Academy of Art University, which this week lost eligibility for Cal Grants, says it is appealing its ejection from the program but if it loses the appeal, will provide new and continuing students with scholarships to make up for the lost grants.
The San Francisco academy is one of 154 colleges in California whose students will have their Cal Grants cut or eliminated for 2012-13 because the schools' student-loan default rates are too high or their graduation rates are too low. Of the 154 colleges, 137 are private for-profit schools and the rest are private not-for-profit. None is public.
State-funded Cal Grants are awarded to students from low- and moderate-income families and do not have to be repaid. The maximum Cal Grant at private schools this coming year is $9,223, although not all students get the maximum. (There are different maximums for public colleges.)
The state budget enacted in June made it harder for schools to retain eligibility for Cal Grants, but it took awhile for the California Student Aid Commission to verify which colleges are eligible under the new rules.
Breaking bad news
It posted a list of eligible and ineligible colleges on its website this week ( sfg.ly/MTL6YN) and began breaking the bad news to students who had been awarded Cal Grants at ineligible schools for 2012-13.
Students who were planning to enter an ineligible school for the first time in 2012-13 will not be able to use their Cal Grant at that school, this year or next, although they can use it at an eligible school.
Students who are starting their second, third or fourth year at an ineligible school can use their Cal Grant at that school but their award will be reduced by 20 percent.
The late notice could create hardship for students who were planning to enroll in a newly ineligible college in September or October. "That's why we got out the word as soon as we could after the budget passed," said Diana Fuentes-Michel, the commission's executive director.
Schools are also scrambling to notify Cal Grant recipients of their options.
"New students who would have otherwise received a Cal Grant may be eligible for a DeVry University Cares Grant during the 2012-2013 academic year," DeVry spokesman Ernie Gibble said in an e-mail. "Current students may be eligible for a 2012-2013 Cal Grant award, but at a reduced rate. Either way, they need to talk to their student finance consultant to address their individual situation."
Gov. Jerry Brown and the Legislature imposed the new rules to save money and help direct these "very scarce financial aid dollars" to schools with better success rates, Fuentes-Michel said.
To remain eligible under the new rules, a school's graduation rate must be above 30 percent and its 2008 cohort default rate (a measure of students who default on their federal student loans) must be below 15.5 percent.
The graduation rate reflects the percentage of students who graduate within 150 percent of the normal time period - within six years for a four-year college or within three years for a two-year program.
However, a school can remain in the program even if it fails the graduation rate or loan-default tests if fewer than 40 percent of its students have federal student loans.
Last year, schools were kicked out if their default rate was higher than 24.6 percent and there was no graduation requirement. Tightening the rules roughly doubled the number of ineligible institutions.
Academy of Art, which qualified last year, lost eligibility this year because its 2010-11 graduation rate was 29.2 percent, just below the 30 percent cutoff. Its default rate of 10.6 percent would not have disqualified it.
In its appeal, the academy says its graduation rate was actually 34 percent - above the cutoff. But Ed Emerson, a spokesman for the student aid commission, said that is a preliminary rate for 2011-12 that has not been certified by the U.S. Department of Education. The commission is required to use the most recent certified graduation rate and that is for the 2010-11 year, he said.
Hope for an appeal
Fuentes-Michel said she has received appeals from three schools, including Academy of Art. "I have forwarded them to counsel," she said, adding she hopes to get back to the schools early next week.
The art academy has more than 17,000 students, including international and online students. About 450 receive Cal Grants.
To be eligible for grants, students must be California residents, enrolled at least parttime, and meet income, grade point average and other requirements.
Elisa Stephens, president of Academy of Art, said in a letter to students, "We are unsure why the California Student Aid Commission is using data that is not the most current. In the event that this is not corrected by the time you start school during the Fall 2012 semester the Academy of Art University will work with each of you to make up the difference with our Presidential scholarship program."
If the school wins its appeal, Cal Grants could be reinstated for 2012-13, but if it loses, it will remain ineligible for two years. In the latter event, the scholarship offer would be good for two years, said Sue Rowley, the academy's executive vice president of educational services.
The University of Phoenix, which also lost eligibility this year, has about 2,500 students receiving Cal Grants, said Ryan Rauzon, a spokesman for university.
"We will work with them to see how they are going to complete their coursework and get closer to graduation," he said, but the university has not made a blanket offer to make up for lost Cal Grants.
Rauzon objects to the graduation rate the state is using because it only looks at students entering college for the first time. University of Phoenix caters to older students who already have credits from other schools. He said he hopes the governor will reconsider the criteria in next year's budget proposal.
Lawmakers in California "are so focused on the schools, they have shown a disregard for the students," he said.
Daniel Levinson, chief executive of Ex'pression College for Digital Arts in Emeryville, which also lost eligibility, called the new rules "unfair and unfortunate." He said it is "regrettable that the Legislature chose to disproportionately penalize students in financial need who attend private colleges as opposed to public schools."
Although some public colleges - including many community colleges - have graduation rates well below 30 percent, they remain eligible for Cal Grants because fewer than 40 percent of their students take out federal student loans. Graduation rates throughout the state vary greatly, ranging from about 12 percent to about 95 percent at Stanford University.
Some newly ineligible schools are telling students they could regain eligibility as early as next year, but Fuentes-Michel said there is a two-year waiting period.
"There is a moderate amount of confusion around this issue, but we have looked at this for several months and are certain it is for two years," Emerson added.