The 2022-23 Budget: Middle Class Scholarship Program

The 2022-23 Budget: Middle Class Scholarship Program MARCH 2022 Summary. The 2021-22 budget agreement in The 2022-23 Budget: Student Financial Aid. included plans to revamp the Middle Class In this follow-up post, we explore the MCS Scholarship (MCS) program beginning in 2022-23. program changes in greater detail. We first provide The Governor’s budget includes a $515 million background on state financial aid programs, with ongoing augmentation to begin implementing the a focus on the Cal Grant program as well as the revamped program. Under the new program rules, original and revamped MCS program. We then University of California (UC) and California State examine the estimated impacts of the revamped University (CSU) students will receive MCS award MCS program. We conclude the post by raising amounts linked to their total cost of attendance, some issues for legislative consideration as it rather than tuition costs only. The new MCS rules implements the revamped program. also will add many more recipients, including Background low-income students receiving Cal Grants. With these significant changes come new issues for Cal Grant Program Is State’s Longstanding the Legislature to consider. Given the complexity Student Financial Aid Program. In the late 1970s, of the revamped program, one implementation the state consolidated its financial aid programs issue to consider involves the state’s ability to into the Cal Grant program. The California Student continue providing timely notification of awards Aid Commission (CSAC) administers this program. to students. Another issue to consider is that the The state has multiple types of Cal Grant awards, revamped program could contribute to shifts in with award amounts varying by type and segment. enrollment demand from the community colleges At UC and CSU, Cal Grants typically cover full (where students are ineligible for MCS awards) to systemwide tuition and fees (currently $12,570 at the universities. The revamped program also could UC and $5,742 at CSU). In addition, low-income reduce some incentives for students to contain their students may receive an “access award” (currently living costs as well as for campuses to contain their $1,648) for living costs such as food and housing. student housing charges. The last issue we discuss Cal Grants have various eligibility requirements, revolves around the options the Legislature has including income and asset ceilings that vary by for phasing in financial aid expansions—including family size. In 2022-23, a dependent student from the option to expand living cost coverage through a family of four must have an annual household the Cal Grant program, potentially offsetting income no greater than $116,800 to qualify for any MCS costs. Cal Grant award, and no greater than $61,400 to qualify for an access award. As Figure 1 on the Introduction next page shows, the Governor’s budget provides As part of the 2021-22 budget agreement, $2.8 billion for the Cal Grant program in 2022-23, the state revamped the MCS program, with with $2.1 billion of this amount going to UC and the new program rules scheduled to go into CSU students. effect in 2022-23. The Governor’s 2022-23 Original MCS Program Was Enacted in budget includes the agreed-upon General Fund Response to Steep Tuition Increases. UC and augmentation ($515 million) to implement the first CSU increased tuition during the Great Recession year of the revamped program. We describe the in response to state funding reductions. Between revamped program and proposed augmentation 2007-08 and 2011-12, systemwide charges for 2022-23 Budget Series 1 undergraduate resident students increased to these three factors collectively as students’ from $6,636 to $12,192 (84 percent) at UC and “available resources.”) It then will deduct these from $2,772 to $5,472 (97 percent) at CSU. The amounts from a student’s total cost of attendance original MCS program (administered by CSAC) to determine whether the student has remaining was enacted to help middle-income UC and CSU costs. Finally, CSAC will determine what percentage students not receiving tuition coverage through of each student’s remaining costs to cover each the Cal Grant program receive partial tuition year based on the annual state appropriation for the coverage. Awards cover between 10 percent and program. Under this formula, award amounts will 40 percent of systemwide tuition and fees, with the vary widely among students, with each student’s percentage graduated downward as household award reflecting their costs and available resources. income increases. State law caps spending on the Revamped MCS Program Serves a Broader original MCS program at $117 million annually and Range of Students. Another key difference directs CSAC to prorate award amounts to remain from the original MCS program is that UC and under the cap, if needed. CSAC is prorating award CSU students receiving tuition coverage through amounts for the first time in 2021-22. (As discussed Cal Grants or other financial aid