Expanding the Cal Grant: Four Steps to Equitably Phase In Reforms

Despite the current $2 billion annually granted to students with demonstrated financial need through the Cal Grant, California’s primary need-based student aid system, a great deal of financial need remains unmet for low- and medium-income Californians. Expanding the current Cal Grant system to meet a larger portion of this need and reduce the student debt burden affecting Californians has become a priority for lawmakers and policy experts, with several research papers, statewide working groups, and legislative proposals all underway in the past three years. However, how exactly to equitably overhaul the system over the course of several years—the likely time frame needed to build to the scale of the investment required—has remained an open question.

The current system has numerous holes. For example, it leaves out many older adult students from the entitlement portion of the program, while focusing most of its investments on tuition, rather than non-tuition aid, also known as “Access” awards. Institution-based aid—financial support provided by the colleges themselves—makes up for some, but not all, of the gaps at the University of California (UC) campuses and Cal State University (CSU) campuses; and the community colleges (CCCs) are unable to provide institutional aid. As a result, even assuming some amount of paid work (or, if a student chose, student loan debt) on the part of students (“self-help”), substantial student financial need remains. At present, many California college students meet that need with long work hours, high levels of student debt, or a combination.

The Century Foundation has proposed a policy of system reform that would simultaneously simplify and enhance the Cal Grant system to direct aid to the neediest students while increasing the total amount of grant aid provided. The overhaul would remove eligibility requirements such as age and time out of school while expanding the non-tuition aid-focused awards to the point that the state will be able to offer an “affordability guarantee” to its students. If fully implemented, this reform policy would close gaps in unmet need, and depending on the amount of work required to cover costs, could provide debt-free pathways for students at public institutions.

Given the price tag and depth of changes required, phasing in such a system, rather than implementing it all at once, seems like the most likely political path forward. Such a phase-in raises important questions. How much would each element of the system change cost? How will proposed changes to the generosity or structure of awards interact with other proposed changes? Which students receive awards, or bigger awards, first? And in which order should changes be made in order to sequence cost increases in a measured way?

The Century Foundation has considered these questions, and in the report that follows, we have outlined a proposal for reforming the Cal Grant system over the course of four phases.

The goal of this detailed, phased proposal is to give policymakers benchmarks in the process of fully reforming the system, one which balances a variety of needed reforms while prioritizing the lowest income students. Once completed, the process we suggest will: increase aid for recipients to cover more non-tuition costs; increase the number of students receiving aid to all those whose incomes qualify them; ensure that the UC and CSU continue to spend as much as they currently do on need based aid and do not supplant their programs with state money; and distribute aid across all three segments of California’s public education landscape—the UCs, the CSUs, and the CCCs—while accounting for different institutional capacities to match state aid. Each phase makes progress on the following three goals:

• Goal 1: Expand entitlement awards outward, first by bringing in priority populations and then by removing eligibility barriers altogether.
• Goal 2: Increase the size of the Cal Grant upward to cover unmet need for tuition and living expenses, up to the affordability target.
• Goal 3: Realign the system to delineate tuition and non-tuition administration using existing institutional aid and new state dollars.

We estimate that the first three phases of expanding and improving aid for over half a million full-time equivalent (FTE) California college students will cost the state an additional $1.7 billion. Organizations have previously estimated that covering total unmet financial need between $1.5 billion and $3.3 billion¹ exists among students enrolled in public higher education institutions in California, suggesting that the cost of the fourth and final phase may vary widely depending on the parameters of the aid provided (and how much work is expected of students). The expansion and streamlining that TCF proposes will help transform the student aid system in California into one that is simpler and more just, while helping students reduce their work hours and student loan debt. Supporting California’s college students—especially those with the greatest need—will ultimately result in a more educated workforce and better financial health for the millions of students who attend and graduate from California’s public universities and community colleges.

Most of the data used to formulate these estimates originated from data provided by the California Student Aid Commission (CSAC) as well as CSAC publications; TCF analysis of data from the U.S. Department of Education’s National Postsecondary Student Aid Study (NPSAS); and data provided by California’s public institutions of higher education, either publicly or to the U.S. Department of Education and accessed through the Integrated Postsecondary Education Data System (IPEDS). Further information on these sources can be found at the end of the report. The report’s main text describes our assumptions and findings in detail; the calculations and corresponding methodologies can be found in Appendix A.

