Streamlining State Financial Aid: Report on Cal Grant Alternative Delivery Pilot

Streamlining State Financial Aid: Report on Cal Grant Alternative Delivery Pilot M A C TAy l o r • l e g i s l A Ti v e A n A l y sT • D e C e M b e r 2 011 An LAO RepOR t 2 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t ExECutivE SummARy Chapter 644, Statutes of 2009 (AB 187, Committee on Budget), authorized a pilot program under which college and university campuses could voluntarily administer certain Cal Grant awards for their students beginning in the 2010-11 academic year. The California Student Aid Commission (CSAC) created the pilot in accordance with Chapter 644. No campuses volunteered to participate, however, due to cumbersome program requirements. We find that the failure of the pilot to attract participants is the result of specific unworkable requirements included in Chapter 644. This does not suggest that decentralization of Cal Grant delivery is infeasible. On the contrary, the benefits of decentralizing financial aid awards has been well established. At least three times in the last two decades various groups have studied Cal Grant delivery and concluded that the state should decentralize this process to the campus level. There is broad agreement that an alternative delivery model is preferable. LAO Recommendations. We recommend the Legislature enact legislation to decentralize Cal Grants through a process that includes a planning period but no pilot phase. We offer several specific recommendations for the delivery model, building on ideas suggested in earlier reports. We believe these recommendations would improve student-centered delivery of state financial aid at the campus level; reduce duplication of functions between campuses, system offices, and the state; and improve both the effectiveness and efficiency of the state’s financial aid enterprise. intRoDuCtion This report responds to Chapter 644, which describes recent proposals for alternative delivery authorized a pilot program for a decentralized models; and chronicles the development, imple- process for delivering Cal Grants to students. The mentation, and outcomes of the pilot program. The statute requires the Legislative Analyst’s Office to report concludes with our recommendations for report on the implementation and outcomes of the achieving the goals of Cal Grant delivery reform. first award cycle under the pilot program. This report provides background on the existing delivery model for financial aid programs; BACKGRounD overview of Cal Grants program for students who do not qualify for entitlement awards, are the state’s primary financial Cal Grants Are Central to State’s College aid programs directly supported by the General Affordability Strategy. The Cal Grant programs, Fund. (See Figure 1, next page, for a summary of which include a large entitlement program for Cal Grant program requirements and awards.) In recent high school graduates and community 2011-12, more than $1.4 billion will be distributed college transfer students, and a smaller competitive in grants to California students. www.lao.ca.gov Legislative Analyst’s Office 3 An LAO RepOR t Most Forms of Aid Awarded by College and other federal aid (including loans) based on Campuses. Most student financial aid is awarded uniform eligibility criteria, and invoice the federal to students by campus financial aid offices. The government for just-in-time payment through federal Department of Education uses information electronic funds transfer. They award campus- from a common, web-based application form based “institutional aid” according to campus and (the Free Application for Federal Student Aid, system policies and guidelines. Campuses also or FAFSA), including family income, assets, award privately funded scholarships and grants and number of children in college, to determine (which usually require supplemental application the expected family contribution (EFC) toward materials) in accordance with donors’ wishes. college costs. Campus financial aid staff use the In Contrast, Cal Grants Awarded by CSAC. EFC, in conjunction with information about the The main exception to campus-based aid packaging costs of attending their institutions—including is Cal Grants. Financial aid staff can estimate the books and living expenses—to determine each amount of funding students are likely to receive student’s financial need. They then combine from the Cal Grant entitlement program, but they (or “package”) various types of financial aid to are not authorized to approve the awards. meet as much of each student’s financial need as The CSAC awards Cal Grants from its office in possible. For example, campuses award Pell Grants Sacramento, and the award process involves several Figure 1 Summary of Cal Grant Program Requirements and Awards High School Under this program, lower- and middle-income graduating high school Entitlement Program seniors who meet eligibility criteria and apply by the deadline in the year of graduation or the following year are guaranteed a Cal Grant A or B award. Students must have a grade point average (GPA) of at least 3.0 for a Cal Grant A award, which covers full systemwide tuition at the University of California and California State University, and provides up to $9,708 in tuition support at private California colleges and universities. Cal Grant B awards are for students with greater financial need