programs (who in the nearby box, tuition charges at UC and CSU have been held about flat since 2011-12.) Figure 1 Revamped MCS Program Focuses on Total Governor’s Budget Provides Cost of Attendance. The revamped MCS program $2.8 Billion for Cal Grants (also administered by CSAC) is very different 2022-23 (Dollars in Millions) than the original program. Rather than focusing solely on tuition, the revamped program is based Segment Recipients Spending on a student’s full cost of attendance, including UC 92,681 $1,164 living costs. As Figure 2 illustrates, calculating CSU 160,021 932 a student’s award amount under the revamped CCC 215,153 413 program will involve several steps. First, CSAC Private nonprofit institutions 28,861 251 will account for other available gift aid, a student Private for-profit institutions 5,684 30 contribution from part-time work earnings, and a Other public institutions 32 —a Totals 502,433 $2,792 parent contribution for dependent students with a Less than $500,000. a household income of over $100,000. (We refer Recent Tuition Trends Holding Tuition Charges Flat Since Great Recession Has Benefited Middle-Income Students. Though tuition charges at the University of California (UC) and California State University (CSU) increased very quickly during the Great Recession, tuition charges subsequently have remained about flat. Between 2011-12 and 2021-22, UC and CSU raised tuition charges only once. In 2017-18, UC and CSU increased undergraduate tuition charges by 3 percent and 5 percent, respectively. (UC also increased its systemwide Student Services Fee by 5 percent annually from 2015-16 through 2017-18.) As tuition charges have been held flat in most years, UC’s and CSU’s rising operating costs over the past decade have been covered primarily through higher state General Fund support. This budget approach particularly has benefitted middle- and high-income tuition-paying students. (Low-income students generally have their tuition covered through state and institutional financial aid programs.) Whereas tuition-paying resident students at UC contributed 23 percent of ongoing core funding in 2011-12, they are contributing 11 percent in 2021-22. Similarly, at CSU, tuition-paying resident students contributed 35 percent of ongoing core funding in 2011-12, whereas they are contributing 21 percent in 2021-22. 2022-23 Budget Series 2 typically are lower-income students) will be newly This is enough to cover an estimated 24 percent eligible for MCS awards under the revamped of total program costs. State law directs CSAC to program. Middle- and higher-income UC and CSU prorate all awards equally, such that awards would students generally will remain eligible for MCS cover 24 percent of each student’s remaining costs. awards. The revamped program generally maintains Figure 3 compares projected recipients, spending, the income and asset ceilings in the original and award amounts under the revamped program program, adjusted for inflation. For 2022-23, the in 2022-23 to the original program in 2020-21 maximum annual household income to qualify for and 2021-22. an MCS award will be $201,000 for dependent students. (For context, Figure 2 about 90 percent of tax filers in New Middle Class Scholarship Formula California are beneath this cap.) Takes Effect in 2022-23 Revamped MCS Program Is Illustrative CSU Dependent Students Living Off Campus Much Costlier Than Original Program. In fall 2021, CSAC Example 1 Example 2 prepared a cost estimate for the Household Income $50,000 $125,000 revamped MCS program using Cost of attendance $29,344 $29,344 more detailed student-level data Other federal, state, and institutional gift aida -10,635 — than was available when the Student contribution from work earnings -7,898 -7,898 2021-22 budget was enacted. 33% of parent contribution from federal EFCb — -8,528 Based on CSAC’s estimate, it Student’s Remaining Costs $10,811 $12,918 would cost $2.6 billion to cover Percentage based on annual appropriationc 24% 24% Award Amounts $2,595 $3,100 100 percent of each student’s remaining costs after accounting for a The amount also includes any private scholarships in excess of the sum of the student contribution and parent contribution. the students’ available resources b Only applies to dependent students with a household income of more than $100,000. (other gift aid, a student work c State law requires the California Student Aid Commission to determine what percentage of each student’s remaining costs to cover each year based on the annual appropriation for the program. contribution, and any applicable The Governor’s budget provides $632 million for the program in 2022-23, which is enough to cover an estimated 24 percent of each student’s remaining costs. parent contribution). This is about $300 million more than the initial EFC = expected family contribution. cost estimate at the time of budget enactment. At full implementation, Figure 3 the MCS revamped program would Governor’s Budget Funds Significant Expansion of cost about 20 times more than the Middle Class Scholarship