The 2024-25 Budget: California Student Aid Commission

2024-25 BUDGET The 2024-25 Budget: California Student Aid Commission GABRIEL PETEK | LEGISLATIVE ANALYST | FEBRUARY 2024 SUMMARY Brief Covers the California Student Aid Commission (CSAC) Budget. This brief reviews the Governor’s budget proposals for the Cal Grant and Middle Class Scholarship programs—the largest two programs CSAC administers. It also revisits recent one-time CSAC initiatives the state has funded. Governor’s Budget Reflects Baseline Spending Increases for Cal Grants. The Governor’s budget revises 2023-24 Cal Grant spending upward by $83 million (3.6 percent) relative to the enacted level. The increase is due primarily to higher-than-expected program costs for community college entitlement awards, especially as more recipients of these awards transfer to public universities. From the revised 2023-24 level, the Governor’s budget further increases Cal Grant spending by $148 million (6.2 percent) in 2024-25, bringing total program spending to $2.5 billion. This above-average growth rate reflects a projected increase in recipients, combined with a projected increase in average award amounts primarily due to university tuition increases. Middle Class Scholarship Award Amounts Would Decrease Under Governor’s Budget. As of 2022-23, the Middle Class Scholarship is based on a student’s total cost of college attendance rather than only tuition. Students’ awards now reflect a certain percentage of their remaining cost of attendance after accounting for their available resources. Each year, CSAC determines the percentage of award coverage based on the program funding level. Under last year’s budget agreement, the state would have provided a total of $926 million General Fund (consisting of $637 million ongoing and $289 million one time) for the program in 2024-25. Due to the state budget condition, the Governor’s budget forgoes the one-time funds but retains the ongoing funds. We estimate the proposed funding level would cover 24 percent of students’ remaining costs in 2024-25—down from 36 percent in 2023-24. Recommend Pulling Back Unspent Funds From Two Recent One-Time Initiatives. In 2021-22 and 2022-23, the state provided one-time General Fund appropriations of $500 million each for Golden State Teacher Grants and the Learning-Aligned Employment Program. We estimate $223 million for Golden State Teacher Grants and roughly $485 million for the Learning-Aligned Employment Program remained unspent as of January 1, 2024. Given the state budget deficit, we recommend the Legislature pull back these unspent funds. The Legislature might want to take early action to maximize savings, as less funding will remain available by the end of the fiscal year. www.lao.ca.gov 1 2024-25 BUDGET INTRODUCTION Brief Focuses on CSAC Budget. CSAC CSAC’s budget. The next two sections focus on Cal administers many of the state’s student financial Grants and Middle Class Scholarships, respectively. aid programs. This brief is organized around The last section discusses recent one-time the Governor’s 2024-25 budget proposals for initiatives that could be revisited given the state’s CSAC. The first section provides an overview of projected budget deficits. OVERVIEW Governor’s Budget Provides $3.4 Billion fund sources for CSAC are state General Fund and for CSAC in 2024-25. As Figure 1 shows, the federal Temporary Assistance for Needy Families proposed 2024-25 funding level for CSAC is (TANF). Under the Governor’s budget, state General $108 million (3.1 percent) lower than the revised Fund comprises 87 percent of CSAC funding and 2023-24 level. The lower funding level is entirely federal TANF comprises 12 percent. The remainder due to changes in one-time funding, with ongoing comes from various sources, including funding increasing from year to year. The two main reimbursements from other departments. Figure 1 Ongoing General Fund Support for CSAC Increases in 2024-25 Spending by Program and Funding by Source (Dollars in Millions) Change From 2023-24 2022-23 2023-24 2024-25 Actual Revised Proposed Amount Percent Spending Local assistance Cal Grants $2,211 $2,393 $2,541 $148 6% Middle Class Scholarships 568 847a 636 -211 -25 Learning-Aligned Employment Programb 300 — — — — Golden State Teacher Grantsb 137 177 134 -43 -24 Other programs 56 38 39 1 2 Subtotals ($3,272) ($3,456) ($3,351) (-$105) (-3%) State operations $28 $26 $24 -$3 -10% Totals $3,300 $3,482 $3,374 -$108 -3% Funding General Fund Ongoing $2,416 $2,655 $2,819 $164 6% One-time 464 401 128 -272 -68 Federal TANF 400 400 400 — — Other funds and reimbursements 19 27 28 1 2 a Includes $227 million in one-time funds. b One-time initiatives. CSAC = California Student Aid Commission and TANF = Temporary Assistance for Needy Families. 