who have at least a 2.0 GPA, and provide up to $1,551 toward books and living expenses in the first year, and this amount plus tuition support (in the same amounts as Cal Grant A awards) beginning in the second year. Transfer This program is for graduates of California high schools who transfer from a California Entitlement Program Community College to a qualifying baccalaureate degree granting institution. Students must also meet financial and academic eligibility criteria, and be under the age of 28 at the end of the year in which they first receive an award. As under the high school entitlement, transfer entitlements include both A and B awards, with the same maximum awards for tuition, books, and living expenses. Competitive Program The Cal Grant Competitive Award Program is for students who meet the basic eligibility criteria of the entitlement program (such as income and GPA), but do not qualify for those awards. This may be because of age, or a delay in attending college following high school graduation. Recipients are selected for A and B awards from the applicant pool through a competitive process based largely on family income and GPA, with special consideration for disadvantaged students. Because of limited fund- ing, only about 9 percent of qualified applicants receive awards. Cal Grant C This program provides up to $2,592 for tuition and fees and up to $576 for other costs for eligible low- and middle-income students preparing for occupational or technical careers. 4 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t additional inputs beyond the FAFSA information Governor Proposed Financial Aid and costs of attendance. The actual payment of Cal Decentralization in 2009-10 Budget Package Grants is made through college campuses. Campus The 2009-10 Governor’s Budget proposed financial aid offices confirm student enrollment and eliminating CSAC, transferring responsibility verify eligibility, and CSAC pays the campus for each for administering financial aid programs to the eligible student through a process of advances and public higher education segments, and transferring reconciliations. Campuses use the funds to pay the certain remaining CSAC duties to the executive students’ fees and to pay stipends directly to students. branch. Process Is Fragmented. From the student’s Proposal Differed From Recommendations in perspective, this process is fragmented and Earlier Studies. The 2009-10 proposal drew on the often confusing. Students may have to submit same rationale for decentralization presented in information to the CSAC office in addition to earlier studies of Cal Grant delivery—simplification their campus financial aid office. They receive for students and efficiencies for the state and correspondence from CSAC, which sometimes campuses. However, the proposal differed from duplicates information they have already received earlier ones in several key respects. For example, from the campus office and sometimes contradicts the Governor proposed allocating financial aid it (when the campus communication is based on dollars directly to the public higher education newer information, for example). In addition, a segments instead of maintaining a central source student’s contact with the local financial aid office of funds. Earlier recommendations had mirrored is usually face-to-face with an individual counselor, the structure of the federal Pell Grant Program, whereas communication with CSAC is through a in which the funds are appropriated centrally. web application, mail, e-mail, or call center. From Institutions award grants based on standardized the campuses’ perspective, the Cal Grant award eligibility criteria and invoice the federal process is duplicative and labor-intensive, and often government for just-in-time payment through creates additional work for financial aid staff to electronic funds transfer. The Governor’s proposed resolve conflicting information. elimination of CSAC also went further than earlier Studies Have Recommended Decentralizing recommendations, which envisioned a continued Cal Grant Award Process. Reports by the role for a central financial aid agency. California Postsecondary Education Commission Student Aid Commission Opposed Proposal. (CPEC) in 1993 and again in 2003 concluded that The CSAC opposed the Governor’s proposal decentralization would improve delivery of Cal to decentralize financial aid administration. Grant awards by giving students a single point of In a January 26, 2009 teleconference meeting, contact—the campus financial aid office—for most the commission approved a motion citing lack financial aid matters. The studies concluded that of details, concerns about student access, and decentralization would also streamline activities interference with CSAC’s federal obligations as for campus financial aid offices. The 2003 report reasons for opposition. In the agenda materials for was written in consultation with a Task Force on the following CSAC meeting in February, agency Alternative Delivery, in response to supplemental leadership questioned whether the Governor’s report language. Task force members included proposal was intended to “reduce certain access for broad representation from public and private sector students from low-income and working families to institutions and offices. higher education.” In public testimony and written www.lao.ca.gov Legislative Analyst’s Office 5 An