Phase One

• Goal 1 (Outward): Expand the Cal Grant entitlement to all otherwise-eligible students with dependent children and family incomes below the federal poverty level, offering them a higher level of Access award support than is offered non-parents.
• Goal 2 (Upward): Increase the Access award to cover food costs for students receiving Cal Grant B awards with family incomes below the federal poverty level.
• Goal 3 (Realign): Add first-year tuition coverage for recipients of Cal Grant B, who currently do not receive a tuition waiver in their first year of enrollment; require UCs to use existing aid to cover increased Access awards and CSUs to to cover half of those costs.

In order to tie the increase in Access award amounts to a concrete concept and make it clear that its goal is to help meet students’ basic needs while enrolled, the new, higher-value Access award (currently part of Cal Grant B awards, which provide aid beyond the cost of tuition to cover other costs of enrollment) will be pegged at the cost of food for students. The award itself may be spent without restriction and is not solely for food, but the goal is to benchmark the amount of aid to the cost of food for students. Cal Grant A—which provides coverage for the cost of tuition only—is unaffected at this point.

TCF proposes that the expansion of Cal Grant entitlement for students with dependent children apply to all student parents without regard for age or time out of high school. Especially at the community college level, many students are nontraditional and may be reentering the education system after some time in the workforce. These students—most of whom are in the workforce while enrolled—stand to benefit from support that may help them reduce work hours (allowing an increase in time allotted to school activities) or reduce their student loan burden. These student parents are assumed to receive an Access award of $6,000 regardless of living situation, in line with the governor’s 2019 higher education budget providing enhanced aid for students with dependent children given their greater financial need (e.g. for paid child care).

Especially at the community college level, many students are nontraditional and may be reentering the education system after some time in the workforce. These student parents—most of whom are in the workforce while enrolled—stand to benefit from support that may help them reduce work hours.

Starting in Phase One and continuing in subsequent phases, the University of California system is assumed to cover the costs of Access awards for all students receiving new levels of funding, including both Access award funding previously funded by CSAC as well as the increased value. The California State University system will take on partial responsibility for funding Access awards for its students in Phase One, with increasing responsibility in Phases Two and Three. Both segments would be required to maintain their overall funding levels for need-based financial aid.

Findings

Phase One changes are expected to affect about 177,500 FTE students, mostly in increased Access award funding for students currently receiving a Cal Grant. In total, the state budget cost of Phase One is estimated to be about $611 million annually. In addition, the four-year segments of the public education system are expected to provide a total of about $191 million in institutional matches for Access award funding, in addition to maintaining total spending on need-based aid.

Phase Two

• Goal 1 (Outward): Expand the Cal Grant entitlement to all otherwise-eligible students with an expected family contribution (EFC) at or below zero dollars.
• Goal 2 (Upward): Increase the Access award component of students currently receiving Cal Grant B awards with an EFC at or below zero dollars to cover food costs.
• Goal 3 (Realign): Shift additional costs of the expanded Cal Grant Access award to CSUs (using their existing need-based aid dollars); the UCs continue to cover all costs of increased Access awards.

In Phase Two, the state would expand the Cal Grant system’s entitlement grants to cover all students with a zero EFC. This represents a substantial expansion of the number of students receiving Cal Grant awards, and will occur in addition to improving Access awards for existing students with a zero EFC and a continued higher level of Access award support for students with dependent children.

Starting in Phase Two, the California State University system is assumed to take on most of the costs of Access awards for students receiving new or increased Cal Grant funding. The University of California system continues to cover all costs of the increased Access awards. Both segments would be required to maintain their overall funding levels for need-based financial aid.

Findings

Phase Two changes are expected to affect an additional FTE 191,500 students, mostly by extending the Cal Grant entitlement to additional students. In total, the state budget cost of Phase Two is estimated to be about $704 million annually; in addition to the $611 million annual cost of Phase One, the total for system change combining Phase One and Phase Two is about $1.315 billion. In addition, the four-year segments are expected to provide an additional $162 million in institutional matches for Access award funding, or $353 million cumulatively with Phase One and Two combined, in addition to maintaining total spending on need-based aid.

Phase Three

• Goal 1 (Outward): Expand the Cal Grant entitlement to all otherwise-eligible students with an EFC at or below $3,000.
• Goal 2 (Upward): Increase the Access award component of students currently receiving Cal Grant B awards with an EFC at or below $3,000.
• Goal 3 (Realign): CSUs cover all costs of increasing the Access award through existing institutional aid dollars.

In Phase Three, TCF proposes the implementation of a diminishing Access award benefit. This would expand coverage of tuition and non-tuition costs for students with low but non-zero EFCs. For students with greater-than-zero EFCs, Access awards would decrease in size as income increases at a rate of an approximately $1 decrease in a student’s Access award per $2 increase in EFC.
Starting in Phase Three, the California State University system is assumed to take on all costs of the increased Access awards for students receiving new or increased Cal Grant funding, as the University of California system began doing in Phase One. Both segments would be required to maintain their overall funding levels for need-based financial aid.

