Student Financial Aid -- 2000-01 Budget

Financial aid plays an important role in making the University accessible to students by helping to ensure that cost is not a barrier to enrollment. The Regents reaffirmed their commitment to maintaining access under the California Master Plan for Higher Education when the University’s financial aid policy was adopted in 1994.

The $280,370,000 for 2000-01 shown in the chapter heading above includes State general funds, funds from University student fees, and endowment funds; excluded from this amount are federal funds, private bank loans, Cal Grants and other aid provided directly to students.
 

In 1997-98, about 65 percent of UC undergraduate students and 77 percent of UC’s graduate students received financial aid. Just over half of the financial aid UC students received was in the form of gift aid. Display 2 shows total financial aid expenditures for 1997-98 by the type of financial award and the source of funds for each.
 

Historically, the University has been committed to setting aside a portion of revenue from fee increases for financial aid for needy students. As fees increased over time and as the percentage of students with financial need increased, the percentage of revenue from fee increases dedicated to financial aid also increased, from 16 percent ten years ago to 33 percent at present. Current University policy requires that one-third of all new student fee revenue be set aside for financial aid. This is consistent with agreements in the four-year compact recently completed and it is expected to continue in future agreements with the State.
 

In 1999-2000, the State provided sufficient revenue to the University to reduce mandatory Universitywide student fees by an additional five percent for California resident undergraduate students and by five percent for California resident graduate academic students. Included in the additional revenue were sufficient funds to maintain financial aid at previous levels, even though the decrease in fees could have justified a corresponding decrease in financial aid. The additional revenue generated by undergraduate students was used to reduce the amount financial aid recipients are required to earn or borrow as part of their contribution to their education. There were no increases in the Fee for Selected Professional School Students in 1999-2000; nevertheless, additional fee revenue will be generated because there are more students subject to the Fee for Selected Professional School Students. Overall, financial aid funded by student fee revenue and State funds increased by about $7.5 million in 1999-2000. This increase was due primarily to revenue generated by enrollment growth.

In addition to setting aside at least one-third of new fee revenue for financial aid purposes, the University supplemented financial aid from fee income with other University funds. Looking at all University fund sources, funding for financial aid increased by nearly 130 percent between 1989-90 and 1997-98 (the most recent year for which final data are available).

The amount of financial aid provided in 1997-98 represents an increase of about $47 million, or 4.7 percent, over the amount received in 1996-97. Student loans comprised over half (54%) of the $47 million increase, principally at the undergraduate level. Growth in the University’s gift aid programs, which is attributed largely to the additional funds provided by the State, accounted for another 12 percent of the increase. Display 3 shows the overall proportion of financial aid provided to UC students by the type of award.
 

Mandatory Universitywide fees for undergraduate students have been reduced by nearly ten percent since 1997-98. Because of the additional revenue provided by the State for financial aid for the past two years, the average gift aid award for needy undergraduate students has increased slightly. As a result, the amount of funds students need to provide through work or borrowing is decreasing for 1999-2000. Over the two-year period, approximately $15 million has been used to reduce the work or loan requirements for students.

The proportion of undergraduate students receiving some type of financial aid has remained steady over the past few years, at about 65 percent. Financial aid awards for undergraduate recipients averaged about $8,405 in 1997-98. Fifty percent of undergraduate aid was awarded in the form of "gift" aid (scholarships and grants) rather than "self-help" aid (loans and work-study). About 77 percent of all undergraduate aid was awarded on the basis of financial need in 1997-98, reflecting that undergraduate financial support is principally intended to provide access to a University education to those students who otherwise would be unable to afford to attend. Non-need-based support comprised the remaining 23 percent of aid to undergraduates. The majority (76%) of non-need-based support is awarded in the form of loans, with scholarships comprising the remainder.
 

Graduate Academic Student Aid

Compared to undergraduate students, a greater proportion of graduate students receive financial support (77%), and their average annual financial aid award ($12,795), which excludes assistantships, is significantly higher. Because graduate students generally do not rely on parental support to meet educational costs and are more likely to have dependent family members, graduate students tend to have a greater need for financial support. Also, graduate students generally incur higher educational expenses and have higher student debt.