LAO RepOR t materials provided to legislative personnel, CSAC “placeholder” trailer bill language based generally argued that decentralization would increase costs, on the administration’s proposal, with modifica- lessen transparency, limit student choice, and reduce tions that: (1) employed a federal Pell Grant the number of students receiving aid. (See the box on funding model, (2) retained some core functions page 8 for our assessment of these arguments.) at a centralized level, and (3) developed a better Others Offered Support and Modifications. In system for the administration of competitive Cal our 2009-10 Budget Analysis Series, we suggested Grants and grants to private college students. The that the Governor’s proposal to decentralize Cal Assembly budget subcommittee, however, rejected Grants and other financial aid programs had merit the proposal to decentralize Cal Grant awards. The but would be improved with modifications. We issue was not included in the revised budget bill recommended a model similar to that proposed passed by the Legislature in June. in earlier studies, whereby CSAC provides central …But Revisited in Response to Governor’s services (including disbursing funds to campuses and veto of CSAC operational Funds tracking Cal Grant utilization), and campus financial aid offices assume responsibility for awarding Cal In signing the revised budget (Chapter 1 of Grants using clear eligibility guidelines. the Fourth Extraordinary Session of 2009), the Stakeholders such as the California Student Governor reduced several appropriations using Financial Aid Administrators and the California his line-item veto authority. These included a Community Colleges Student Financial Aid reduction of $6.3 million to CSAC’s $12.6 million Administrators voiced their support for decentral- administrative operations budget. In his veto ization. Likewise, the California Education Round message, the Governor indicated his willingness Table, comprising the education segments and CPEC, to restore $4.3 million of this amount upon also offered its support for the idea of decentralizing enactment of legislation to decentralize financial Cal Grant administration and presented its own aid administration. alternative to the Governor’s proposal, very similar to Legislature Responded With Pilot. The CSAC ours. Figure 2 compares the three proposals. prepared plans showing it would have to shut down midyear if its operational funding were Proposal not Approved as Part of Budget… not restored, leaving 200,000 financially needy The 2009-10 budget was initially approved in students without Cal Grant payments. To avoid February 2009, following an abbreviated budget this scenario, the Legislature amended an inactive review process in the Legislature. As a result of bill (AB 187 [Committee on Budget]), requiring the shortened process, several budget proposals— CSAC to establish a pilot program for an alternative including the Governor’s decentralization Cal Grant delivery system. The bill included a proposal—were rejected by the Legislature “without $4.3 million appropriation for CSAC’s operational prejudice” for consideration later in the legislative budget, effectively reversing part of the Governor’s session. July veto. The pilot legislation was signed into law Senate Approved Decentralization, Assembly on November 5 as Chapter 644. Rejected It. The Governor resubmitted his proposal Alternative Delivery Pilot Program in an April Finance Letter that was considered by budget subcommittees during May Revision Chapter 644 requires CSAC to implement a hearings. The Senate subcommittee adopted pilot program for an alternative Cal Grant delivery 6 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t system under which qualifying institutions could ➢ Convene an advisory task force on voluntarily administer certain Cal Grant awards for technical and data requirements with their students. Specific provisions required CSAC to: CSAC staff and institution representatives. Figure 2 Comparison of Three Decentralization Proposals Round Table Administration Proposal LAO Alternative Proposal High School UC, CSU, and CCC receive block Paralleling the structure of the Consistent with LAO and transfer appropriations and distribute Pell Grant program, campuses in alternative. entitlement awards to their students. all segments (public and private) programs CCC receives appropriation for award grants based on students attending private established eligibility rules, and institutions and administers draw down funds from central awards as CSAC has been doing. pool on a just-in-time basis. Competitive CCC Chancellor’s Office receives Initial recommendation: CSAC or Program is restricted Program appropriation and administers a successor continues to to CCC students statewide competitive program as administer statewide competition. (who receive about CSAC has been doing. Later amended to include Round 75 percent of awards), Table proposal as a viable eliminating need for alternative. a statewide adminis- tered competition. Other aid Specialized programs are Continue to be administered by Consistent with LAO programs delegated to public segments or CSAC or a successor agency. alternative. contracted out. Centralized No functions remain at CSAC, CSAC or successor continues to: Consistent with LAO functions which is consolidated (along • Perform outreach. alternative. In addi- with