board of directors.

EdFund’s twelve–year history has been marked by repeated conflicts between its board of directors and the Student Aid Commission. Underlying conflict may be inherent in a structure that includes two governing bodies with overlapping responsibilities working in two very different operating environments. Tensions may also result from differences in resources between the two organizations. EdFund generates considerable revenues from its loan activities and is able to provide executive compensation and employee rewards that are competitive in the private–sector financial services industry, while CSAC operates under the constraints of state budgets and stricter rules governing use of public funds.

On three occasions, CSAC has voted to remove the EdFund Board of Directors. In March 1999, the commission replaced all but one board member. In April 2005, CSAC removed the non–commission members from the board. In fall 2008, CSAC voted to remove the entire board and assume direct oversight of EdFund activities.

These conflicts have created tensions between the Governor’s staff and CSAC. The DOF has been called upon to mediate numerous disputes between CSAC and EdFund. The Director of Finance, who has approval authority for decisions that may affect the value of EdFund (see box below), refused to approve CSAC’s 2008 decision to dismiss the EdFund Board. Following the commission’s fall 2008 action, the Governor removed the Chair of CSAC, who had not yet been confirmed by the Senate.

Sale of EdFund Authorized

Sale Authorized in 2007. The 2007–08 Budget Act and Chapter 182, Statutes of 2007 (SB 89, Senate Budget Committee), authorizes the Department of Finance (DOF) to arrange a sale (or an alternative financial arrangement to a sale) of the state student loan guarantee program. (This is commonly referred to as the “sale of EdFund.”) No sale has yet been completed, and subsequent legislation extended DOF’s authority to January 2011. The enacted 2007–08 budget assumed sale proceeds of $1 billion in 2007–08. The enacted 2008–09 budget package reduced the estimate to $500 million and did not expect the sale until 2009–10.

Director of Finance Has Broad Authority. Chapter 182 authorizes the Director of Finance (Director) to act in consultation with the State Treasurer as the agent for the sale. The statute provides the Director broad authority to oversee loan program activities prior to the sale. For example, it:

  • Authorizes the Director to take any actions deemed necessary to preserve the student loan guarantee program assets until a sale occurs.
  • Declares that all of the actions, approvals, and directions of CSAC affecting the loan program shall be effective only upon the approval of the Director.
  • Specifically prohibits CSAC from authorizing any new or expanded services at EdFund unless the Director deems them necessary for the operation of the loan program or to maximize the value of the loan program.
  • Requires prior approval by the Director for any EdFund expenditures that are not directly related to (1) providing student loan guarantees, (2) providing support services for CSAC, or (3) accomplishing the sale of EdFund. The statute specifically prohibits several types of expenditures without prior approval, including increases in compensation or benefits for EdFund officers, and outreach and public awareness activities.
  • Requires the Commission to cooperate fully with the Director and take all steps necessary to preserve student loan program assets.

Sale Is Uncertain. Since the Legislature authorized the sale in 2007, changes in the student loan guarantee business have weakened the estimated market value of the loan program. These changes include volatility in the credit markets and changes in the federal student loan programs that affect the revenue streams to guaranty agencies. Additional changes expected under the new federal administration—including increased direct lending from the government and reduced reliance on guaranteed private loans—are likely to further depress the market value of the loan program. These developments have raised doubt about whether a sale or alternative transaction will take place in the near term. Because of this high degree of uncertainty, the administration did not include any revenue gain from the sale of the loan program in its 2009–10 budget or multiyear forecast.

Tensions between CSAC and EdFund may be a short–term problem. As described in the nearby box, the state is attempting to sell or otherwise dispose of EdFund. The success of these efforts, however, is highly uncertain in the current credit market. In addition, changes to loan programs under the new federal administration are likely to further depress EdFund’s value. It is possible, therefore, that the state will remain responsible for EdFund for the foreseeable future.

The proposed restructuring of CSAC could put an end to the ongoing conflict between the two organizations. It would eliminate one of the governing boards (CSAC), and replace it with an agency under executive branch control. The appointed advisory board, because it is only advisory, would not have authority over EdFund.

Accept Most Elements of Proposal to Restructure Student Aid Commission. The CSAC restructuring would appropriately place financial aid oversight in the executive branch, and would solve longstanding problems in CSAC’s relationship with EdFund. Some elements, however, are unnecessarily confusing and potentially misleading. For these reasons, we recommend the following:

Restructuring CPEC

Growing Problems With CPEC. In recent years, there have been increasing concerns about CPEC’s ability to effectively perform its responsibilities. In a 2003 white paper on this topic commissioned by the Legislature, a working group (convened by our office) identified three reasons for this.

Other factors, such as the composition of the commission, may also contribute to its underperformance.

Recent Attempts to Change CPEC. Reflecting these concerns, support for CPEC has been declining among policymakers. In 2002–03, Governor Gray Davis’ May Revision budget proposal sought to eliminate nearly all funding for CPEC. The Legislature rejected the proposal, but reduced CPEC’s funding by one–third. In 2005, the Governor supported the California Performance Review proposal to eliminate CPEC and merge its functions into an executive office. In 2008, Senate amendments to the proposed budget would have begun a phase–out of the organization over three years.