Findings

Phase Three is estimated to affect about another 193,300 FTE students, mostly by extending the Cal Grant entitlement to new students. In total, the state budget cost of Phase Three is estimated to be about $443 million annually; in addition to the costs of Phases One and Two, the total cost for all three phases is about $1.760 billion. In addition, the four-year segments are expected to provide a total of about $426 million in institutional matches for Access award funding, or $780 million cumulatively across all three phases in addition to maintaining total spending on need-based aid.

Phase Four

• Goal 1 (Outward): Remove GPA requirements for public institutions and convert Cal Grant A and B awards to become Cal Grant Tuition awards.
• Goal 2 (Upward): Increase Access awards to cover unmet need, as defined by total cost of attendance minus Pell, Cal Grant Tuition awards, and a “self-help” work component.
• Goal 3 (Realign): Convert all Access awards to Cal Grant Plus awards administered by the segments.

We propose, as the final phase of reform implementation, a period in which the structure of the Cal Grant system “rips off the band-aid” and makes the final structural changes and increased investments. Rather than designating Cal Grant A—which provides coverage for tuition only— and Cal Grant B—which provides both tuition coverage and a non-tuition Access award—as separate packages for college and university students based on tandem GPA and financial need assessments, we propose dropping GPA requirements all together, and relying solely on the assessment of financial need. To that end, we suggest covering the cost of tuition for qualifying students with Cal Grant Tuition awards and converting Access awards and institutional need-based aid (at the CSU and UC systems) into Cal Grant Plus awards that provide additional aid for living expenses with amounts based on students’ financial need. These awards would be administered by CSAC for CCC students and would be administered jointly by CSAC and the UC and CSU financial aid offices for UC and CSU students.

We propose dropping GPA requirements all together, and relying solely on the assessment of financial need.

The budget impact of so fundamentally changing the Cal Grant system’s structure is difficult to estimate, in part because it depends on how much “self-help,” or work, the reformed system ends up expecting a student to take on. In earlier phases, we set a $4,000 self-help limit, but we propose scaling those limits up as one goes up the income scale; previously published estimates assume a self-help of between $7,000 and $11,000 (see Appendix A). Those publications estimated a total unmet need of between $1.5 billion and $3.3 billion, suggesting a cost of Phase Four of between $0 and $1.6 billion.

CSAC data show that very few applications for entitlement aid are rejected due to low GPA, so dropping GPA requirements in the Cal Grant system is expected to have little budget impact; that may change, however, if the simplification of the system and greater generosity of aid prompt applications from students who would not have previously considered applying.

Conclusion

Overhauling the Cal Grant program requires a significant state investment in its public higher education system. But given the existing gaps, the major barriers created by costs facing low- and moderate-income students, and the importance of education to many growing jobs in the state, such an investment is worth the effort. Using the phase-in process described above to will make paving the way to the reform’s payoffs smoother and more effective.

Data Sources

Note: all URLs last accessed January 31, 2020.

Enrollment Dashboards, California State University; accessible at https://www2.calstate.edu/data-center/institutional-research-analyses/Pages/enrollment.aspx.

“2017–18 Cal Grant Offered Awardees, Paid Recipients and Dollars Paid by California Legislative District,” California Student Aid Commission; accessible at https://www.csac.ca.gov/sites/main/files/file-attachments/2017-18_cal_grants_by_ca_legislative_district.pdf.

“2019–20 Cal Grant Offered Awardees,” California Student Aid Commission; accessible at https://www.csac.ca.gov/sites/main/files/file-attachments/2019-20_cal_grant_program_offered_awardees.pdf.

“2020-21 Student Expense Budgets,” California Student Aid Commission; accessible at https://www.csac.ca.gov/sites/main/files/file-attachments/2020-21_student_expense_budget.pdf.

“Cal Grant A & B: Competitive Program,” California Student Aid Commission accessible at https://www.csac.ca.gov/sites/main/files/file-attachments/fayf_competitive2018.pdf.

“Modeling Changes to the Competitive Cal Grant Scoring Matrix,” The Institute for College Access and Success; accessible at https://ticas.org/wp-content/uploads/legacy-files/pub_files/ticas_competitive_cal_grant_modeling_memo_0.pdf.

“The Integrated Postsecondary Education Data System,” U.S. Department of Education, National Center for Education Statistics; accessible at https://nces.ed.gov/ipeds/use-the-data.