CPEC) into a new executive • Collect GPAs from students tion, specifies that branch office for policy and and schools and act as a state CSAC or successor oversight. repository. no longer receives student FAFSA • Track student eligibility and records, maintains payments (including amount of programming to lifetime award eligibility used determine preliminary and remaining. eligibility, or provides • Receive appropriation, and student hotline, distribute to campuses as they eliminating draw down for eligible students. duplication. • Perform audits. • Provide statewide reporting on grant utilization, projection of future costs. • Interpret state financial aid policy and implement policy through regulations. Accountability Public segments periodically CSAC increases the intensity of CSAC maintains audit report on budget and performance audits. responsibilities. to new executive branch office and are subject to audits. CSAC = California Student Aid Commission; CPEC = California Postsecondary Education Commission; FAFSA = Free Application for Federal Student Aid. www.lao.ca.gov Legislative Analyst’s Office 7 An LAO RepOR t Student Aid Commission’s objections to Decentralization not Convincing We investigated the California Student Aid Commission’s (CSAC) assertions regarding effects of decentralization, and found them unpersuasive. The CSAC’s main argument regarding student choice and opportunity included the following points: ➢ Higher education institutions communicate about financial aid only with students admitted to their campuses. ➢ Therefore, tens of thousands of low-income and first-generation students who do not apply for admission, or are not admitted to campuses, would not receive any notification regarding their aid eligibility. ➢ Because these students would not receive notification of their aid eligibility, their options to attend and pay for college would effectively be shut down. The CSAC materials specifically cited loss of access to high-cost, selective institutions of higher education for these students. This argument does not account for the fact that students must apply to and be accepted at higher education institutions in order to attend them. This is especially true at the more selective institutions, but even at open-access institutions such as the community colleges and private career colleges, students must apply and register and are notified of financial aid eligibility upon doing so. Neither the current centralized delivery nor a decentralized system would help students who do not apply for college. The CSAC also contends that its current process of providing information about financial award availability to students who may not have applied to college may encourage some of these students to consider applying in the future. This concern could be addressed more directly through education and outreach efforts, particularly to middle and high school students and their families. Other concerns raised by CSAC included lack of portability of Cal Grants awarded by individual institutions, difficulty tracking remaining eligibility for students, illusory savings and increased costs, and obstacles to reconciling institutional grant awards against allocations. Each of these concerns was addressed in the administration’s and/or other proposals for the design of a decen- tralized Cal Grant delivery system, largely by mirroring the federal Pell Grant process in which portability, tracking, cost control, and prompt payment are central features of a campus-based delivery system. We did find merit to one of CSAC’s objections. The small competitive award program for students who do not qualify for entitlement awards is not readily transferred to a decentralized model. (We proposed maintaining this program, along with a limited number of additional central functions, in a central state office, or limiting it to community college students.) With this exception, we could find no evidence that decentralization of financial aid awards would limit access to postsecondary education for disadvantaged students. 8 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t ➢ Adopt emergency regulations establishing campuses as well. To qualify, schools had to agree the pilot by July 2010. to serve as one-stop shops for student financial aid. This includes advising every student, parent, ➢ Implement the pilot only after at least 30 and counselor who inquires about financial aid, (but no more than 35) qualifying institu- regardless of which institution the student plans tions commit to participating. to attend. Campuses also had to agree to pay all ➢ Limit participation by campuses in the costs associated with developing and implementing the pilot, and to provide substantial new data to University of California (UC), California CSAC on a regular basis. Before Chapter 644 was State University (CSU), and California enacted, representatives of the segments indicated Community Colleges (CCC) systems to no that the bill as drafted would create a pilot that more than one-quarter of the campuses in was unworkable for them. Nonetheless, many of each system. the provisions segment representatives objected to Several Provisions Cumbersome for remained in the final legislation. Campuses. The bill imposed requirements on the imPlEmEntAtion EFFoRtS Discussions at CSAC meetings award offer for another campus in the same system. In CSAC meetings immediately following