2 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Governor’s Budget Reflects a Few Changes Figure 2 to CSAC Spending. As Figure 2 shows, the largest change in ongoing General Fund spending Largest Ongoing Spending Changes for for CSAC in 2024-25 is a baseline adjustment CSAC Are Baseline Adjustments for Cal Grants, reflecting the most recent cost General Fund Changes, 2024-25 (In Millions) estimates for the program. The only one-time spending is for Golden State Teacher Grants, Ongoing Spending which is supported by a five-year appropriation Cal Grant baseline adjustment $148 Middle Class Scholarship baseline adjustment 16 provided in the 2021‑22 Budget Act. In addition to Employee compensation adjustment —a the changes shown in the figure, the Governor has Subtotal ($164) a proposed budget solution to forgo an originally One-Time Initiatives planned $289 million one-time General Fund Golden State Teacher Grants $128b allocation for the Middle Class Scholarship program Total $292 in 2024-25. a Less than $500,000. b The 2021‑22 Budget Act appropriated $500 million General Fund to be spent from 2021-22 through 2025-26. Amount shown reflects anticipated General Fund spending in 2024-25. The Governor’s budget also includes $6 million in reimbursement authority for the program in 2024-25. CSAC = California Student Aid Commission. CAL GRANTS In this section, we first provide background Cal Grants Have Financial and Academic on the Cal Grant program and then discuss Eligibility Criteria. Students apply for Cal Grant cost estimates for this program under the awards by submitting a Free Application for Governor’s budget. Federal Student Aid (FAFSA) or California Dream Act Application. To qualify for an award, students Background must meet certain income and asset criteria. These Cal Grant Program Is the State’s Largest criteria vary by family size and are adjusted annually Financial Aid Program. The Cal Grant program for inflation. For example, in the 2023-24 award is intended to help students with financial need year, a dependent student from a family of four cover college costs. The program offers multiple must have an annual household income of under types of Cal Grant awards. As Figure 3 on the next $125,600 to qualify for a Cal Grant A or C and under page shows, the amount of aid students receive $66,000 to qualify for Cal Grant B. In most cases, depends on their award type and the segment of students must also meet a grade point average higher education they attend. Cal Grant A awards (GPA) requirement. The specific GPA requirement cover full systemwide tuition and fees at public varies by award type. Most award types require universities and a fixed amount of tuition at private a minimum high school GPA of 2.0 or 3.0 or a universities. Cal Grant B awards provide the same minimum community college GPA of 2.0 or 2.4. amount of tuition coverage as Cal Grant A awards in Most Cal Grants Are Entitlements, but Some most cases, while also providing an “access award” Are Awarded Competitively. For more than for nontuition expenses such as food and housing. 20 years, the state has provided Cal Grants as Cal Grant C awards, which are only available to entitlements to recent high school graduates as students enrolled in career technical education well as transfer students under age 28. In 2021-22, programs, provide lower amounts of tuition and the state also began providing Cal Grants as nontuition coverage. Across all award types, larger entitlements to community college students, amounts of nontuition coverage are available to regardless of their age and time out of high students with dependent children as well as current school. The state currently provides approximately and former foster youth. 162,000 new entitlement awards annually. www.lao.ca.gov 3 2024-25 BUDGET CSAC’s most recent cost estimates. This brings Figure 3 estimated Cal Grant spending in 2023-24 to Cal Grant Amounts Vary by $2.4 billion—a $182 million (8.2 percent) increase Award Type, Sector, and Student over the previous year. This above-average annual Characteristics growth follows three consecutive years of small Maximum Annual Award Amount, 2023-24 decreases in Cal Grant spending (with recipients and average award amounts affected throughout Amount the pandemic). The upward revision to 2023-24 Tuition Coverage spending since budget enactment is primarily attributable to community college entitlement Cal Grant A and Ba UC $13,752b awards. With this program component now in its Nonprofit institutions 9,358 third year of implementation, more recipients are WASC-accredited for-profit institutions 8,056 transferring from community colleges and bringing CSU 5,742 their awards with them to the California State Other for-profit institutions 4,000 University (CSU) and University of California (UC). Cal Grant C CSAC has increased its cost estimates for these Private institutions $2,462 Nontuition Coverage