Middle Class Scholarship

California Governor Jerry Brown last week released his proposed 2017-18 California state budget, which includes a proposal to phase out the Middle Class Scholarship (MCS) program. The MCS program, created in 2013, was designed to serve California students from families with incomes above typical Cal Grant income thresholds (above about $80,000 at the time) and up to $150,000 who don’t receive much other grant aid. For reference, median household income in California is just under $62,000 in 2015 dollars.

Since the program was created, we have raised questions about whether the money would be better spent on the lower income students who face the highest financial hurdles getting to and through college. We still believe this to be the right question. However, data from the California Student Aid Commission (CSAC) show that some lower income students do receive MCS awards. During the 2015-16 academic year, about 6,300 students (13% of all MCS recipients) had incomes within the Cal Grant B income range (up to about $50,000 for a family of four), and an additional 12,700 students (26% of all MCS recipients) had incomes within the higher Cal Grant A range (up to about $90,000 for a family of four). We estimate that these 19,000 students – who represent 39% of all MCS recipients in 2015-16 – received up to 51% of MCS grant dollars.

Why is a program designed to help upper-middle-income students also helping lower income students? Because there are substantial gaps in the state Cal Grant program, which is designed to help lower income students pay for college. Most critically, there are not enough Cal Grants available for all students who apply and meet the financial and academic requirements. Whereas recent high school graduates are entitled to a Cal Grant, all other eligible Cal Grant applicants must compete for a very limited number (25,750) of awards. In 2015-16, there were 14 eligible applicants competing for every grant, with over 300,000 turned away. The CSAC data suggest that some of these students who qualify for but don’t get a Cal Grant end up getting an MCS grant instead.

The huge gap between the number of applicants eligible for competitive Cal Grants and the number of awards available contributes to the substantial affordability challenges facing low-income students. While not by design, the MCS program has helped to fill a narrow slice of that gap, and it is important that the Legislature protect this progress if the MCS does get phased out. Redirecting the $117 million annual MCS allocation to the better targeted Cal Grant program would result in over 18,000 more competitive awards per year, increasing qualified applicants’ chances of receiving a competitive grant from one in 14 to about one in eight. And redirecting $60 million – the 51% of annual MCS spending that we estimate goes to students with family incomes within Cal Grant thresholds – is the least that should be done, particularly if the goal of phasing out the MCS program is to protect financial aid for lower income students.

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Earlier today, California Governor Jerry Brown unveiled his updated budget proposal for 2016-17. It includes a small but important expansion to a community college financial aid program created last year, which helps low-income students enroll full time. Under the expansion, the benefit will extend to more students enrolled in career technical education programs.

However, there’s more that can and should be done in the 2016-17 state budget to make college affordable for more Californians. As we’ve noted previously, this budget – as did the last – assumes unrealistically high spending in the Middle Class Scholarship (MCS) program. Funding for the program is set by law, and the amount that has been set is more than enough to serve the students eligible for the program, both now and in the foreseeable future. 

In 2015-16, about $34 million of the appropriated amount went unspent, and now that the year is almost over the Governor is proposing to spend those funds elsewhere. We project that even more of the appropriated MCS funding – $41 million – will go unspent in 2016-17. In the same year, hundreds of thousands of eligible Cal Grant applicants will not receive grants because too few are available, and many others will struggle to cover non-tuition costs with a grant that has not kept pace with inflation. 

Leaving unnecessary appropriations in the budget either to return to the state’s coffers at the end of the year, or be reallocated one year at a time, is a wasted opportunity. In future years, as the scheduled MCS appropriation increases, the amount unspent will be even higher.

There have been several successful efforts to strengthen Cal Grants in recent years, including the last two state budget agreements, which increased the size of low-income students’ non-tuition grants (2014-15) and the number of awards available (2015-16), and 2014 legislation by Senator Kevin de León which further increases low-income students’ non-tuition grants each year. Even after these increases, however, low-income students remain either unserved or underserved by the Cal Grant program. This year, Senator Marty Block has a bill (SB 1357) that would increase the non-tuition award for community college students. Assemblymember Jose Medina has legislation (AB 1721) that would both increase the number and size of Cal Grants available, both of which are top priorities for more than 20 higher education advocacy, student, civil rights, business and workforce groups across the state.

Clearly, the Legislature has the will to strengthen college affordability.

In unveiling his updated proposal, the Governor underscored the need for fiscal restraint. Luckily for legislators seeking to improve college affordability, there is a way to strengthen Cal Grants in 2016-17 within budget constraints. In both the Assembly and Senate budget subcommittees, recent hearings on financial aid have included discussion about unspent MCS funds going forward and whether they should be tapped to increase the number of Cal Grants available for low-income students. As soon as next week, these committees will vote on these very issues. Given the substantial need within the Cal Grant program, we urge the Legislature to reduce the ongoing scheduled MCS appropriations, and invest the savings into strengthening Cal Grants for low-income students as almost two dozen organizations have recommended

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Both the 2014-15 and 2015-16 California state budget agreements contained crucial and long-overdue increases to need-based financial aid, including Cal Grants. Those investments are helping to make college more accessible for thousands of low-income Californians, though severe affordability gaps remain for the state’s lowest income students.

The good news is that the legislature can continue closing those gaps in 2016-17, and there are resources available to do so right in financial aid’s backyard.