Program original program and only slightly Key Information by Segment less than the Cal Grant program. Governor’s Budget Funds an Change From 2021-22 Estimated 24 Percent of Program 2020-21 2021-22 2022-23 Actual Revised Proposed Amount Percent Costs. In accordance with the Recipients 2021-22 budget agreement, the CSU 43,772 47,025 245,901 198,876 423% Governor’s budget provides an UC 11,649 12,825 114,211 101,386 791 augmentation of $515 million Totals 55,421 59,850 360,112 300,262 502% ongoing General Fund for the Spending (In Millions) revamped MCS program. When CSU $77 $79 $426 $347 439% combined with current funding UC 37 38 206 168 442 for the original program, the Totals $114 $117 $632 $515 440% augmentation brings total program Average Award funding to $632 million in 2022-23. CSU $1,759 $1,678 $1,731 $53 3.1% UC 3,192 2,968 1,806 -1,162 -39.1 2022-23 Budget Series 3 Program Impacts with household income. (This also generally occurs under the current financial aid structure.) Figure 6 Many More Low-Income Students Will shows the net price for an illustrative UC student Receive Awards Under Revamped Program... living off campus at various income levels under two Once the new program rules take effect in 2022-23, scenarios: (1) the Governor’s proposed funding level the number of MCS recipients is estimated to for the MCS program and (2) full implementation of increase from about 60,000 to about 360,000. the program. (The “full implementation” scenario The increase is due to students receiving tuition assumes award amounts cover 100 percent of coverage through Cal Grants or other financial aid each student’s remaining costs after accounting programs now being eligible for living cost coverage for the student’s available resources.) At full through the MCS program. As Figure 4 shows, the implementation, the net price for all UC and CSU majority of the additional MCS recipients will be in lower-income ranges. …But Low-Income Students Figure 4 Will Receive Relatively Small Awards. Because the MCS Revamped Middle Class Scholarship Program program covers students’ Would Serve More Low-Income Students remaining costs after accounting Number of Recipients in Original vs. Revamped Program for existing aid (among other factors), MCS award amounts 100,000 generally will be smaller for Original Programa lower-income students as they 80,000 Revamped Programb often also receive aid through 60,000 Pell Grants, Cal Grants, and institutional aid. Figure 5 shows 40,000 the estimated average award 20,000 amount by income level at the Governor’s proposed funding $0 or Less $1 $20,001 $40,001 $60,001 $80,001 $100,001 $120,001 $140,001 More Than level. Award amounts tend to to to to to to to to to $160,000 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 increase with household income Household Income until the $100,000 threshold, when a Reflects 2020-21 actuals. parent contributions begin. Even b Reflects California Student Aid Commission's estimates for 2022-23. with parent contributions, the average award amount is higher for Figure 5 students with household income above the $100,000 threshold than Middle Class Scholarship Awards Would Be below it. Smaller for Low-Income Students Net Price of Attendance Will 2022-23 Estimated Average Award Under Governor's Budget Still Increase With Household Income. Although low-income $3,500 students generally will receive 3,000 2,500 smaller MCS awards, their total 2,000 financial aid package (including Pell 1,500 Grants, Cal Grants, and institutional 1,000 aid) generally will remain larger. 500 This means the net price—the $0 or Less $1 $20,001 $40,001 $60,001 $80,001 $100,001 $120,001 $140,001 More Than amount that students and their to to to to to to to to $160,000 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 families pay after accounting for Household Income gift aid—still will tend to increase 2022-23 Budget Series 4 students with a household income of $100,000 or low-income student. All else equal, students in less would be approximately $8,000, which is the more expensive living arrangements (on campus estimated amount a student could earn by working or off campus) will receive larger MCS awards at minimum wage for 15 hours per week during the than students living at home with parents. Once academic year. the MCS program is at full implementation, the At Full Implementation, Net Price Would Be illustrative low-income student would have a net Highest at CCC for Many Students. Figure 7 price of about $8,000 across living arrangements. on the next page shows the net price at full MCS (The amount would be slightly lower if that student implementation for an illustrative low-income is attending CSU and living at home with parents. student living off campus. Although the MCS Due to the student’s low cost of attendance and program would reduce the net price to about high amount of existing aid, the student would have $8,000 if this student were to attend UC or CSU, a net price below $8,000 even without receiving any their net price would remain higher (about $12,000) MCS