awards to reflect newly available data on the share of recipients who transfer and their average award Cal Grant A Students with dependent childrenc $6,000 amounts upon transferring. Foster youthc 6,000 Governor’s Budget Reflects Further Spending Cal Grant B Increases in 2024-25. From the revised 2023-24 Students with dependent childrenc $6,000 spending level, the Governor’s budget further Foster youthc 6,000 increases Cal Grant spending by $148 million All other students 1,648 (6.2 percent) in 2024-25. This is a relatively high Cal Grant C Students with dependent childrenc $4,000 growth rate compared to the average annual change Foster youthc 4,000 of 3.7 percent over the past decade. We summarize Other CCC students 1,094 the projected changes for 2024-25 by segment Other private-institution students 547 and award type in our Cal Grant Spending and a Cal Grant B recipients generally do not receive tuition coverage in their Cal Grant Recipient tables. The higher spending first year. b Reflects award amount for new UC students. Award amounts for reflects a 3.4 percent projected increase in continuing students are based on the tuition levels set in the year the recipients, primarily for community college student first enrolled at UC. c Students attending private for-profit institutions are ineligible for these entitlement and high school entitlement awards. awards. It also reflects a 2.7 percent projected increase in WASC = Western Association of Schools and Colleges. average award amounts, primarily due to tuition increases. Under CSAC’s estimates, $43 million The state also provides a limited number of of the Cal Grant spending increase in 2024-25 is competitive awards (13,000 new awards annually) attributable to UC tuition increases and an a dditional to students who do not qualify for an entitlement $35 million is attributable to CSU tuition increases. award—typically older students attending four-year Cost Estimates Will Be Updated at universities. The state recently adopted plans May Revision. CSAC prepared the Cal Grant cost to potentially replace this program structure in estimates underlying the Governor’s budget in 2024-25, as the box on the next page describes. October 2023. In the spring, CSAC plans to update its estimates based on more recent program data for Cost Estimates 2023-24. The administration is expected to update Governor’s Budget Reflects Upward its Cal Grant spending levels at the May Revision Revision to 2023-24 Cal Grant Spending. From accordingly. At that time, more data will likely also the 2023‑24 Budget Act level, the Governor’s be available on the potential impact of recent FAFSA budget revises current-year Cal Grant spending changes on Cal Grant application rates in 2024-25, upward by $83 million (3.6 percent) to align with as we discuss in the box on the next page. 4 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Cal Grant Reform State Has Plans to Restructure Cal Grants, Subject to Trigger Provision. In the 2022-23 budget package, the state adopted a potential restructuring of the Cal Grant program, commonly referred to as “Cal Grant reform.” Cal Grant reform would replace the existing award types with a Cal Grant 2 award that provides nontuition coverage to community college students and a Cal Grant 4 award that provides tuition coverage at all other segments. Cal Grant reform would also make several key changes to program eligibility, including (1) removing grade point average requirements for community college recipients, (2) removing age and time out of high school requirements for recipients at all other segments, and (3) aligning income ceilings with the generally lower ceilings used in the federal Pell Grant program. Under the enacted trailer legislation, Cal Grant reform would be triggered in 2024-25 if the state determines in spring 2024 that sufficient General Fund is available to support it over a multiyear period. Based on the California Student Aid Commission’s most recent estimates, Cal Grant reform would increase program spending by $245 million in 2024-25. The administration indicates it intends to determine whether Cal Grant reform conditions have been met at the May Revision. Under current revenue projections, the trigger conditions would not be met. Financial Aid Application Changes Launch of New Federal Financial Aid Application Has Been Stymied by Many Delays. The U.S. Department of Education recently made significant changes to the Free Application for Federal Student Aid (FAFSA)—the form students use to apply for many types of federal, state, and institutional financial aid. The changes are intended to simplify the form by reducing the number of questions students and families need to answer and transferring data directly from their previous tax filings. After a one-year delay in the original launch date, the revised FAFSA