California students will no longer be able to use state scholarships to pay tuition at most for-profit colleges under the final budget plan lawmakers are expected to send Gov. Jerry Brown today.
The move would eliminate Cal Grants for more than 11,000 students at schools like Heald College, ITT Technical Institute and University of Phoenix.
The budget would cut $103 million from the Cal Grant program by 2013-14 by imposing new performance standards that colleges must meet to receive the money, and by reducing scholarship amounts for students at private schools.
The policies take clear aim at private career colleges, which have come under scrutiny by federal officials for profiting off government loans that many students cannot repay. But the action also is another move to shift the cost of higher education from California's general taxpayers to its students and the institutions they attend.
California's new performance standards, which measure loan repayment and graduation rates at schools where many students take out loans, mean most for-profit colleges in the state will be ineligible to receive Cal Grant money from new students. Existing students will be able to continue their studies for one year but will have their Cal Grants cut by 20 percent.
And starting next year, students at for-profit schools that meet the new standards will see their Cal Grant scholarships cut by more than half to $4,000.
The reduction is much smaller at private nonprofit schools, such as the University of the Pacific, University of Southern California and St. Mary's. Most will still be eligible to receive Cal Grants, and scholarships to students at those schools will go down by 17 percent over two years, to $8,056 in 2014.
Cal Grant students at public colleges including University of California, California State University and community college campuses will not be impacted by the changes.
"In a limited budget environment, we want to focus the resources we have for student financial aid on the public institutions, because those are a priority for the state," said H.D. Palmer, a spokesman for Brown's Finance Department.
State officials, grappling with several years of budget deficits, have been searching for a way to rein in the ballooning Cal Grant program that gives scholarships to low-income students. In 2003, the state spent $460 million to give out 147,000 Cal Grants. Now it spends $1.5 billion on 330,000 grants, said Diana Fuentes-Michel, executive director of the state's Student Aid Commission.
Until recently, Californians of modest means could get a Cal Grant to attend almost any college or trade school in the state public or private no matter how well the school was doing at turning out successful graduates.
That started to change last year, when the state imposed new restrictions that said students could use Cal Grants to pay tuition only at schools where at least three-quarters of graduates are repaying their student loans.
Brown's budget takes the restrictions even further, raising the bar on the loan default rate to 15.5 percent and requiring schools show a graduation rate of at least 30 percent. Those standards will make about 80 percent of for-profit colleges and less than 20 percent of nonprofit colleges ineligible to receive Cal Grants, according to the Legislative Analyst's Office.
The Legislature rejected an earlier proposal by Brown to increase the grade-point-average students need to qualify for a Cal Grant.
Steve Boilard, director of higher education at the Legislative Analyst's Office, said it makes sense to judge Cal Grant eligibility based on a school's record of graduating students who earn enough money to repay their education loans.
"If a lot of students don't succeed, we're not going to pay for students to go to school there any more," Boilard said. "You're not saying no to students, you're saying no to schools."
Debbie Cochrane of The Institute for College Access and Success, a research and advocacy group, praised the new standards.
"What they're really doing is creating an incentive for all colleges to serve students better," she said. "And that's a smart thing to do."
Private school operators see it differently, saying the new standards are based on unfair criteria. Robert Johnson, who heads the private schools association, said "it's a myth" that graduation and loan default rates reflect the quality of a college. He said those measurements just get at student demographics.
"Our student bodies are adults, working families, people who are trying to obtain skills to move into the labor market that seeks specific skills. They don't come with a lot of family support, they have to juggle their work life, family life and school life. They don't have the resources to just write a check for tuition," Johnson said.
Some of the private career schools that will no longer be able to accept Cal Grant money include:
University of Phoenix, which received more than $21.4 million in Cal Grant money in 2010-11 for 2,300 students
ITT Technical Institute, which received $7.4 million in Cal Grant money in 2010-11 for 1,045 students at 10 campuses
Heald College, which received more than $18 million in Cal Grant funds in 2010-11 for roughly 3,300 students at nine campuses.
Kent Jenkins, spokesman for Corinthian Colleges, the umbrella company that includes Heald, said the cut will hurt low-income students more than the profitable schools they attend.
"The real unfortunate thing is what it means to the students and the cost of higher education to them," he said.
He also criticized California for developing performance standards based on the 2008 default rate instead of the 2009 rate, which would be more beneficial for Heald campuses.
"The state has unfairly adopted a standard that unfairly raises the cost of education for these students," Jenkins said.
It remains to be seen whether students at ineligible schools will give up on their education, take out more loans to stay at their school or switch to a school that can accept Cal Grants.
"I think over time we'll see the shift of students to eligible schools," said Judy Heiman of the Legislative Analyst's Office.
But in the short term, she said, there's not enough space in those schools to take in all the students from private schools that have been booted from the program.
"So I don't know where those students will go," Heiman said.
Johnson, the private school lobbyist, said for-profit schools were a politically easy target for state government.
"The pie is shrinking and when there's less pie the fight over the remaining pieces gets very fierce," he said. "Given that we're not publicly funded, it's an easy hit. We're low-hanging fruit."
This post has been updated from the print and online versions to clarify that Robert Johnson heads the private schools organization, but is not a lobbyist. Updated at 10 a.m. June 27, 2012.
WHO'S IN, WHO'S OUT
The state budget plan would restrict which colleges can accept Cal Grants, the scholarships the state gives to low-income students. Here's a look at which schools are in and out in the Sacramento region.
These schools can accept Cal Grants.
Los Rios Community Colleges (Sacramento City, American River, Cosumnes River, Folsom Lake)
California State University, Sacramento
University of California, Davis
William Jessup University
(These schools cannot accept Cal Grants.)
Institute of Technology
Western Career/Carrington College
ITT Technical Institute
University of Phoenix