award.) if they were to attend the California Community Colleges (CCC), where MCS awards are not available. This situation would apply to many Figure 6 CCC students across income Net Price Would Remain Higher for levels, with the notable exception Higher-Income Students of students living at home with parents. Many CCC students Illustrative UC Dependent Student Living Off Campus who have the option of living at home could reduce their net Under Governor's Budget $40,000 price below that of UC and CSU 35,000 students. This is because living 30,000 at home results in a lower cost of 25,000 attendance, yet in most cases, it 20,000 does not affect financial aid award 15,000 amounts at CCC. That is, CCC 10,000 students typically receive the same 5,000 amount of aid through Pell Grants, $0 or Less $1 $20,001 $40,001 $60,001 $80,001 $100,001 $120,001 $140,001 More Than Cal Grants, and other financial to to to to to to to to $160,000 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 aid programs regardless of their Household Income living arrangement. Pell Grant Cal Grant Institutional Aid Middle Class Scholarship Net Price At Full Implementation, Net Price at UC and CSU Would At Full Implementation Largely Be the Same Across $40,000 Living Arrangements. Unlike 35,000 CCC students, UC and CSU 30,000 students under the revamped 25,000 MCS program will see their 20,000 15,000 financial aid packages change if 10,000 their living arrangements change. 5,000 This is because their MCS award amount will be linked to their $0 or Less $1 $20,001 $40,001 $60,001 $80,001 $100,001 $120,001 $140,001 More Than to to to to to to to to $160,000 cost of attendance. Figure 8 on 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 page 7 shows the net price at full Household Income implementation for an illustrative 2022-23 Budget Series 5 Issues to Consider with campus financial aid offices, particularly because CSAC will need data on the amount of Revamped MCS Program Is First State other gift aid (including institutional aid) that each Financial Aid Program Linked to Total Cost of student is receiving. CSAC indicates the soonest Attendance. By linking award amounts to students’ it could calculate each student’s MCS award total cost of attendance (including living costs), the amount each year is in the summer, after campuses revamped MCS program represents a significant have completed their admissions cycle and initial departure from the state’s previous approach financial aid offers have been made. This timing to financial aid at UC and CSU. The state’s will mean students and families do not know how longstanding Cal Grant program primarily provides much MCS aid they will receive when making their tuition coverage, with an access award that covers only a small portion of living costs for the lowest-income recipients. Figure 7 The Cal Grant access award has increased only slightly over the past Net Price for Many Students Would Be Highest at CCC two decades and has not kept pace Illustrative Full-Time, Low-Income Student with increases in students’ living Living Off Campus Under Full MCS Implementationa costs, which roughly doubled over that period. (Whereas the access award covered roughly 15 percent Net Price Institutional Aid of the living costs of a student living off campus in 2001-02, it covers an Middle Class Scholarship Cal Grant estimated 7 percent today.) Under Student Success Completion Grantb Pell Grant the revamped MCS program, California College Promise Grantc the state will cover a larger $40,000 share of students’ living costs. Moreover, once the program is 35,000 fully implemented, award amounts would be adjusted annually to 30,000 reflect changes in students’ cost of attendance. Award amounts 25,000 would also vary widely among students based on their available 20,000 resources. This new approach to state financial aid, especially 15,000 when combined with the much higher income ceilings of the MCS 10,000 program compared to the Cal Grant program, raises new issues for the 5,000 Legislature to consider. We discuss these issues below. UC CSU CCC Implementation Issues Could Impact Financial Aid a Assumes student has a federal expected family contribution of $0. Messaging to Students. The b Provides nontuition coverage of up to $4,000 annually for CCC students who receive a Cal Grant award and enroll in 12 or more units per term. We assume the student enrolls in 15 units per term, thus qualifying for the maximum revamped MCS program requires award amount. CSAC to calculate individualized c Provides full tuition coverage for CCC students with financial need. award amounts for an estimated MCS = Middle Class Scholarship. 