is now in the midst of being implemented across the nation for the first time. The department released the new application form for the 2024-25 award year about three months later than usual (on December 30 rather than October 1, 2023). The department also is months behind schedule in sharing the resulting student records that campuses use to make financial aid offers to students. Moreover, technical difficulties have prevented many families, particularly those in which one or more parents do not have a social security number, from completing the new form. Federal Changes and Challenges Could Impact State Aid Programs. Anticipating challenges with the new form, the state, as part of last year’s budget package, extended the application deadline for several state financial aid programs (including most Cal Grant award types and Middle Class Scholarships) from March 2, 2024 to April 2, 2024. If the U.S. Department of Education does not resolve its implementation challenges before the April 2 application deadline, the Legislature may want to consider further extending the deadline. Any continued challenges could potentially lead to fewer state financial aid recipients and lower spending in 2024-25. Beyond these implementation challenges, students and campuses also will be affected by methodological changes in how student financial need and federal Pell Grant eligibility are determined under the new form. The federal government expects these methodological changes to increase the total amount of aid students receive under the federal Pell Grant program. The impact of these changes on state financial aid programs is not yet known. www.lao.ca.gov 5 2024-25 BUDGET MIDDLE CLASS SCHOLARSHIPS In this section, we first provide background on the Middle Class Scholarship program and then Figure 4 discuss cost estimates for this program under the Middle Class Scholarships Are Governor’s budget. Calculated Using Multicomponent Formula Background Illustrative CSU Dependent Student With $110,000 State Revamped Middle Class Scholarship Household Income, 2023-24 Program in 2022-23. The state created the original Middle Class Scholarship program in the 2013-14 Award budget package to provide partial tuition coverage Calculation to certain UC and CSU students. Originally, awards Cost of attendance $30,000 were for students who were not receiving tuition Other federal, state, and institutional gift aida -5,742 coverage through the Cal Grant program or other Student contribution from work earnings -7,898 33% of parent contribution from federal EFCb -6,300 need-based financial aid programs. In 2022-23, the Student’s Remaining Costs $10,060 state implemented a new set of rules for the Middle Percentage based on annual appropriationc 36% Class Scholarship program. The new program Award Amount $3,622 focuses on total cost of attendance (rather than a The amount also includes any private scholarships in excess of the sum only tuition). Under the new program, students may of the student contribution and parent contribution. b Only applies to dependent students with a household income of more use their awards for nontuition expenses, such as than $100,000. housing and food. c State law requires the California Student Aid Commission to determine what percentage of each student’s remaining costs to cover each year Award Amounts Are Now Calculated Based based on the annual appropriation for the program. The program is estimated to cover 36 percent of each student’s remaining costs in on Total Cost of Attendance. Middle Class 2023-24. Scholarship award amounts now vary widely among EFC = expected family contribution. students, with each student’s award reflecting their costs and available resources. As Figure 4 shows, calculating each student’s award amount involves several steps. Starting with a student’s total cost of The maximum annual household income to qualify attendance, CSAC deducts the student’s available for an award is $217,000 for dependent students resources, consisting of other gift aid, a student in 2023-24. However, the new program serves contribution from part-time work earnings, and considerably more low-income students than in some cases a parent contribution. (The parent the original program. This is because students contribution only applies to dependent students receiving tuition coverage through Cal Grants with a household income of more than $100,000.) or other need-based financial aid programs are This calculation determines the student’s remaining now eligible for Middle Class Scholarship awards costs. Next, CSAC determines what percentage to help cover nontuition expenses. As Figure 5 of each student’s remaining costs it can cover shows, more than half of students who received based on the annual state appropriation for the Middle Class Scholarship awards in 2022-23 program. Awards cover the same