CA colleges should target financial aid to the neediest students

By Emmanuel Rodriguez and Laura Hamilton, especially for CalMatters

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Educational leaders, students and lawmakers will meet Nov. 17 to address a harsh reality: The the federal government is cutting back on support for higher education in unprecedented ways.

They will attend the California Assembly Higher Education Committee to discuss how federal budget cuts, regulations and executive orders will affect millions of current and future students across California.

This is not the usual job. Given the sweeping changes at the federal level, California will need to develop new strategies to ensure that students can still afford it to attend and graduate from college.

Fortunately, with smart, targeted policy, our state can still unlock higher education for thousands more students — and give the economy a big boost. The key is uplifting a little-discussed group of Californians: prospective students who come from low- or middle-income households and have little or no family wealth.

These students, who we call “double disadvantaged,” are often eager to attend college but lack the funds or support. This is largely because our financial aid system is designed to make income the primary factor in determining state and federal aid.

Certainly income is important. But family wealth — which includes such assets as savings, investments, real estate and business income — also makes a huge difference in determining whether a student can realistically afford to attend and graduate from college.

Nationally, 52 percent of dually disadvantaged students from low-income, high-wealth households are expected to go to college, compared to 83 percent of students from low-income, high-wealth households.

Among those who start college, only 20 percent of doubly disadvantaged students are expected to graduate, compared to 59 percent of their similarly low-income but wealthier peers.

Here in California, nearly a quarter of FAFSA filers are both low-income and low-wealth, amounting to 41,730 first-time students in the state annually.

Wealth inequality in the state is even more extreme than income inequality, according to the Public Policy Institute of California.

The wealthiest households have a net worth estimated at $1.3 million. That’s more than 100 times more than those near the bottom, whose net worth is around $12,000. Latino and black households have disproportionately low wealth.

Regardless, the Cal Grant program does little to adjust wealth among eligible students. Two students with the same family income are treated equally, even if one has no wealth and the other has $200,000 in assets.

The California Middle Class Scholarship, a separate state financial aid program, has similar problems. It was originally designed to help families whose incomes are too high to qualify for other aid, but who still need support to afford college without hefty student loans.

The program has since evolved to support low-income students as well. In fact, the majority of recipients come from families making no more than $50,000 a year.

However, several aspects of the program’s most recent design, including its high asset ceiling of $234,000, limit the program’s ability to target recipients from families with little or no wealth.

Better ways to support the doubly disadvantaged

Fortunately, there are several ways to address the financial needs of students in California.

First, we can offer targeted support to doubly disadvantaged students. Following the model of the existing scholarship for students with dependent children, the state could provide an “access award” for non-tuition costs to these students.

New research confirms how powerful such an additional subsidy can be. October report simulates the possible costs and benefits if California awarded an additional $5,000 grant to students who are in the bottom third of income and lack wealth. The grant will result in about 4,590 more California graduates per cohort and an increase in the state’s gross domestic product of $966 million — a whopping $208 million return on costs.

Second, we can reform middle-class scholarships by better accounting for the full picture of students’ financial resources.

If the goal of the program is to reduce borrowing among low- and middle-class families, then we need to design it to better target students who have no income and wealth to cover college without taking out loans at high interest rates or working too many hours. This revision would preserve and more fairly center middle-class scholarships, aligning them with the state’s goals of supporting affordable higher education.

Third, lawmakers can direct additional funding to colleges and universities that disproportionately serve low-wealth, low- or middle-income students. And educational institutions should provide more comprehensive support, such as transportation or housing, or better funding for heavily used campus services — such as essential needs centers or student success programs.

There is no doubt that federal cuts will introduce a host of new challenges to California’s higher education system. But we can still create strategies that support the students who need it most.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.