BILL ANALYSIS �
AB 1538
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Date of Hearing: April 1, 2014
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Das Williams, Chair
AB 1538 (Eggman) - As Amended: March 26, 2014
SUBJECT : Student financial aid: Cal Grant Program
SUMMARY : Provides an alternative pathway for an otherwise
ineligible institution to maintain eligibility for participation
in the Cal Grant program. Specifically, this bill :
1)Provides that an institution that is ineligible for initial
and renewal Cal Grant awards under existing cohort default
and/or graduation rate requirements shall maintain eligibility
if the following conditions are met:
a) The institution has an undergraduate student body of at
least two-thirds receiving federal Pell Grants as certified
by the California Student Aid Commission (CSAC) by November
1 of the prior academic year;
b) If the institution is ineligible under the cohort
default rate requirements, the institution has an average
of the institution's most recent three years of three-year
cohort default rates, as certified by the Commission, which
meets the requirements of existing law (15.5%); and,
c) If the institution is ineligible under graduation rate
requirements, the institution has an average of the most
recent three years of graduation rates, as certified by the
Commission, which meets the requirements of existing law
(30%).
2)Requires three year averages to be calculated by taking the
total number of students over the three-year period who
defaulted or graduated, as applicable, and dividing by the
total number of students in the cohort for those three years
combined.
3)Requires CSAC to adopt any rules and regulations necessary to
implement this section by March 1, 2105, and to review and
make recommendations regarding additional criteria that would
be appropriately considered in determining institutional
eligibility, including, but not limited to, cohort size,
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alternative debt measures, and additional student outcome and
institutional quality metrics by January 1, 2016.
EXISTING LAW requires, as a condition of participation in the
Cal Grant Program, an institution with more than 40% of
undergraduate students borrowing federal student loans to
maintain either (1) a three-year cohort default rate of less
than 15.5% and a graduation rate of greater than 30% (within
150% of program length) or (2) a three-year cohort default rate
of less than 10% and a graduation rate of greater than 20%
(within 150% of program length).
FISCAL EFFECT : Unknown
COMMENTS : Background . In an effort to increase accountability
over public financial aid expenditures and address the budget
deficit, as a part of the 2011-12 Budget Act, California
established requirements linking an institution's participation
in the Cal Grant Program to the percentage of students borrowing
federal loans and the number of students defaulting on those
federal loans within three years of entering repayment. In the
2012-13 Budget Act, the requirements regarding loan defaults
were tightened and a graduation rate requirement was
established. In the 2014-15 academic year, 122 institutions
(primarily for-profit colleges) are ineligible to participate.
Cal Grant students attending or seeking to attend ineligible
institutions are required to transfer to an eligible institution
in order to receive their Cal Grant award.
According to information provided by the Legislative Analyst's
Office (LAO), about 3,200 students offered new Cal Grant awards
in 2011-12 were planning to attend schools deemed ineligible.
About 550 of these students instead attended eligible schools,
and another 450 requested leaves of absence to preserve their
award for later use. The remaining 2,200 students did not claim
their Cal Grants and information concerning college attendance
is unavailable. For students receiving renewal Cal Grant
awards, of the 1,700 attending ineligible institutions
approximately 60% remained at their institution and received a
reduced award (an option no longer available to students), 9%
transferred to eligible colleges, and another 4% took leaves of
absence. No information is available on the remaining students.
Purpose of this bill . According to the author, Humphreys
College, a Western Association of Schools and Colleges (WASC)
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accredited nonprofit institution, was ineligible for Cal Grants
for the 2013-14 academic school year. The institution had a
cohort default rate of 15.6% (above the 15.5% threshold for Cal
Grant participation). However, the institution's graduation
rate was 90.4%. The author contends that the current
requirements, which do not take into account disadvantaged
student populations, unfairly target institutions with volatile
student populations regardless of their academic practices.
This bill is intended to narrowly allow institutions that serve
large populations of students with disadvantaged backgrounds to
qualify for Cal Grants if their three-year average cohort
default rate or graduation rate meet the requirements of the
law.