percentage of had a household income of $50,000 or less, and remaining costs for each student, except foster more than 80 percent had a household income of youth receive awards that cover 100 percent of their $100,000 or less. Students with lower household remaining costs. incomes, however, tended to receive smaller award amounts because they were receiving more gift aid Awards Are Now Available to a Broader Group of Students. The new Middle Class from other programs. In addition to serving more Scholarship program generally maintains low-income UC and CSU students, the program the income and asset ceilings of the original also newly serves CCC students enrolled in program, adjusted annually for inflation. bachelor’s degree programs. 6 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Figure 5 Program Serves Many Low-Income Students but at Lower Award Amounts Middle Class Scholarship Recipients and Average Award, 2022-23 80,000 $3,500 Recipients 70,000 Average Award 3,000 60,000 2,500 50,000 2,000 40,000 1,500 30,000 1,000 20,000 10,000 500 $0 or Less $1 $25,001 $50,001 $75,001 $100,001 $125,001 $150,001 $175,001 to to to to to to to or 25,000 50,000 75,000 100,000 125,000 150,000 175,000 More Household Income State Funding Level Determines Percentage reflecting UC and CSU tuition increases as well of Students’ Remaining Costs Covered. as rising nontuition expenses (such as housing Each year, the Middle Class Scholarship funding and food). These increases in cost of attendance level determines what percentage of each student’s are partly offset by increases in students’ remaining costs are covered. (Statute does not available resources, including other gift aid and specify these percentages or set forth a policy work earnings. for increasing them over time.) The state currently Cost Estimates provides $637 million ongoing for the program. In 2022-23 (the first year of the new program), Awards Are Covering 36 Percent of Students’ the ongoing funding level was sufficient to cover Remaining Costs in 2023-24. The 2023‑24 26 percent of students’ remaining costs. In last Budget Act provided a total of $864 million year’s budget, the state added one-time funds on General Fund (consisting of $637 million ongoing top of the ongoing funding level to increase the and $227 million one time) for Middle Class percentage of each student’s remaining costs that Scholarships. The Governor’s budget revises this are covered. Specifically, the budget provided funding level downward by $17 million (1.9 percent) $227 million one time in 2023-24 and included to align with CSAC’s most recent cost estimates for intent to provide $289 million one time in 2024-25. covering 36 percent of each student’s remaining costs. Based on CSAC’s cost estimates, this is the Cost of Maintaining Award Coverage Tends maximum percentage of coverage possible without to Increase Over Time. If the state intends to going over the budget act appropriation. hold Middle Class Scholarship award coverage at a certain share of students’ remaining costs (such Under Governor’s Budget, Awards Are as 26 percent), more funding tends to be required Estimated to Cover 24 Percent of Students’ each year. Annual increases in the program cost Remaining Costs. Under the 2023-24 budget are driven by two main factors. First, the number agreement, the state would have provided a of recipients goes up, reflecting UC and CSU total of $926 million General Fund (consisting of enrollment growth as well as annual adjustments $637 million ongoing and $289 million one time) for to the program income ceiling. Second, the cost Middle Class Scholarships in 2024-25. of attendance tends to increase for each recipient, www.lao.ca.gov 7 2024-25 BUDGET Based on CSAC’s estimates, this Figure 6 funding level would have been sufficient to cover 35 percent Middle Class Scholarship Awards Are Expected to of each student’s remaining Decrease in 2024-25 costs—similar to the current Key Information by Segment coverage level. Due to the state budget condition, the Governor’s 2022-23 2023-24 2024-25 Change From 2023-24 budget forgoes the one-time Actual Revised Proposed Amount Percent funds but retains the ongoing Recipients funds in 2024-25. We estimate the CSU 205,037 215,889 233,161 17,272 8% UC 90,060 91,849 99,197 7,348 8 Governor’s proposed funding level CCC 37 40 43 3 8 is sufficient to cover 24 percent of Total 295,134 307,778 332,401 24,623 8% each student’s remaining costs in Spending (in Millions) 2024-25. Figure 6 provides key CSU $419 $617 $463 -$154 -25% information about the program, UC 150 230 173 -57 -25 including how award amounts CCC —a —a —a —a -25 would change under the Governor’s Total $568 $847 $636 -$211 -25% proposal. Although the Governor’s Average Award CSU $2,041 $2,858 $1,987 -$871 -30% proposal is reasonable given the UC 1,663 2,506 1,742 -764 -30 