The largest proportion of aid awarded to graduate academic students is in the form of fellowships and grants (75% in 1997-98) rather than loans and work-study. In addition to fellowships, grants, loans and work-study, graduate students also receive significant financial support as teaching and research assistants. In 1997-98, approximately 19,000 graduate students received nearly $242 million from such appointments. Assistantships form an important part of the total financial support structure for graduate academic students, accounting for over half of their total financial support. In 1997-98, the per-capita graduate academic award from assistantship ($10,388) exceeded the combined amount received from fellowships, grants, loans, and work-study ($8,033).
 

In 1994, The Regents approved a Fee Policy for Selected Professional School Students, which was implemented beginning with the fall 1994 academic term. While some campuses have set aside more, the policy provides that an amount of funding equivalent to at least one-third of the total revenue from the Fee be used for financial aid to help maintain the affordability of professional school programs. The majority of the funds are used for grant and fellowship awards with some funds set aside for loan repayment assistance programs.

In contrast to graduate academic students, the largest proportion of aid awarded to graduate professional students is in the form of loans (72%) rather than fellowships or grants. The differences in support patterns for graduate academic and graduate professional students reflect the contrasting approaches to graduate student support. Fellowship, grant, and assistantship support are viewed as more successful and loans less successful for recruiting and retaining doctoral students whose academic programs are lengthy and whose future income prospects are relatively low. In contrast, student loans are viewed as more appropriate for students pursuing professional degrees whose programs are relatively shorter and whose incomes have the potential to be substantially higher.

The remainder of this chapter: (1) outlines the goals of the University’s financial aid policy and how student need for University aid is determined using the Education Financing Model and (2) describes financial aid expenditures for 1997-98 by source of funds.
 

As discussed in the Student Fees section of this budget, UC fees increased significantly during the 1990s, largely due to major shortfalls in State funding for the University’s budget. In January 1994, The Regents adopted a new University policy for setting fees that specified at least one-third of new fee revenue will be used for financial aid purposes. Accompanying this policy was a new financial aid policy that calls for maintaining the affordability of the University and focuses on providing enough University financial aid to maintain accessibility for all students.
 

In response to the new Regental policy, the University developed the Education Financing Model (Model) which is used to determine undergraduate student aid funding needs, allocate undergraduate aid funds to the campuses, and guide the award of aid funds to undergraduate students. The Model is based on the following set of principles:

• The total cost of attendance (fees, living and personal expenses, books and supplies, and transportation) is considered in assessing financial need;

• Meeting the costs of attending the University is a partnership among students, parents, federal and state governments, and the University;

• All students should be expected to make some contribution toward their cost of attendance through work and/or borrowing;

• Students should have flexibility in deciding how to meet their expected contribution; and

• Campuses should have flexibility in implementing the Model to serve their particular student bodies and are encouraged to supplement centrally distributed financial aid funds with their own resources.

Student Expense Budget

The total undergraduate educational expenses associated with attending the University are considered in assessing need. These expenses include direct educational expenses – fees, books and supplies – for a California resident, plus a modest allowance for living, transportation, and miscellaneous expenses. A uniform method is used by the campuses to determine standard undergraduate student expense budgets. The method recognizes regional variations in costs and in student spending patterns. Beginning in 1999-2000, the undergraduate student expense budgets will also include a component for students who purchase a computer.

Contribution from Parents

Parents are expected to help pay for the costs of attending the University if their children are considered financially dependent using the Federal definition of independence. The amount of the parental contribution is determined by a federally mandated formula for determining need, which takes into account parental income and assets (other than home equity), the size of the family, the number of family members in college, and non-discretionary expenses. If parents do not contribute the amount expected under the Federal need analysis standards, the student is expected to make up the difference through extra borrowing and/or work, or by reducing his or her expenses.

Contribution from Work and Borrowing

Students are expected to make a contribution to their educational expenses from
 

Contribution from Federal and State Grant Aid

The University’s goal is to provide grant support to needy students to cover the gap between the student’s expense budget and the expected contributions from parents, student borrowing, and student work. Available Federal and State need-based grants are applied toward a student’s grant eligibility.

