financial aid – Public Policy Institute of California

Lessons from the Great Recession Can Protect College Students Today

[vc_row][vc_column][vc_column_text]Budget cuts for state services are likely on the horizon due to the economic disruption of COVID-19. This means state funding for public higher education may well be reduced—leading to restrictions in access and lowered enrollments. California went through this very scenario during the Great Recession, with thousands of students turning to for-profit colleges in lieu of public colleges.

While some students at for-profit colleges earned a degree, many did not graduate and ended up with large amounts of debt. State and federal government subsequently put restrictions around for-profit colleges, but upcoming changes at the federal level could weaken the federal rules.

The recently announced federal Education Stabilization Fund will disproportionately provide emergency relief funds to private for-profit colleges. In California, only 5% of the state’s undergraduates attend for-profit colleges, but these schools will receive 10% of federal funds.

In contrast, 55% of undergraduates attend the state’s community colleges, which will receive only 34% of federal aid. (That’s because many low-income students who attend community college rely on state aid rather than federal financial aid: these students are not counted in the federal emergency funding formula.)

During the Great Recession in 2008, higher education faced deeper cuts than other state services. With escalating tuition, fewer instructional staff, and a narrow application window, students had less access to the state’s public colleges, especially community colleges.

At the same time, some for-profit colleges began to market heavily, and thousands of students enrolled in expensive programs. By several measures—graduation rates, student debt, loan default rates, and employment outcomes—private for-profit institutions often have poor outcomes. Of course, some colleges have a better track record than others.

People hurt most by the recession—and lack of access to college—were saddled with debt they couldn’t pay back. In response, California and the federal government both instituted new regulations requiring for-profit colleges to be more transparent and accountable.

California went a step further than the federal government. The state required colleges to meet minimum standards of graduation and loan default rates to be eligible for Cal Grants, the state’s financial aid program for low-income students. Enrollments in for-profit colleges in California declined, and some of the largest for-profit institutions, like Corinthian and ITT Technical Institute, declared bankruptcy as the economy improved and funding to public higher education was restored.

California policymakers should seek to avoid the mistakes of the last recession by ensuring that access to public higher education is not restricted during this recession. The key is to find ways to limit budget cuts so that public higher education remains accessible to all Californians looking to advance their knowledge and improve their economic well-being.[/vc_column_text][/vc_column][/vc_row]

Covering the Real Costs of College

Faced with the state’s high cost of living, California college students struggle to secure adequate food and housing. Even amid one of the largest and longest economic expansions in state history, 33% of students are housing insecure and 35% have low or very low food security, according to a California Student Aid Commission survey of 150,000 college students. As the state seeks to meet economic demand by producing more students with degrees and certificates, the full cost of college remains a barrier to progress.

Governor Newsom and the legislature have recognized the need to reform state financial aid programs to address the full cost of college. The 2019–20 state budget provided $41 million in ongoing funding to help colleges address food and housing insecurity, $19 million to support rapid rehousing programs, and increased the number of competitive state grants for non-traditional students from 25,750 to 41,000. Additionally, the legislature increased the maximum award amount that students with children pay for non-tuition college costs from $1,672 to about $6,000.

However, broader reform of the state grant aid program remains elusive. Two recent bills sought to expand eligibility for Cal Grants by eliminating current age, time out of high school, and high school GPA requirements. The bills also sought to provide additional non-tuition aid to community college students and students in career education programs. The bills did not make it to a vote; however, they will be re-examined in the next legislative session. Estimated at $2 billion per year, proposed reforms would nearly double the annual cost of the program.

Consequently, the California Student Aid Commission, the agency that distributes financial aid, intends to streamline these proposals to constrain costs while increasing access. Higher education is a vital tool that increases economic and social mobility; ensuring all students have equal access to an affordable education is paramount to modernizing California’s economy. An equitable and financially viable approach to financial aid will be critical if the state’s booming economy slows in coming years.

Year-Round Support for Low-Income Students

This summer marked the first time in eight years that summer Pell Grants were available. A need-based award to low-income, first-time undergraduates, the federal Pell Grant promotes access to postsecondary education. A summer component means that eligible students can use their Pell Grants year-round and receive up to one and a half awards in one academic year. For example, a student with the maximum school-year award of $6,095 can now receive a summertime award of $3,047—the total Pell Grant for the year would be $9,412. Unlike a student loan, Pell Grants do not need to be repaid. Previous PPIC work suggests that the availability of summer Pell Grants not only expands summer course enrollment but may also increase retention rates and accelerate time to degree.