“National Postsecondary Student Aid Study 2015–16,” U.S. Department of Education, National Center for Education Statistics; accessible at https://nces.ed.gov/surveys/npsas/.

“Fall Enrollment at a Glance,” University of California; accessible at https://www.universityofcalifornia.edu/infocenter/fall-enrollment-glance.

The California Student Aid Commission also provided The Century Foundation with additional, unpublished data.

Appendix A. Methodology: Calculation Assumptions and Data Sources

In what follows, you will find summaries of the logic and methods behind our findings for our implementation proposal.

Phase One

Increasing the size of the Access award benefit to cover the annual cost of food requires data on those costs. CSAC gathers data on students’ non-tuition costs in their annual Student Expenses and Resources Survey (SEARS) and calculates estimated costs for food and other non-tuition costs (housing, books, transportation, etc.) for students living on-campus, off-campus, and with family. For the purposes of our estimate, we considered these CSAC estimates, IPEDS data on the proportion of students at the public segments currently living in each of those three situations, and an assumption that students at the federal poverty level will be receiving a full Pell grant. We then compared the value of a full Pell grant and an assumed additional $4,000 in self-help against non-tuition costs. For students living with family, the remaining unmet need was assumed to be the value of the Access award: $3,828 annually. For both on-campus and off-campus students, the value of the Access award was set at the estimated cost of food for a student living off-campus: $5,416 annually.³

In order to estimate the cost of providing first-year tuition for Cal Grant B students, two calculations are necessary. The first is a straightforward calculation of a single year’s tuition for existing Cal Grant B students at the UC and CSU systems (per data from CSAC). However, currently in the UC system, a single year of tuition is worth more than four years of Access award support; consequently, students with a high enough GPA and low enough income to qualify for either a Cal Grant A or a Cal Grant B are awarded a Cal Grant A. Once Cal Grant B awards begin providing first-year tuition, a Cal Grant B will be worth more. First-year students who would have previously been awarded a Cal Grant A would thus receive a Cal Grant B. We estimated the number of affected first-year students annually using data from CSAC on low-EFC Cal Grant recipients in the UC system.

Expanding the entitlement award to students with dependent children required an estimate of the number of such eligible students at the public segments as well as the likely portion of those students already receiving Cal Grant aid from either the supply of entitlement awards or the supply of competitive awards, for which low-income student parents are strong applicants. Calculations were based on segment enrollment data from IPEDS, NPSAS data on student parent status, income levels and Cal Grant eligibility requirements,⁴ and CSAC data on current Cal Grant awards. For this calculation, neither age nor time out of high school was used as a limitation on eligibility for an entitlement award.

Phase Two

Phase Two’s calculations regarding the cost of increasing the Access award to cover food costs and covering student parents are largely identical to those in Phase One, but use an estimate of students at zero EFC rather than students below the federal poverty level as the eligibility cutoff. The cost of expanding benefits to these students requires accounting for the students who already received increased benefits in Phase One. For the purposes of these calculations, all students at the federal poverty level are assumed also to have a zero EFC.

The expansion of the Cal Grant entitlement to all otherwise-eligible students with an EFC of zero requires an estimate of the number of students in that category. This calculation was based on enrollment data from the segments retrieved from IPEDS, and NPSAS data on student income levels and other entitlement eligibility requirements. The size of this group in each segment was compared against a TCF estimate of the number of students in the group in each segment that is already receiving a Cal Grant award; this estimate is based on CSAC data on current Cal Grant awards across segments.

Phase Three

In Phase Three, the expansion of the entitlement award to all students below a certain EFC requires a similar process to those in Phases One and Two: estimating the number of those students at each segment and subtracting an estimated number of students already covered by existing Cal Grant awards.

Students already receiving an Access award in the Cal Grant program are largely already low income, and many of those students will have been covered in Phase One and Two. We assume that Cal Grant B recipients with an EFC of between $1 and $1,000 will receive increased benefits as in previous phases, but up to the estimated annual cost of food minus $500.

For students estimated to be not already receiving a Cal Grant, it is assumed that the value of the new Access award they will receive will be smaller than the maximum award received by students with zero EFC: the value of the Access award would decrease by approximately $1 per $2 of the student’s EFC.⁵

Phase Four

In addition to structural changes in the administration of the Cal Grant, Phase Four would include an additional expansion of Cal Grant aid to meet the remaining unmet financial need of California college students. However, estimates of total unmet need vary widely due to variations in assumptions and calculations. An initial estimate commissioned by TCF assumed a maximum annual self-help level of $11,000 and found a range of possible remaining need among California college students between $1.5 billion on the low end and $2.0 billion on the high end.⁶ An analysis published by The Institute for College Access and Success assumed an annual self-help of $7,000 and estimated a cost of $2.1 billion (see Chapter 3).⁷ An analysis by California’s Legislative Analyst’s Office assumed an annual self-help amount of $7,312 and estimated a cost of $3.3 billion.⁸ In each report, the authors emphasized that there is a great deal of uncertainty in their estimates.