enactment of Chapter 644 and over the following ➢ The open-ended requirement to cover not months, the segments continued to voice their only their own implementation costs, but concerns. University officials told the commission also CSAC’s as-yet undetermined costs, that, given the requirements in the legislation, “it is was seen by the segments as untenable. highly unlikely there would be participation [in the pilot] at this time.” Segment representatives cited ➢ The alternative delivery model, while several reasons the universities and community addressing some concerns about commu- colleges found the structure to be unworkable: nication with a subset of students, did not ➢ The restriction on the number of campuses change the “back-office” requirements for pilot schools. As a result, the universities within each segment that could participate could not make fundamental changes in the meant that any participating segment delivery system to improve efficiency at the would have to run dual systems to admin- campus level. In fact, the pilot model created ister Cal Grants through both centralized an additional layer of duplication of student and decentralized models. records at CSAC and pilot schools, and an ➢ Moreover, because students often apply additional report for the pilot schools to to multiple campuses within a system, a submit, adding complexity and costs. student could find it confusing to receive Other provisions cited as difficult or an award offer directly from one campus, unworkable by the segments include greatly but have to go through CSAC to get an increased data reporting obligations and the www.lao.ca.gov Legislative Analyst’s Office 9 An LAO RepOR t requirement for campuses to provide information program staff to a technical subcommittee. In the to students about aid available at other colleges and following months, CSAC convened the technical universities. subcommittee to discuss data exchange and other In describing their approach to implemen- procedural matters, and it administered a survey to tation, CSAC staff also acknowledged the limita- campuses to ascertain their technical capabilities. tions they faced designing a pilot with partial The CSAC also held several teleconference meetings participation. Because CSAC must continue with segmental representatives regarding proce- serving students at pilot and non-pilot institutions dural issues. As part of its process, CSAC staff alike, the staff was designing a system that would outlined the reports and documentation it would use existing reports and processes, in effect jury- require from participating campuses. rigging the mechanisms for centralized Cal Grant CSAC Developed Regulations… administration to create a decentralized program. Given Concerns, UC Proposes Alternative In July 2010, CSAC released draft emergency Pilot. The UC proposed an alternative pilot to test regulations for comment. They received comments the feasibility of giving a campus full responsibility from the CCC, CSU, and UC system offices and for determining Cal Grant eligibility, eliminating the CCC Student Financial Aid Administrators the duplication proposed in the CSAC pilot. The Association addressing numerous specific policy UC model would have redesigned the campus and technical concerns. According to their Cal Grant process rather than building on the representatives, the public segments had already cumbersome existing process, resulting in cost concluded that they would be unable to participate efficiencies for the campuses. The UC’s proposed in the pilot as structured in the statute, but had pilot did not meet the requirements of Chapter 644, significant policy and process concerns with the however, and was not taken up by the commission. draft regulations they felt it necessary to address for CSAC’s Initial Willingness to Seek Changes. In the record. In addition, CSAC received comments early meetings following enactment of Chapter 644, on the proposed regulation from a campus CSAC commissioners acknowledged that the financial aid director citing major flaws in the pilot did not seem to be workable and indicated a overall design of the program. willingness to make adjustments—including going …But Got no takers back to the Legislature for statutory changes if needed. At the same time, they were under pressure Emergency regulations were adopted in August to meet the requirements of the legislation, which 2010 and readopted in January 2011, with an meant developing regulations by July despite flaws expiration date of April 20, 2011. The regulations in the structure of the pilot. As time went on, included an application process for campuses to CSAC’s commitment to making the pilot work participate in the pilot. The commission received appeared to wane. A May 2010 CSAC meeting no applications. As a result, the commission did concluded with a senior staff member ruling out not adopt final regulations, and permitted the any changes that would require amendments to the emergency regulations to expire. statute until the commission adopts regulations. other outcomes Advisory Task Force. Commission members convened a stakeholder meeting as required by Although the alternative delivery pilot was the legislation in December 2009 and assigned not implemented, some participants in the process 10 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t acknowledge that planning for the pilot may have led