Who is likely to benefit from summer Pell Grants? Of all California students who received Pell Grants in 2016–17, more than 80% attended a public institution. Further, the California Community Colleges (CCC) enrolled the most Pell recipients of all California’s public institutions: about 60%. The California State University (CSU) and University of California (UC) systems enrolled 29% and 11% of recipients, respectively.

Many students at CCC who receive a Pell Grant also receive state aid, most commonly in the form of a California College Promise Grant tuition waiver. This year, the CCC tuition waiver covers summer enrollment fees as well. Applying the summer Pell Grant on top of the tuition waiver at CCC may enable students to cover significant non-tuition costs like housing, which is often a larger expense than tuition itself. The return of the summer Pell Grant makes year-round college attendance more affordable and enables students to make timely progress to their education goals.

The Governor’s Revised Budget Targets Tuition at UC and CSU

Governor Brown’s May Budget Revision has short- and long-term funding implications for both CSU and UC. The annual May Revision to the governor’s January budget proposal reflects an unanticipated revenue increase of $7.6 billion. The revised budget does add $100 million in one-time funding for deferred maintenance at each system as part of a larger infrastructure spending plan. However, while increases are proposed for other major spending areas, funding for UC and CSU remains unchanged from the January budget: each system is still slated to receive $92.1 million from the General Fund. This is in contrast to revised budgets in previous years that increased funding for both systems by 3% to 4%. Moreover, if UC and/or CSU raise tuition, the Department of Finance would be allowed to reduce each system’s funding by an amount equal to the additional revenues raised.

This proposed policy has two goals: it creates a disincentive to raise tuition and is meant to account for additional state costs incurred when tuition increases. California’s primary financial aid programs— the Cal Grant A and B entitlements—cover tuition for more than 300,000 students, most of them enrolled at UC and CSU. For students who meet financial and academic requirements, UC or CSU tuition is fully covered for the equivalent of four years for Cal Grant A and three years for Cal Grant B. Consequently, when UC and/or CSU raise tuition, the state must cover the additional cost. Since the Cal Grant program’s inception in 2000, tuition increases in response to state funding cuts coupled with a rise in the number of eligible students has increased annual program costs from a little more than $800 million to nearly $2 billion.

Although the governor’s proposal, coupled with a healthy state funding reserve, could help keep tuition flat in the near future, it may have unintended consequences for large numbers of students. UC and CSU allocate one third of the revenue from tuition increases to institutional aid that augments Cal Grants and Federal Pell Grants to cover tuition for more than half of their students. Moreover, restricting state allocations to the two systems while also discouraging tuition increases could prompt each institution to turn away eligible students (in fact, CSU turned away 32,000 students last fall) or ratchet up eligibility requirements.

In the longer term, restricting access to UC and CSU could have a negative effect on California’s economy. If the state hopes to meet growing demand for skilled workers, it must produce 1.1 million more bachelor’s degrees by 2030. Achieving this goal will require a long-term funding plan that addresses not only the cost of tuition but also the full cost of attending college as part of a larger effort to increase access and improve outcomes for all students.

Funding Increase for Community Colleges

Nearly 70% of new funding for higher education—or $570 million—in Governor Brown’s proposed budget goes to the state’s community colleges. This continues a trend that has seen community colleges get an ever-growing portion of higher education funding even as overall funds for higher education have shrunk—from 18% of the General Fund 40 years ago to just under 12% now. This trend is likely to continue—mostly because Proposition 98, passed by the voters in 1988, sets minimum funding levels for the state’s K–12 and community college systems.

These mandated minimum funding levels have protected community colleges from the kind of budget cuts that have affected California’s other public higher education institutions. In addition, Governor Brown has prioritized investments in the community college system, which serves 2.1 million students and is the gateway to higher education for the vast majority of California students.

Governor Brown and the legislature have vastly increased investment in community college programs intended to improve student outcomes and eliminate achievement gaps, including programs focused on adult education and career technical education. Moreover, last year the governor provided a one-time allocation of $150 million to develop the Guided Pathways program, aimed at integrating disparate student success programs into one model and creating clear pathways for students to earn a certificate or degree, or transfer to a four-year college.