Campus-based scholarships and grants from gifts, endowments, campus discretionary funds, the Regents’ Scholarship Program, and scholarships and grants from outside agencies are excluded from the framework of the Education Financing Model. These funds generally are used to reduce the loan and work expectations of students.

The University began phasing in the Education Financing Model in 1997-98 and expects to fully implement the Model in 2001-02.
 

In 1997-98, UC students received $649.2 million in federal financial aid, which represented approximately 61 percent of all support awarded during that year. The vast majority (76%) of federal aid was in the form of loans.

Overall, UC students received about six percent more federally funded aid in 1997-98 than they received in the previous year. This was principally due to increases (totaling approximately $24 million) in borrowing under federal loan programs. Borrowing through federal programs for University undergraduate and graduate students totaled $496 million in 1997-98. The significance of the federal student loan programs for University students is demonstrated by the fact that these programs comprised more than three-quarters (76%) of all federally funded aid and nearly one-half (47%) percent of total financial support received by University students in 1997-98. The unsubsidized loan program continues to be the fastest growing source of federal support for students, growing by about 19 percent in 1997-98.

Taxpayer Relief Act of 1997

The Taxpayer Relief Act (TRA) of 1997 implemented a number of new provisions that will continue to affect UC students and their families in future years. The TRA included reporting requirements for institutions of higher education, which impose significant new administrative tasks on the University. To comply with the reporting requirements, the University contracted with an outside vendor to collect, maintain, and report the required data to the IRS and students and their families. Each student was provided access to the information mailed and reported via a secured
 

Hope and Lifetime Learning Tax Credits. The Taxpayer Relief Act of 1997 established two new tax credit programs effective with the 1998 tax year, which provide tax credits to qualified taxpayers for tuition and fees paid for postsecondary education. The Hope Tax Credit provides tax credits for payments made for students who are in their first two years of postsecondary education. The "Lifetime Learning" Tax Credit provides smaller tax credits, but taxpayers are not limited to payments made during the first two years of postsecondary education. In general, middle- and lower-middle-income students and their families will benefit from the two tax credit programs.

Penalty-free IRA Withdrawals. Taxpayers may withdraw funds penalty-free from either a traditional Individual Retirement Account (IRA) or a Roth IRA for undergraduate, graduate, and postsecondary vocational education expenses. Currently, withdrawals from IRAs prior to retirement are subject to early withdrawal penalties. This provision will permit students and their families to withdraw funds for educational purposes without penalty. This provision is intended to assist middle-income students and their families.

Education IRA. Taxpayers will be allowed to contribute $500 per year into a new Education IRA. Although contributions are not tax deductible, earnings on the IRA will be tax-free and no taxes will be due upon withdrawal if used for qualified higher education expenses. The Education IRA is phased out for families with incomes between $150,000 and $160,000. This provision is intended to assist middle-income students and their families.

Student Loan Interest Deduction. Taxpaying borrowers may take a tax deduction for interest paid during the first 60 months of repayment on student loans (available even if the taxpayer does not itemize other deductions). As long as the loan repayment occurs within the first 60 months of repayment, the deduction is available for all educational loans. Because eligibility for the deduction is phased out for taxpayers with higher incomes, middle-income and lower-middle-income borrowers with high debt levels will be the primary beneficiaries of the reinstatement of the tax deduction of student loan interest.

U.S. Savings Bonds. The interest on U.S. Savings bonds is, in certain circumstances, tax-free when bond proceeds are used to cover eligible education expenses. Individuals who purchase Series EE or Series I bonds when they are at least 24 years of age, may withdraw bond proceeds tax-free if they are used to cover tuition or fees or contributions to a Qualified State Tuition Program such as Scholarshare or an education IRA. Eligibility for tax-free withdrawals is a function

As of this writing, Federal support for student aid programs remains uncertain for FY 2000. In general, however, anticipated changes in programs and funding levels are expected to only have a marginal overall impact on UC students. A summary of the proposed changes under consideration include:

Increase in Pell Grant Awards

The maximum levels in Pell Grant awards have been increased to $3,125. This increase is projected to result in $6.3 million of additional grant aid for the 42,219 University undergraduates who are Pell Grant recipients. For FY2000, there is bipartisan support for increasing the maximum award level by another $150 to a new maximum of $3,275.