Consolidation Could Create Conflict of Interest. The Student Aid Commission and Postsecondary Education Commission perform different types of functions. The CSAC is primarily an administrative body that implements policies and programs established in statute. The CPEC, in contrast, is a policy board. The majority of its attention is focused on collecting and reporting data and preparing policy reports and briefs. It also has programmatic duties, including (1) administering a federal grant program and (2) reviewing and making recommendations on new higher education programs, campuses, and sites. It is expected to base its recommendations on an analysis of how best to achieve the state’s policy objectives for higher education, underscoring the importance of the policy analysis role.

If the functions of CSAC and CPEC were consolidated into a single organization, there could be a perceived conflict of interest in at least some of CPEC’s analytical work. For example, readers might wonder whether a recommendation to expand a financial aid program is motivated by the results of objective analysis or by an interest in expanding the scope of the organization. This could further diminish the credibility of CPEC’s policy analysis.

Policy Analysis Role Requires Independence. As noted earlier, an independent governing board is useful when there is a need to protect an agency’s work from undue political influence, or when the primary audience for an agency’s work products includes both the legislative and executive branches. The CPEC meets both of these conditions. In our view, the interests of the state are best served when the Governor and Legislature can base their policy decisions on rigorous, unbiased analysis supported by thorough research and accurate data. If higher education policy analysis were conducted in an agency under executive control, the Legislature could reasonably be concerned about partisan or ideological bias. This could intensify existing concerns about the quality of CPEC’s work products. Furthermore, a policy body in the executive hierarchy would not be free to critically appraise the administration’s budget and policy proposals, further diminishing its usefulness to the Legislature.

Different Changes Could Improve Effectiveness. In order to maintain policy independence, we recommend the Legislature reject the Governor’s CPEC consolidation proposal. In contrast to the Governor’s proposal, other changes could preserve CPEC’s independence and address specific problems and concerns about the agency’s performance. Changes in structure and duties, for example, could address deficiencies identified in the 2003 white paper cited earlier.

Bureau for Private Postsecondary And Vocational Education (BPPVE)

The administration’s proposal for restructuring higher education support functions does not encompass regulation of private postsecondary and vocational schools. The Governor’s proposal, however, provides an opportunity for the Legislature to consider a broader reform that could include this function.

Institutions Not Currently Regulated. Historically, BPPVE has had regulatory oversight of private postsecondary institutions operating in California. (These are for–profit entities providing postsecondary educational services that, in most cases, are not accredited by the Western Association of Schools and Colleges.) The legal authority for BPPVE’s regulatory activities expired in mid–2007, and a subsequent voluntary agreement expired in mid–2008. As a result, private postsecondary institutions are currently operating in an unregulated environment.

Regulation Remains Important. Private postsecondary institutions are an important part of California’s broader system of higher education, especially in the area of career technical education and training. Most private institutions are legitimate and reputable, but a few make misleading or fraudulent claims and take advantage of students who may not know how to evaluate their quality. The Legislature created the BPPVE 20 years ago in response to concerns that the state was rapidly developing a reputation as the home of many of these “diploma mills.”

Options for a New Framework. Should the Legislature approve a new regulatory framework for these institutions, it may wish to reconsider where best to place the regulatory functions. Currently, the bureau is in the Department of Consumer Affairs, emphasizing the consumer protection aspect of private postsecondary school regulation. Placing it in a higher education agency could instead highlight the role of private postsecondary institutions in the state’s system of higher education. In addition, there may be some overlap between the audit and data management activities required to regulate private postsecondary schools and similar activities required to monitor implementation of financial aid programs at public and private institutions (including many private postsecondary schools). For these reasons, the Legislature may wish to consider consolidating the functions of BPPVE with those of CSAC.

Summary of Approach to Reorganization

As summarized in Figure 21, we recommend that the Legislature accept with modifications some elements of the Governor’s higher education restructuring proposal, and reject others. Specifically, we recommend decentralizing Cal Grants, while maintaining some centralized roles, and moving the functions of CSAC into an executive branch agency without creating a statutory advisory committee. In addition, we recommend that the Legislature reject the Governor’s proposed consolidation of CPEC, and instead consider other reforms to the state’s higher education planning and coordination board. Finally, we encourage the Legislature to consider consolidating regulation of private postsecondary institutions with other higher education oversight functions.

Figure 21

LAO Recommendations on Consolidation of Higher Education
Commissions and Decentralization of Financial Aid


✔    Approve With Modifications Proposal to Decentralize Financial Aid Administration.

Permit campus financial aid offices to approve Cal Grant entitlement awards for eligible students.

Establish a just-in-time funding model for Cal Grants parallel to the federal grant distribution model.

Maintain several functions in California Student Aid Commission (CSAC) or its successor organization,
including tracking of utilization and remaining eligibility, administration of competitive and private college grants, and administration of specialized aid programs.

Consider statutory changes in requirements for Cal Grants to streamline administration of awards while preserving the intent of the financial aid programs.

✔    Accept Most Elements of Proposal to Restructure Student Aid Commission.

Approve the transfer of CSAC’s financial aid administration responsibilities to a new department in the
executive branch.

Reject Governor’s proposal to create a statutory advisory body. Instead, require the director of the new department to convene one or more advisory panels for regular consultation about agency activities.

✔    Reject Proposal to Restructure Postsecondary Education Commission, and Instead Consider Other Reforms.

Reject the Governor’s proposed transfer of California Postsecondary Education Commission’s responsibilities to the executive branch.

Consider other reforms designed to address persistent concerns and improve the effectiveness of the
organization. These could include setting priorities and changing the governing board composition.

Consider consolidating the functions of the Bureau of Private Postsecondary and Vocational Education with those of CSAC within the executive branch.

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