Both this report and the three estimates in the previous paragraph assume a self-help amount that doesn’t vary by student EFC. This report assumes a self-help of $4,000, but Phases One, Two, and Three are limited to students below the federal poverty level, at a zero EFC, and at or below an EFC of $3,000, respectively. As the system expands to include students with higher EFCs, however, a larger, scaling amount of self-help may be reasonable to assume. The interplay of other assumptions (e.g. whether students will receive a maximum Pell grant or any Pell grant), along with uncertainty about how the size of the Access award would vary with increasing EFC and scaling self-help, mean a great deal of uncertainty in defining and estimating the remaining unmet financial need that would make up the cost of Phase Four. However, by comparing the estimated cost of Phases One, Two, and Three to previously published estimates of total need, we might assume that another $300 million to $1.6 billion in unmet need exists, though, on the low end, one estimate assumed less total unmet need than the current report proposed funding for Phases One, Two, and Three.

Appendix B. Data and Limitations

There are important limitations to the estimates used in this report. As with many estimates, they rely on current conditions: they do not account for any possible increase in enrollment either due to external circumstances or due to the increased generosity of the Cal Grant system. Nor are they adjusted for estimated increases in tuition costs or projected inflation. Many values in our calculations are drawn from the NPSAS, which is a sample study with margins of error for all estimates.⁹ CSAC data on Cal Grant recipients and applicants as published or provided to TCF are also not perfectly precise: counts of students and awards are often broken down by EFC bands, and within those EFC bands, students may not be evenly distributed. Data are sometimes available only for the system as a whole.

The estimates we have used are for California’s public university and community college systems only. The ability of independent private colleges to contribute institutional aid to the increase in need-based aid as laid out in the report is mixed: some larger and wealthier institutions with endowments might not have difficulty with a state requirement to match aid, while other institutions might have little ability to do so. Many advocates are uncomfortable with assuming any increase in aid to students attending for-profit colleges currently eligible for Cal Grant funding.

1. The wide range in estimates of remaining need is due to a range of assumptions and methodologies used in different studies. See Appendix A, which covers methodology, for more detail.
2. MOE = maintenance of effort. This proposal includes a requirement that universities receiving new state aid maintain existing spending on need-based aid rather than taking advantage of new government aid to divert their aid budget to non-need-based aid.
3. For students living on-campus or off-campus, non-tuition costs were greater than could be met by a combination of a full Pell award, $4,000 self-help, and an Access award based on the cost of food. The exact cost of food varies for on-campus students due to varying costs for room and board on different campuses, and so the estimated cost of food for students living off-campus is used for both off-campus and on-campus students.
4. All estimates in this proposal assume that Cal Grant entitlement eligibility will still require: California residency, completion of the Free Application for Federal Student Aid (FAFSA), and at least half-time enrollment in a degree-granting program with no prior completion of a bachelor’s degree.
5. Our estimates rely on EFC bands of $1,000. We assume those with an EFC of between $1 and $1,000 would receive a tuition waiver plus an Access award worth the estimated annual cost of food minus $500; those with an EFC of between $1,001 and $2,000 would receive a tuition waiver plus an Access award worth the estimated annual cost of food minus $1,000; and students with an EFC of between $2,001 and $3,000 would receive a tuition waiver plus an Access award worth the estimated annual cost of food minus $1,500.
6. Robert Shireman, Jen Mishory, and Sandy Baum, “Expanding Opportunity, Reducing Debt,” The Century Foundation, April 4, 2018, https://tcf.org/content/report/expanding-opportunity-reducing-debt/; see Appendix 1.
7. “Designing Financial Aid for California’s Future,” Chapter 3, The Institute for College Access and Success, November, 2018, https://tcf.org/content/report/expanding-opportunity-reducing-debt/https://ticas.org/files/pub_files/designing_financial_aid_for_californias_future.pdf.
8. “Creating a Debt Free College Program,” Legislative Analyst’s Office, California State Legislature, January 31, 2017, https://lao.ca.gov/Publications/Report/3540.
9. The 2016 NPSAS was not designed to be statistically representative at the state level. Fortunately, California’s large size means that a large sample of both institutions and students are included in the data allowing for detailed analyses used in these estimates.

Tags: california, California Education, college affordability, Cal Grant