California Using Student Loan Defaults to Limit College Grants
The condition of California takes a page from the U.S. Department of Education’s playbook. In order to trim an almost $27 billion budget deficit, lawmakers are studying the chance for limiting payouts from the state’s Cal Grant college student school funding program based on a school’s education loan default rate.
Cal Grants are state-funded grants that provide students with awards from $576 to $11,124 annually, depending on their degree program, to help you pay for college. Under the measure getting considered through the state legislature, schools whose default rate on student loans falls over a certain threshold will be barred from offering Cal Grants on their students. Square in the crosshairs of the legislative move will be for-profit colleges that operate in California, lots of whose default rates currently exceed the proposed threshold.
On the list of affected schools will be five for-profit behemoths: the University of Phoenix; DeVry University; ITT Technical Institute; Kaplan Colleges; and Corinthian Colleges, which operates Everest College, Heald College, and WyoTech.
Combined, those five school networks received greater than $42 million in grants in the 2009-10 academic year. All five institutions now have a default rate that exceeds the state’s Student Default Rate Index, a new calculation made to identify institutions whose students chronically default on their own school loans.
For-profit schools already took a prospective hit in February if the California Student Aid Commission voted unanimously to reduce Cal Grant awards to for-profit colleges, if the Cal Grant program go through budget cuts. The Commission cited for-profit schools’ high default rates, poor oversight, and high dropout rates as justification for yanking state funding for Cal Grants at these schools. Included in its proposal, the Commission recommended capping maximum annual Cal Grant awards for college kids at for-profit institutions.
Currently, students participating in a vocational program at a California college meet the criteria for annual Cal Grant awards of $576. Students participating in a vocational program at a career training school and other non-community college institution – say for example a for-profit school – meet the criteria to obtain up to a different $2,592 annually.
Students participating in a two-year or four-year degree program at a private college – including for-profit schools – meet the criteria to obtain up to $9,708 annually.
The Commission’s recommendation would limit Cal Grants for college kids seeking vocational certificates or two-year degrees at a for-profit college on the maximum award for first-year students participating in degree program of at least twelve months, currently $1,551.
Students pursuing a bachelor’s degree at a for-profit institution will be tied to the maximum Cal Grant award available for students pursuing a two-year or four-year degree inside the California State University system, currently $4,884.
In the recommendations recently, the Commission had also proposed cutting Cal Grant awards at institutions with high education loan default rates – a version of the measure getting considered through the California legislature. Under the bill in their proposed form, a disqualified school could regain its eligibility to provide Cal Grants whether default rate were lowered to a acceptable level.
Meanwhile, however, if the bill passes, the losing of state aid may force more California students at for-profit colleges to seek additional federal college loans and non-federal private student loans to make in the expenses that will previously been included in a Cal Grant.
Legislators point out that the rule change is sensible because for-profit colleges use grants as well as other state and federal school funding programs as a possible incentive to draw students in, particularly low-income students, without reducing what is ordinarily a high cost of attendance.
Although Cal Grants are student aid awards that, unlike college loans, don’t have to be repaid, the price to attend a private for-profit school often requires students to take on additional federal, state, and student loans to perform their education.
In many cases, the coursework students complete at a for-profit college doesn’t transfer to a accredited nonprofit university. Further, graduates often have a hard time finding meaningful employment following graduation, which results in a top default rate on their own often-large school loan debts.
By barring students while using Cal Grants at these high-cost for-profit schools which might be leaving students with large numbers of debt and ill-prepared for the workplace, the California Student Aid Commission says it is going to limit these schools’ capability to recruit low-income students, who will be probably the most vulnerable to promises of grants as well as other student aid.
Representatives of the for-profit college industry are lobbying against the California proposal. If enacted, the legislation would save hawaii about $24 million, below 1 percent of the $27 billion lawmakers have to cut to balance the state’s books.
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