better understanding of technical and programmatic to some other, modest benefits. For example, there capabilities at the campuses, and has developed may be a better understanding on the part of the closer working relationships with some segment segments’ campus and system financial aid offices representatives. These results could be helpful in about technical aspects of the current Cal Grant eventually designing a decentralized financial aid administration process. Likewise, CSAC gained a delivery model that is feasible for all parties. ConCluSionS need to Decentralize Has Been Established Some of these flaws may be related to the circumstances under which the pilot was At least three times in the last two decades, developed. The legislation was drafted as a response various groups have studied Cal Grant delivery to the Governor’s veto of CSAC funding. Because and arrived at substantially the same conclusion: of the timing of this action, the Legislature was not the state should decentralize Cal Grant delivery able to vet its plan in policy and budget committees to the campus level, similar to the federal Pell or benefit from public comment. Grant delivery model. These studies have identified several benefits, and no major problems, with LAO R : ecOmmendAtiOn decentralization. They have addressed concerns d c G ecentRALize AL RAnts raised by CSAC. The desirability and feasibility of In our view, the case for decentralization is decentralizing Cal Grant delivery are not questions well-established, and there are serious cost and that require more study. operational challenges to conducting a pilot Pilot Was not Workable involving partial decentralization. For these reasons, we recommend the Legislature enact For reasons articulated by the segments and legislation to decentralize Cal Grants through a CSAC, the pilot would have been complicated, process that includes a planning period but no cumbersome, and costly to implement. The pilot phase. To optimize the benefits and success of commission, segment, and campus offices would decentralization, we offer several recommendations have had to operate dual financial aid delivery for the delivery model, building on ideas suggested systems during the course of the pilot, while in earlier reports: weathering funding reductions and other pressures related to the state’s budget shortfall. Individual ➢ Replicate the federal aid delivery process campuses would have had to commit to funding as much as possible, including eligi- unknown state costs to participate. Data reporting bility determination, awarding, funds requirements for campuses would have expanded, disbursement, and reporting. along with their responsibility to inform students ➢ Keep several support and accountability of financial aid options at other campuses functions at CSAC: throughout the state. In their comments on the draft regulations, the segments and others detailed • Receiving and tracking the central additional, more technical problems that made the appropriation for awards. pilot challenging or unworkable. www.lao.ca.gov Legislative Analyst’s Office 11 An LAO RepOR t • Collecting and making available to asset limits that could be replaced by more campuses specialized information (such targeted use of federal need determi- as the Cal Grant grade point average nation process that all aid applicants and [GPA]). campuses use. • Tracking past utilization and We suggest the Legislature convene a technical remaining eligibility for students across advisory group to work out numerous practical institutions. issues inherent in a major system changes such as decentralization. At the Legislature’s request, our • Auditing to monitor delivery practices at office could lead such a group. Among the tasks of campus level. the group would be to identify the amount of time ➢ Design processes specifically to accom- needed from enactment of legislation to imple- modate a decentralized model, rather than mentation of the new delivery model, to allow for retrofitting existing ones that introduce development and testing of new automated systems significant constraints. and processes. As noted earlier, the Cal Grant programs are ➢ Limit competitive award program to the centerpiece of the state’s efforts to provide community college students only, elimi- college access to financially needy students. This nating the need for a centralized compe- goal is best served by ensuring the programs are tition across segments. administered effectively and efficiently. Student- ➢ Consider eliminating or amending existing centered delivery at the campus level with reduced duplication of functions between campuses, system statutory requirements that are outdated or offices, and the state could improve both the effec- of limited value, such as specialized GPA tiveness and efficiency of the state’s financial aid requirement that provides no added value enterprise. at selective institutions with high academic standards, and specialized income and lAo Publications This report was prepared by Judith Heiman, and reviewed by steven D. boilard. The legislative Analyst’s office (lAo) is a nonpartisan office which provides fiscal and policy information and advice to the legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the lAo’s website at www.lao.ca.gov. The lAo is located at 925 l street, suite 1000, sacramento, CA 95814. 12 Legislative Analyst’s Office www.lao.ca.gov