Increase in the Federal Work-Study Program

An increase in federal work-study funding is also being considered, making it possible for federal dollars to pay a larger portion of a student’s salary in certain jobs, particularly for work-study assignments involving teaching reading and math skills to elementary school students. In addition, more students may be able to receive work-study awards.

Leveraging Education Assistance Programs (LEAP)

The LEAP program represents about four percent of the State’s Cal Grant funding. A dollar-for-dollar matching program of grant assistance, the program was implemented by the federal government in 1972 to encourage states to establish need-based student grant programs. In the past, as LEAP funds have been eliminated at the federal level, the State has replaced these funds in the Cal Grant program. There are proposals to eliminate completely federal support for LEAP.

Perkins Loan Program Reduction

A reduction in the federal capital contribution to the campus-level Perkins Loan revolving fund is also possible. If this occurs, over time, the new capital available for this low-interest program will become scarce and needy UC students will be forced to borrow from higher cost sources of credit.
 

California university and college students receive financial support from a number of State programs. These programs, administered on behalf of the State by the California Student Aid Commission, include the Cal Grant A, B, C, and T programs and the State Work-Study Program. These programs are designed to promote access to postsecondary education and to foster student choice among California institutions of higher education. In 1997-98, University of California students were awarded nearly $111 million in financial aid from these programs.

Cal Grant Programs

The Cal Grant Programs provide undergraduates with "portable" financial aid that can be used at the eligible California institutions of the students’ choice. Cal Grant

Cal Grant funding for UC students has grown 29 percent from $85 million in 1993-94 to about $110 million in 1997-98. Because there have been no increases in mandatory Universitywide fees since 1994-95, increases in Cal Grant funding for UC students since that time have been modest. The 1999 State Budget provides a $35 million (10%) increase in funding for the Cal Grant programs. This includes over $24 million to support an additional 9,400 new Cal Grant awards for financially needy students. UC students will likely receive or 2,000 of these new awards worth over $6 million.

Scholarshare Trust College Savings Program

In addition to increasing support for the Cal Grant programs, the state also has taken steps to establish a program encouraging all families, especially those from middle-income backgrounds, to embark upon a system of long-term savings for their children’s college expenses. These families have been turning to borrowing in order to meet these costs. In response to this trend, the state created the "Scholarshare Trust College Savings Program," a tax-deferred college savings fund that will be administered by the California Student Aid Commission. The program will begin in 1999.

The Scholarshare Trust manages individual accounts, which are pooled into large funds and invested in a number of different financial instruments by the State or its agent. Investments are capped so that the yield from the account does not exceed the projected education expenses at an independent college or university. Earnings

Student Fees and State General Funds

University student aid programs funded from student fee revenue and State general funds increased again in 1997-98. However, because there were no increases in mandatory Universitywide fees in 1997-98, the increase is modest and primarily reflected the additional aid related to increases in total enrollment as well as the Fee for Selected Professional School Students. The total amount of aid from student fees and State general funds ($196.4 million) only increased by about $1 million. Thirty-six percent of enrolled undergraduates and 58 percent of enrolled graduate students received some form of financial assistance from the University aid programs. Educational Fee income is used to support both need-based and merit-based programs, while the State general fund income is statutorily restricted to the support of need-based financial aid.

Other University Aid

In addition to the Universitywide programs described above, University financial aid is also provided through various campus-based programs funded by endowment income, current gifts, repayments from University loans, and campus discretionary funds. In 1997-98, about $72 million in University aid from these sources was awarded to students of which nearly all ($71 million) was awarded in the form of fellowships, scholarships, and grants.
 

Finally, private agencies and companies also provide student financial support through scholarships and other forms of aid. Small scholarships from a student's local PTA or Rotary Club are reported here alongside traineeships and fellowships from private companies (e.g., Hewlett Packard and IBM) and associations and foundations (e.g., the National Merit Scholarship Foundation and the American Cancer Society). Nearly all funds in this category are awarded to students in the form of grant support. In 1997-98, more than $28 million was awarded to UC students from private agency programs, which represented 2.7 percent of the financial support students received during that year.

Last Updated December 1999.
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