Do University Students' Fees Support Financial Aid?

August 2010 E B D ASICS Do University Students’ Fees Support Financial Aid?  Policies Link Student Aid Funding to Student Fee Levels  The University of California (UC) and the California State University (CSU) administer their own fi nancial aid programs for their students. These “institutional aid” programs provide grants to help fi nancially needy students pay various education costs.  The two university systems have adopted policies to increase funding for these programs each time students fees are in- creased. These policies are commonly understood to actually divert funding from student fee payments to fi nancial aid pro- grams. As we describe below, however, this is not necessarily the case.  Two Views of the Role of Student Fee Revenue  In general, the universities receive two main sources of fund- ing—a General Fund subsidy provided by the state and fee rev- enue paid by the student—to educate their students. The fi gure on the next page shows two different perspectives of how fund- ing for institutional fi nancial aid is diverted from these education funds for a hypothetical UC student. EDBASICS (Continued) Two Views of Student Fees Funding Components for Hypothetical Undergraduate Student $ Diverted to Financial Aid Student Fee State Payment Funding Cost of Education State Funding Student Fee Payment  The left side of the fi gure depicts the common view that insti- tutional aid is funded from student fee revenue. While all of the state funding is shown as supporting the cost of educating the student, the addition of the fee payment exceeds the funding needed for the student’s education, and the “excess” fee rev- enue is diverted to institutional aid.  The right side of the fi gure shows an alternative, and equally correct, view. In this scenario, all of the student’s fee payment contributes to the cost of educating the student. The funding provided by the state covers the remainder of that cost, as well as a contribution to institutional aid.  As these views demonstrate, state General Fund support and student fees are interchangeable funding sources that together support educational costs and fi nancial aid. For budgeting purposes, therefore, the distinction between fees and General Fund is not important. This is one of a series of issue briefs examining important questions about higher education funding in California. For more information on this topic, or to request other briefs from this series, contact the Legislative Analyst’s Offi ce Higher Education section at (916) 319-8339, or visit our website at www.lao.ca.gov.