The governor’s current budget proposal also contains a new funding formula for the community colleges. This formula would shift future funding to districts with higher proportions of low-income students and those that have achieved better student outcomes. Under this formula, each district would get 50% of its funding based on enrollment, 25% based on enrollment of low-income students—those who receive a tuition waiver or Pell grant—and 25% based on district performance. Performance would be measured by the number of degrees and certificates provided, the number of students who complete a degree or certificate in three years or less, and the number of Associate Degrees for Transfer granted.

California’s community colleges have long struggled with low completion rates, low transfer rates, and persistent achievement gaps. Additional funds and a new funding formula may help to address these issues and lead to greater student success—which, for most community college students, means transferring to a four-year institution. Today, more than half of CSU students are community college transfers, as are nearly one-third of UC students. If current investments in community colleges do in fact improve student outcomes, then California’s four-year institutions will need to be ready for even more transfers.

Learn more
Read the report Higher Education in California: Investing in Public Higher Education
Visit the PPIC Higher Education Center

California’s Dream Act

As the federal government moves to end the Deferred Action for Childhood Arrivals (DACA) program, California is continuing to support the higher education aspirations of undocumented students. California’s Dream Act is a set of laws intended to lower the cost of higher education for certain undocumented immigrants brought to the US as children and raised in California. Thousands of California students have benefited from the program so far.

College can be especially expensive for undocumented students. For tuition purposes they are not technically California residents and therefore are not eligible for in-state tuition. Public colleges and universities charge extra tuition for nonresidents: currently an additional $28,000 per year at UC and $6,000 per year at CSU. In addition, undocumented students are not eligible for federal financial aid, such as Pell Grants or federal loans, leaving college out of reach for many who are low-income.

California passed AB 540 in 2001, which waives the nonresident portion of tuition for undocumented childhood arrivals as long as they meet certain criteria, including spending three or more years in California K‒12 schools, graduating from a California high school, and promising to apply for legalizing their immigration status as soon as they are eligible to do so. In addition, the state passed AB 130 and AB 131 in 2011, which allows state and institutional financial aid to be given to students eligible under AB 540.

Undocumented students cannot file the Free Application for Federal Student Aid (FAFSA) to apply for federal and state financial aid for college. This means that many do not have access to Cal Grants, one of the state’s main forms of financial aid. Instead, those who are eligible can apply for Cal Grants using the California Dream Act application.

Of all Cal Grant offers in 2014‒15, about 3% have been made to California Dream Act applicants. Of those eligible for the awards, both FAFSA filers and Dream Act filers have similar GPAs. However, those obtaining a Cal Grant through the state Dream Act application were more likely to come from families with parents without college degrees and with lower family incomes.

A student’s DACA status has no bearing on the California’s Dream Act, so AB 540 students will continue to pay in-state tuition rates and can apply for and receive state and institutional aid to help lower the cost of college, even if the federal DACA program ends. However, without a work permit these undocumented students still cannot work legally in the US, even if they obtain a degree from a California college or university. The approximately quarter of a million Californians covered by DACA will still be subject to deportation without further federal legislative or executive action. That uncertainty could keep otherwise qualified students from earning a college degree.

Learn more

Read “DACA and California’s Future” on the PPIC Blog.

Visit the PPIC Higher Education Center.

Federal Policy Shift on Private For-Profit Schools

The US Department of Education is moving toward changing two regulations designed to protect students at private for-profit institutions. The regulations were revised or instituted by the Obama administration in response to allegations of fraud and predatory practices, as well as low graduation rates and high levels of student debt. Secretary Betsy DeVos says they are burdensome for institutions.

The regulations cover more than 250 private for-profit institutions in California; they affect about 245,000 current students and tens of thousands of former students.

DeVos is establishing rulemaking committees to review both regulations:

The Borrower Defense to Repayment (BDR) allows victims of misleading and predatory practices to apply for federal loan forgiveness. California attorney general Xavier Becerra says that about 38,000 Californians who took out loans to attend Corinthian Colleges (which shut down in 2015) are eligible to file claims. DeVos stated that approved BDR claims will be paid and pending ones will be processed while the regulation is under review. However, it’s unclear if students can still apply for loan forgiveness.
The Gainful Employment (GE) regulation is designed to help students avoid low-performing schools. It requires institutions to provide students with information on graduation rates, average earnings of graduates, and average federal student loan debt. The most important aspect of the regulation is the federal student aid qualification component, which stipulates that loan payments for graduates of postsecondary programs should not exceed 8% of annual earnings or 20% of discretionary income. Programs that do not meet these standards risk losing the ability to participate in federal student aid programs. According to Federal Student Aid data, in 2015 only 58% of programs at Californian for-profit institutions met the 8% benchmark, compared to 97% of programs at public and private not-for-profit institutions. The share of for-profits passing the discretionary income test is even lower, at 34% (public and not-for-profit schools have a passing rate of 82%). It is unclear if the GE regulations will be enforced while the committee reviews the regulation over the next two years.