The Middle Class Scholarship (MCS) program was created in 2013 to reduce tuition for middle-income students at the University of California and the California State University who were ineligible for grant aid yet unable to comfortably afford tuition. Last year, lawmakers downsized the program in order to bring eligibility terms more in line with Cal Grants and to exclude students with substantial financial resources, resulting in projected savings of $112 million for 2016-17.

Yet it appears that the program still has more money than it needs, and that even more savings could be achieved without affecting MCS recipients. In both of the years that the Middle Class Scholarship has been available, there have been far fewer eligible applicants than anticipated. Still-nascent awareness about the program could explain the underutilization in 2014-15 – the first year of implementation. But even in the wake of concerted efforts by the California Student Aid Commission and California public colleges to bolster outreach to students and families, the program still has a significant surplus in 2015-16.

When the MCS has a surplus, it means that dollars intended to help Californians afford college are being returned to the state’s coffers. For 2016-17, we project that about $41 million will go unused. Combined with the 2016-17 budget savings from the eligibility changes agreed to last year, that’s a total of about $153 million previously scheduled to be spent on the MCS in 2016-17 that will not be spent on the MCS. By 2017-18, when the Middle Class Scholarship will be fully phased in, this amount could grow to $200 million or more.*

As we’ve previously argued, savings from the Middle Class Scholarship program should remain in financial aid and be reinvested in Cal Grants specifically. Some of it already has been: for instance, the 2015-16 budget, which scaled back MCS eligibility, also increased the annual number of Competitive Cal Grants, which serve students who do not transition straight from high school to college. However, far more could be done given the amount of MCS savings. The $41 million surplus in 2016-17 could increase the Cal Grant B access award, which helps low-income students pay for non-tuition costs of college, by $175.  Alternatively, it could increase the number of new Competitive awards available annually by nearly 5,700.** The legislature could triple those increases by reinvesting all of the MCS savings – the surplus as well as ongoing savings realized through eligibility changes – into Cal Grants. Both the Cal Grant B access award and Competitive Cal Grants serve the state’s lowest income students, but not nearly well enough.

For more on how and why to deepen investment in the Cal Grant program, see the report released by TICAS and twenty other organizations last week.
 

* Projections of future spending are based on 2015-16 MCS award utilization. Projections reflect the scheduled phase-in of award coverage, from 50 percent in 2015-16 to 100 percent in 2017-18.  

** Projections of 2016-17 Cal Grant awards and dollars are based on data from the California Department of Finance: California Student Aid Commission, The Cal Grant Chart: Baseline Budget Forecast thru end of Sep 2015 - updated November 20, 2015.

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Earlier this week, the Los Angeles Times reported that 73,000 state university students will receive Middle Class Scholarship awards in 2014-15, fewer than half of the 156,000 originally anticipated. The Middle Class Scholarship program was created last year to provide tuition discounts to students with family incomes between $80,000 and $150,000. When we asked California Student Aid Commission staff how much the 2014-15 awards add up to, they told us about $60 million.  That means that about $47 million of the budgeted $107 million for 2014-15 will go unused.

How about putting that money back into Cal Grants, which help students with family incomes up to $80,400 for a family of three (well above California’s median income)? Our analyses have documented that it’s the lowest income students who face the most severe college affordability challenges, and University of California data show that the lowest income students are most likely to graduate from UC with student loan debt.

Part of the problem is that there aren’t enough Cal Grants to go around. For hundreds of thousands of needy students – a group with an average income below $21,000 and a typical family size of three – winning a Cal Grant is even tougher than beating the odds in Vegas. That’s because students who apply for aid more than one year after high school graduation compete for just 22,500 awards authorized annually. In 2013-14, there were 16 eligible applicants for every available award. With $47 million more, the state could fund nearly 20,000 additional competitive grants to support the very students for whom college is least affordable.

When so many low-income students are being turned away, we should at least be redirecting unspent Middle Class Scholarship money to the Cal Grant program to support students who need help the most. – Debbie Cochrane and Matthew La Rocque

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Tomorrow or Saturday, the Legislature will vote on the 2013-14 Budget Act. Included in the budget at the behest of the Assembly Speaker, and agreed to by the Senate pro Tempore and the Governor, is a new Middle Class Scholarship Program. Once fully phased in, the program is projected to cost $305 million annually and offer tuition discounts to students with family incomes likely between $80,000 and $150,000.

But California already has a middle class scholarship. The Cal Grant program, the state’s need-based financial aid program, serves students with family incomes up to $83,100 (for a family of four) – well above California’s median income.  Still, many of our most financially needy college students – those with family incomes below the federal poverty line – are either completely un-served or dramatically under-served by the Cal Grant program, despite the common belief that the state is meeting their needs. Less than one-quarter of California’s very low-income students who apply for aid receive a Cal Grant. A major cause is there just isn’t enough money appropriated to the Cal Grant Program to serve all eligible students.

With hundreds of thousands of low- and truly middle-income students facing severe cost barriers, why throw hundreds of millions of dollars at a new program to help students from families with incomes as high as $150,000?  Investing that money in Cal Grants would get a far bigger bang for the buck. Higher income students are already on track to attend and graduate from college, while lower income students face such large financial obstacles that they drop out, graduate in lower numbers, or fail to attend altogether.

The fiscal priorities contained in the budget agreement are disheartening. However, legislation pending in both the Senate and the Assembly would restore recent cuts to already inadequate grants for the lowest income recipients and increase the availability of awards for both low- and middle-income students. Putting more money into the Cal Grant program would go a long way towards better serving middle-income students. And low-income students would be better served, too.

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