LAO report on implementation . In January 2013, the LAO reported
to the Legislature on CSAC implementation of the Cal Grant
requirements and provided recommendations for refining the
standards. According to the LAO, in the absence of broad
agreement on direct, quantifiable measures, default rates and
graduation rates provide rough proximities of how well an
institution is serving students. The LAO noted, however, that
current standards have notable drawbacks. Among the LAO's
recommendations, the existing system does not take into account
institutions that serve disadvantaged students. The LAO
indicated that the Legislature could consider adjusting
requirements and establishing other outcome measures that
account for student characteristics. LAO noted that CSAC is
required to collect and report on additional student outcome
data that could be used as an additional proxy for institutional
quality; however, until there is broader agreement about
measuring outcomes, LAO did not recommend using additional
measures to determine school eligibility.
Issues to consider . This measure seeks to address one of the
drawbacks in current law outlined by the LAO, establishing a
narrow alternative pathway for institutions serving large
populations of low-income students. However, there are
additional factors the Committee may wish to consider in
evaluating proposals to alter the Cal Grant eligibility
thresholds:
1)This bill provides a narrow alternative pathway to Cal Grant
eligibility for an institution serving 2/3 Pell Grant
recipient students. The justification for the specific
low-income serving threshold established in this bill is
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unclear. The author's stated intent is to support Humphreys
College, a WASC-accredited nonprofit college. It is unclear
how many additional colleges could regain Cal Grant
eligibility under the new threshold.
2)Cohort default rates are susceptible to manipulation by larger
institutions. According to LAO, many large for-profit
institutions employ "default management" strategies to keep
their rates below thresholds. Strategies include forbearance
and deferment, with most students ultimately increasing their
total debt, and combining campuses of multi-site institutions
in ways that minimize the aggregate default rate. Some
institutions encourage use of private loans, which have less
favorable terms for students but are not included in default
rate calculations. The Committee may wish to consider the
implications of providing an alternative to meeting cohort
default rate requirements without addressing underlying
manipulation concerns.
3)Graduation rates statistics do not provide a complete picture.
Cohort graduation rates reported to the US Department of
Education (USDE) include only first-time freshmen students
attending the institution full-time and graduating within 150%
of the program length. For some institutions, and in some
years, this definition creates an extremely small cohort.
Charles R. Drew University (CDU), for example, which serves a
high proportion of low-income students, will be ineligible for
Cal Grants in 2014-15 for failing to meet the graduation rate
requirement. Graduation rates at CDU are based on only a
fraction of the student population; CDU had only 9
first-time/full-time students in the Fall 2005 cohort (from
whom the 2011 graduation rate is derived), and 6 in 2006. It
does not appear that the metrics established in this bill
would provide any significant effect on the limitations of the
graduation rate data on institutions with very small cohorts.
However, the bill does require CSAC to review and report on
additional eligibility criteria and considerations, including
institutions with small cohorts.
CSAC appeal process . Institutions deemed ineligible to
participate in the Cal Grant program have appealed to CSAC.
There is currently no statutory or regulatory guidance provided
to CSAC regarding the institutional appeal process. For the
2012-13 academic year, approximately six institutions appealed
based on the cohort default rate/graduation rate
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disqualification. These appeals were not brought before the
commissioners as staff believed commissioners had no authority
to deviate from the statutory requirements. Two subsequent
lawsuits by institutions seeking to use preliminary qualifying
data resulted in the Academy of Art and Argosy/Art Institute
regaining eligibility. In 2013-14, CSAC staff brought to
commissioners an appeal filed by Menlo College; commissioners
granted the appeal finding that a calculation error had been
made by USDE in publishing rates and a correct calculation
resulted in the institution meeting the CDR requirements.
Recently, CSAC commissioners heard three appeals relating to the
2014-15 academic year eligibility. Commissioners granted
Marymount California's appeal based on factors similar to Menlo
College; CDU and National Hispanic University were denied
because Commissioners are not provided flexibility to consider
factors beyond those CDR and graduation rate thresholds
established in law.
As this bill moves forward, the author may wish to consider,
rather than providing an alternative pathway to eligibility,
providing CSAC commissioners the authority to evaluate factors
such as cohort size or the likeliness of the institution to
regain eligibility in the following academic year when reviewing
and granting an institution's appeal.
Related legislation . AB 1590 (Wieckowski) would change the date
by which CSAC must certify data from October 1 to November 1,
and would require CSAC to use the most recent publically
available data published by USDE. SB 1149 (Galgiani) would
continue eligibility for Cal Grant renewal awards for students
attending ineligible institutions.
REGISTERED SUPPORT / OPPOSITION :
Support
Humphreys College
Opposition
None on file
Analysis Prepared by : Laura Metune / HIGHER ED. / (916)
319-3960
AB 1538
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