While the federal government is taking steps to pull back on the regulation of for-profit institutions, California is moving in the opposite direction. In order for students at higher education institutions to qualify for Cal Grants, the institutions must meet minimum standards for graduation and loan default rates. In 2014, 137 institutions—almost all of them private for-profits—failed to meet California’s standards. In 2017, however, only 10 failed, which suggests that the policy might be working. Furthermore, California has joined 17 other states in suing DeVos over her decision.

As the Department of Education reviews these regulations, it should evaluate the effect the changes could have on student debt and loan default rates. In the meantime, keeping the current regulations in place would protect students from low-performing schools and help them avoid programs that may lead to high levels of debt and low-paying jobs.

Learn more

Visit the PPIC Higher Education Center

Year-Round Pell Grant Revived

As California State University and the University of California work to increase the number of students who graduate within four years, the federal government has reinstituted the year-round Pell Grant—a financial aid program that can help accomplish this goal. Increasing on-time graduation rates has benefits for both students and the state—opening up more spots in the state’s higher education institutions, reducing the total amount of tuition and fees that students pay, and allowing students to enter the workforce sooner.

The year-round Pell Grant is designed to address a specific problem: while students need to take 15 units in the fall and in the spring semester to graduate on time, many take only 12 units, which adds an extra year to their time to degree. Acknowledging this issue, some campuses are adopting the “Finish in Four” model, which encourages students to complete 30 units per year while giving them flexibility in how they meet that goal. For example, a student could take 12 units in the fall, 12 in the spring, and 6 in the summer. The year-round grant program complements this model by allowing recipient students flexibility to use Pell funding for summer coursework.

Many California students already receive Pell Grants―around 46% of students at CSU and UC, and 29% at the community colleges. The new year-round grant allows recipients to receive one-and-a-half Pell awards in one academic year. While this may not cover the full cost—six units during the summer term costs about $120 more than six units in the fall and spring terms—it makes attending more affordable.

However, it is unclear if the program will incentivize students to enroll in the summer term to stay on track for timely graduation. The program was previously only in effect for two years (2009–2011), and the limited research studying its impact suggests mixed results. Preliminary findings from a study presented at the Association for Public Policy Analysis and Management conference found a small increase of 3.5 percentage points in Pell students’ summer enrollment. Initial findings from another study presented at the Association for Education Finance and Policy conference found that summer enrollment increased by 28 percentage points. Given the short lifespan of the first year-round Pell, its impact may have been limited by students’ lack of awareness of the program and campuses’ lack of infrastructure to offer the right courses.

To ensure the program’s effectiveness, colleges need to help students use the summer semester to reach a full 30 units per year. The year-round Pell is not the only effort to help students use their summers to finish on time. For example, Sacramento State University is offering $1,000 grants for students who enroll in the summer term. Given the uncertainty of long-term federal funding for a year-round Pell, campuses may need to develop other similar programs to incentivize summer enrollment and encourage on-time graduation.

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Visit the PPIC Higher Education Center

The Growth of Cal Grants

The Cal Grant program is the primary program for providing tuition assistance and financial aid to California’s college students. It has allowed California to maintain access to college for low-income students during a time of rapid tuition increases. The program has grown significantly since its inception in 1955 and now serves more than 300,000 students at an annual cost of around $2 billion.

State law protects Cal Grant recipients from tuition increases at UC or CSU: when tuition rises, so do these students’ Cal Grants. Consequently, as tuition has increased and enrollment of low-income students has expanded, the program has grown rapidly. Next fall, tuition is scheduled to increase by $280 per year at UC and by $270 per year at CSU. In addition, UC, which has enrolled 7,400 new undergraduates in each of the last two years, plans to enroll an additional 2,500 in the fall of 2017‒18, the largest three-year increase in seventy years. CSU has added around 50,000 additional students over the past five years. The expansion of Cal Grants has drawn the attention of the governor. He noted in his May budget revision that “rising Cal Grant costs from tuition hikes will also limit the state’s ability to increase General Fund support in the future.”