state’s large budget deficit, it would CCC 2,622 5,325 3,725 -1,600 -30 result in students receiving smaller a Less than $500,000. awards in 2024-25 than in the Notes: Data for 2022-23 and 2023-24 reflect California Student Aid Commission (CSAC) estimates. current year. Data for 2024-25 reflect CSAC estimates adjusted by LAO to align with the proposed funding level in the Governor’s budget. ONE-TIME BUDGET SOLUTIONS In this section, we discuss how the Legislature work-study opportunities related to their area of can achieve additional budget savings by pulling study or career interests. In addition to these two back unspent one-time funding for two initiatives initiatives, the state provided $500 million for a third at CSAC. Although the Governor’s budget does initiative offering training grants to individuals who not include these actions, they could be among lost employment due to the pandemic. In 2023-24, the less disruptive options for addressing the state facing both a moderate budget deficit and a budget deficit. strong job market, the state discontinued this third State Recently Created a Few Large initiative and reverted approximately $480 million in One-Time Initiatives at CSAC. In 2021-22 and unspent funds. 2022-23, the state appropriated a large amount Some Golden State Teacher Grant Funds of one-time General Fund to CSAC in response Remain Unspent. The $500 million appropriation to the large budget surpluses estimated at the for Golden State Teacher Grants was to be spent time. Specifically, the state provided $500 million across five years, ending June 30, 2026. Of the for the Golden State Teacher Grant program, original appropriation, we estimate CSAC has which provides scholarships of up to $20,000 to spent $277 million (consisting of $272 million for students enrolled in teacher preparation programs awards and $5 million for program administration) who commit to working for four years at a priority as of January 1, 2024. This leaves an estimated school or preschool program. The state also $223 million in unspent funding. Given that CSAC provided $500 million for the Learning-Aligned continues to issue awards for 2024-25, the amount Employment Program, which provides students of unspent funding is likely to be several tens of from underrepresented backgrounds with millions of dollars lower by the end of the fiscal year. 8 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Most Learning-Aligned Employment Funds Given State Budget Condition, Recommend Remain Unspent. The $500 million appropriation Pulling Back Unspent Funds From Both for the Learning-Aligned Employment Program was Initiatives. As we discuss in The 2024-25 Budget: to be spent across ten years, ending June 30, 2031. Deficit Update, recent state revenue collections This program is open to CCC, CSU, and UC indicate the state budget deficit is larger than the campuses, and nearly all campuses across the administration estimated in January. To address three segments have chosen to participate. CSAC the deficit, we recommend the Legislature start has distributed the funding to these campuses, by pulling back recent one-time augmentations. which are in turn responsible for issuing awards to Pulling back one-time funds now would allow the students. Participating campuses first launched the state to maintain more of its reserves, which in program in 2022-23 and are expected to ramp up turn could help protect ongoing programs from operations in 2023-24. Data on program recipients cuts over the next couple of years. Accordingly, and spending are only available for 2022-23 we recommend the Legislature revert any because CSAC does not require campuses to remaining unspent funds from the one-time report these data until after the end of each fiscal appropriations for Golden State Teacher Grants year. Based on the best available information, we and the Learning-Aligned Employment Program. estimate that roughly $15 million of the original The Legislature might want to take early action to appropriation was spent as of January 1, 2024. maximize the savings it could achieve from these This includes spending on awards as well as initiatives, as less funding will remain available at program administration by CSAC and campuses. the end of the fiscal year. We estimate roughly $485 million remains unspent. Given that campuses continue to issue awards for 2024-25, the amount of unspent funding is likely to be somewhat lower by the end of the fiscal year. www.lao.ca.gov 9 2024-25 BUDGET 10 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET www.lao.ca.gov 11 2024-25 BUDGET LAO PUBLICATIONS This report was prepared by Lisa Qing and reviewed by Jennifer Pacella. The Legislative Analyst’s Office (LAO) is a nonpartisan office that 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, California 95814. 12 LEGISLATIVE ANALYST’S OFFICE