California's move to tighten eligibility requirements for its Cal Grant program will eliminate or reduce awards to 14,500 students, most of them enrolled in for-profit colleges such as the University of Phoenix,the California Student Aid Commission announced Tuesday.
The commission released a list of colleges that are no longer eligible to receive Cal Grants under tougher standards passed by the Legislature and signed by Democratic Gov. Jerry Brown in June. The rules were adopted to save an estimated $55 million and address the state's budget deficit.
California's public universities and most nonprofit, private colleges met the new standards forgraduation rates and student loan defaults.
Of the 170 for-profit schools that participate in the state financial aid program, 137, or 80 percent, could not meet them. They include the University of Phoenix, ITT Technical Institute, Kaplan College, Heald College and others.
More than a dozen private colleges, including Christian colleges, also could not meet the higher standards.
Overall, about 4 percent of the 354,500 students eligible for Cal Grants will be affected. According to the commission, the change will eliminate aid to 7,800 new students and reduce 20 percent of the awards to 6,700 returning students this fall.
California is the first state to set such high benchmarks, which are tougher than federal requirements, said Diana Fuentes-Michel, executive director of the commission.
"In a tight budget situation, the Legislature was prudent in terms of looking at how we fund not only students but institutions," she said.
The state now requires a graduation rate of at least 30 percent and a federal student loan default rate of less than 15.5 percent for one year. By comparison, Fuentes-Michel said the federal government requires a higher education institution to have a student default rate of less than 30 percent for three years.
University of Phoenix spokesman Ryan Rauzon said the change disproportionately hurts working adults, many of whom attend for-profit schools because they better accommodate their work schedules. He said between 2,000 and 3,000 of the university's students will see their Cal Grants eliminated or cut.
"It's a really unfortunate policy choice," Rauzon said.
Brenda Bautsch, who tracks higher education policy at the National Conference of State Legislatures, said states are becoming more aware of where their limited financial aid dollars are going, particularly money that can be funneled to for-profit schools.
"States are now looking and saying, 'We don't want our students using their financial aid at institutions where they're going to end up not getting a quality degree and ending up in huge loan debt,'" Bautsch said.
The average eligible school in California had a 10 percent student default rate compared to 26 percent for the average ineligible school, according to the commission's data.
University of Phoenix had a 21 percent student default rate and a graduation rate of 18 percent.
"There's no question that students at University of Phoenix and we as an institution need to do better to manage borrowing and to help students make good choices so they don't default on their loans," Rauzon said. "But to have that conversation in a vacuum without acknowledging what the economy has been doing to adult students who go back to college is unhelpful."
A message left with the Association of Private Sector Colleges and Universities wasn't immediately returned Tuesday.
California community colleges, California State University, the University of California and most nonprofit, private colleges such as Stanford and the University of Southern California met the tougher state requirements.
Nevertheless, all Cal Grant recipients will feel the pinch because of a 5 percent, across-the-board cut to financial aid this fall. The top Cal Grant award will be reduced from $9,708 to $9,223.
The commission's announcement of ineligible schools comes on the heels of a report requested by Democrats in the U.S. Senate that criticizes for-profit colleges for putting revenue above education.
Starting in the 2013-14 academic year, students who attend eligible for-profit colleges will see their Cal Grants cut dramatically to $4,000. The move is expected to save the state $12 million.
A full list of ineligible schools is posted on the commission's website, www.csac.ca.gov.