Nearly all of the Cal Grant funding increases have gone to students attending public institutions. CSU has seen a 75% increase in Cal Grant funds since 2011‒12, while the community colleges and UC have received a 61% and 27% increase respectively. Private nonprofit colleges, on the other hand, have seen their Cal Grant funding stagnate. The governor’s budget revision acknowledges this by reallocating $8 million that had been targeted to UC and CSU in his January budget proposal to non-profit private Cal Grant funding. These funds will prevent a planned cut to the maximum award for students attending a nonprofit private college.

By contrast, for-profit colleges have seen their Cal Grant funding decrease substantially over the past five years. The 2012‒13 budget introduced restrictions on access to state Cal Grants which affected many for-profit colleges. To some degree, for-profit colleges satisfy an unmet need for access to higher education for non-traditional students. But investigators have found that many of these colleges engage in predatory marketing and lending practices—targeting vulnerable students, making false statements regarding job placement, and overestimating the value of the degrees they provide. To address these issues the state established new institutional eligibility standards for Cal Grants. To be eligible, a higher education institution must now have a minimum graduation rate of 30% and a loan default rate of less than 15.5%. The 2012‒13 budget also cut the maximum award for a student attending a for-profit college from $9,708 to $4,000. These regulations have saved the state nearly $100 million since 2011‒12, reduced by more than half the number of for-profit colleges eligible for Cal Grants, and ensured that low-income and first generation students were not taken advantage of by higher education institutions that did not serve their economic interest.

Cal Grants are an essential tool for improving the economic mobility of the state’s neediest residents. They also allow the state to reduce the burden of federal loans on young Californians. Maintaining Cal Grants for high performing colleges— public and private—will improve access to college for all Californians.

Learn morEVisit the PPIC Higher Education Center

CSU and UC Are a Better Value Than Universities Nationwide

With college application season underway, the US Department of Education’s yearly scorecard helps prospective students and their parents by providing information on the costs, graduation rates, and student debt associated with individual colleges. Since last year, the scorecard has also included wages for former students based on federal tax data. We reported on how to interpret the earnings measure in an earlier blog post.

The scorecard also highlights 26 affordable universities with good outcomes in the form of relatively high earnings. California’s public universities do quite well: eight California State University (CSU) and University of California (UC) campuses make the list. This list uses a school’s average net price (its tuition, fees, room, board, and other expenses minus the average amount of grants and scholarships) and the typical student’s earnings 10 years after enrolling to estimate how much “bang for their buck” students get in terms of future income.

In fact, almost all CSU and UC campuses provide higher-than-average incomes given their net price when compared to four-year colleges nationwide. California’s private four-year colleges show mixed results, as they generally have higher net costs; about half have below-average earnings for their price.

These results speak to the relative success of CSU and UC compared to other universities in the nation. However, it is important to note that this isn’t the whole story: the net price and income data are only collected for students who received some form of federal aid. While this represents a majority of students in public universities, it can represent a smaller fraction of students from private universities in the state.

California’s public universities have a couple built-in advantages. The state’s generous financial aid program provides grants that cover tuition for qualifying low-income students and, in some cases, help pay for living expenses and books—substantially reducing the net price for those students. Also, workers in California earn more than those in other parts of the country, and the concentration of higher-paying jobs in California (such as in the tech industry) may contribute to the relative success of the state’s students. However, many private colleges in the state are associated with low median salaries, suggesting it’s not just location that matters.

California also likely benefits from high-quality institutions. Most UCs are highly ranked nationally, and as PPIC has shown in other research, CSUs have relatively good six-year graduation rates when compared to similar institutions. This is important, as the scorecard reports the incomes of students who attended a university, regardless of whether they graduated. College graduates tend to make more than non-graduates, so institutions with better graduation rates are more likely to produce workers with higher incomes.

While the scorecard can help students decide which college is right for them, it also shows students that the economic returns to a college degree can be had for a reasonable price in California.

For those interested in diving deeper into this finding, this chart illustrates the relationship between net price and the yearly income of students after 10 years. Each dot is a university. The CSUs (orange), UCs (dark teal), and in-state private universities (light teal) are marked alongside other universities in the nation (light grey). Nationwide, higher net prices are associated with higher earnings. This isn’t shocking, as we generally associate higher prices with higher-quality universities, which may net students a higher future income. The diagonal line shows typical earnings for a given net price. Universities above the diagonal line have higher-than-average earnings given their net price, and universities below the line have lower-than-average earnings.

Learn more

Read “What the New College Scorecard Can—and Can’t Tell You”
Visit the PPIC Higher Education Center