360,000 recipients. This will involve significant coordination 2022-23 Budget Series 6 enrollment decisions. The Legislature may wish more hours. Campuses also have some incentive to work with CSAC to explore options to simplify to keep their student housing charges relatively low the process of determining MCS award amounts. to avoid deterring students from living on campus. Making the program easier to administer could Once the MCS program is fully implemented, both allow for more timely notification to students, with students and campuses will have fewer incentives greater potential to influence students’ college to keep cost of attendance low. Students will have enrollment decisions. a similar net price across all living arrangements, Program Could Steer Students Away From meaning they would no longer have an incentive Community Colleges. Once the MCS program to contain their living costs. This could lead is fully implemented, UC and CSU students would some students who have the option of living at have their total cost of attendance covered, after home to instead choose to live independently off accounting for their available resources. Many CCC campus or on campus, with the state bearing the students, however, would still have unaddressed additional cost. Similarly, campuses could increase costs. In particular, many students living off their housing charges, with the state bearing the campus would have a higher net price if they were additional cost on behalf of most students. Due to to attend CCC than if they were to attend UC or these concerns, the Legislature is requiring UC and CSU. This gap could widen in future years, as MCS CSU to begin reporting annually on the percent award amounts for UC and CSU students would of students in each living arrangement and their be linked to students’ rising costs of attendance associated cost of attendance. We encourage the while state financial aid awards for CCC students historically have Figure 8 not been adjusted accordingly. To the extent students respond to Net Price at UC and CSU Would Be the fiscal incentives created by the Similar Across Living Arrangements revamped MCS program, some Illustrative Low-Income Student Under Full MCS Implementationa enrollment demand likely would shift from CCC to universities. Net Priceb This redirection could exacerbate $40,000 Middle Class Scholarship challenges with CCC enrollment, Institutional Aid which was trending downward 35,000 Cal Grant even before the pandemic and Pell Grant has declined more steeply during 30,000 the pandemic. If the Legislature is 25,000 concerned about these trends, it may wish to consider expanding 20,000 financial aid programs that benefit CCC students, such as Cal Grants 15,000 or Student Success Completion 10,000 Grants (a program supported by Proposition 98 General Fund that 5,000 helps cover living costs for CCC Cal Grant recipients enrolled full time). On Off At Home On Off At Home Program Could Contribute to Campus Campus With Parents Campus Campus With Parents Increases in Cost of Attendance. UC CSU Currently, students have an a Assumes student has a federal expected family contribution of $0. incentive to choose lower-cost b Under all but one of the arrangements, the student's net price is $7,898—equivalent to what the student could earn working 15 hours per week at minimum wage. For a CSU student living at home with parents, the net price living arrangements, as this can is slightly lower ($7,140). reduce their need to borrow or work MCS = Middle Class Scholarship. 2022-23 Budget Series 7 Legislature to monitor this data closely. If the data gradually increasing the percentage of each show shifts to higher-cost living arrangements student’s remaining costs covered by the program or significant increases in on-campus housing (from 24 percent under the Governor’s budget to charges, the Legislature may wish to adjust 100 percent at full implementation). This approach the MCS formula. Adjusting the formula likely would spread the available funds to students across would involve changing how cost of attendance a very broad range of income levels. An alternate is determined for the purposes of calculating option is to prioritize expanding living cost coverage award amounts. through the Cal Grant program. This would Legislature Has Multiple Options for Phasing target the additional financial aid funding toward in Financial Aid Expansions. Given the significant lower-income students. Expanding Cal Grant cost of covering students’ total cost of attendance access awards at UC and CSU would offset the (net of available resources), it might take several cost of the MCS program at full implementation, as years or more to fully implement the MCS program. MCS awards are designed to cover remaining costs In the meantime, if additional ongoing funding after accounting for other financial aid. We estimate is provided for financial aid, the Legislature has that increasing the Cal Grant access award by multiple options for prioritizing living cost coverage $1,000 for eligible UC and CSU students would cost among students. One option is to continue about $130 million annually, whereas increasing providing augmentations for the MCS program, it for eligible Cal Grant recipients at all segments would cost about $300 million. LAO PUBLICATIONS This post was prepared by Lisa Qing, and reviewed by Jennifer Pacella and Anthony Simbol. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. 2022-23 Budget Series 8