UC Berkeley Web Feature
Berkeley's financial aid future grows stormier as Pell Grants dip, Cal Grants remain steady
BERKELEY – Even a brief letup in a month of downpours can feel like sunshine, that is, if you're UC Berkeley's Office of Financial Aid.
On Dec. 23, the U.S. Department of Education announced it was changing its eligibility formula for Pell Grants, which are awards — not loans — ranging from $400 to $4,050 that low-income undergraduate students can use for college costs. The change will result in as many as 89,000 students nationwide losing their 2005-06 Pell Grant funding, according to American Council on Education (ACE) estimates.
UC Berkeley has 7,800 Pell Grant recipients, representing over a third of its undergraduate student body. (Berkeley has a greater percentage of students from low-income families than any research university except UCLA.) While the actual dollar amount that each affected student's Pell Grant will decrease is small, the change means that Berkeley's Financial Aid Office will have to make up $250,000 total in aid shortfalls. That's because in general, Pell Grant recipients are already needy enough that they and their families cannot be expected to contribute more to the cost of their education.
Budget for Berkeley students living on campus
Source: UC Berkeley Office of Financial Aid
Until California Governor Arnold Schwarzenegger's proposed state budget was announced Jan. 10, it looked like there might be a shortfall from Cal Grants as well. Cal Grants are state-funded awards of up to $8,300 that low-income students can use for college expenses. Berkeley had roughly 5,000 Cal Grant recipients in 2004-05, and like the rest of the undergraduate student body, those students are facing a UC Regent–approved 8 percent increase in their fees for next year. The question in early January was whether the governor would increase Cal Grants enough to cover the fee hike. Last year, Schwarzenegger's initial January budget did not match the 2004-05 fee increase with larger Cal Grants, and the issue became a nerve-wracking political football kicked around until the final budget was approved in July.
But this year, the governor honored the spirit of his "compact" with UC President Robert Dynes and increased Cal Grants commensurately with student fees. Cheryl Resh, UC Berkeley's director of Financial Aid, greeted the news with relief. "At least we're not worse off than we anticipated being," she says.
'When a family of five lives on $20,000 a year, the cost of one year of education at Berkeley really worries them … Many parents are justifiably wary about their students taking out those loans.'
-Cheryl Resh, Director of Financial Aid, UC Berkeley
(Wendy Edelstein photo)
However, "we're still looking at daunting increases in fees and shortfalls in aid funding," Resh continued. "The real issue is that individual award amounts are not increasing and keeping up with the rising costs in higher education. By the end of the decade, we project a scenario that risks burdening the student with untenable debt after graduation."
Pell Grants are the federal government's single largest source of grant aid for post-secondary education, with more than 5 million U.S. low-income students relying on them to defray tuition and other expenses. For the academic year 2002-03, UC schools occupied the top six slots in percentage of students who have Pell Grants, with UCLA at 35.1 percent and Berkeley at 32.4 percent. In comparison, only 11.7 percent of Stanford students and 6.8 percent of Harvard students had Pell Grants during the same period.
The Pell Grant program has been running a deficit for several years, thanks to unexpected demand because of the increasing numbers of low-income students. The federal Department of Education thus began considering updating the state tax tables it uses in the complex formula that determines how much low-income families can afford to contribute toward their children's higher education costs. For more than a decade, the department has been using 1988 tax tables, and the federal government contends that since then, many states have reduced taxes on low-income families, leaving them with more money to pay for higher education.
First the Department of Education proposed updating its formula to use tax tables from 2000, which were 2 percent lower than the current standard; the 2002 tables it settled on for the Dec. 23 announcement represent a slightly less onerous 1 percent change. But that 1 percent will decrease some students' Pell Grants and drop others entirely, altogether cutting the program roughly $300 million in 2004-05, out of a budget of $12.5 billion, according to ACE estimates.
"If they had updated the tables every year since 1988, there would be no problem," says Resh. "Now, even this 1 percent change makes a huge difference." Critics of the change argue that Pell Grant recipients and their families are are even needier than they were before, citing other interpretations of California State Franchise Tax Board data that indicate that taxes for Californians as a percentage of income have risen, not fallen.
financial aid packages
Financial aid package
Financial aid package
Source: UCB Office of Financial Aid
Financial Aid 101
The "good" news is that fewer than half of Berkeley's Pell Grant recipients will have their awards affected at all. Resh estimates that 35 percent of the 7,800 Berkeley Pell students will see a $100 reduction in their Pell awards, while roughly 100 students will lose $400.
But the Department of Education's change affects not only its Pell Grant funding, but also the standard federal financial aid formula that all colleges use to determine the expected family contribution (EFC) toward college costs. (See box at right.) Each university attempts to meet the student's financial need — the difference between the college costs and the family's EFC — with a package that combines federal, state, and institutional grants with scholarships, loans, and work/study jobs. When any piece of that package decreases, the shortfall must be made up elsewhere.
At Berkeley, there are 3,400 students whose incomes are so low that they and their families can contribute nothing to their college costs. For the other needy students, the Dec. 23 change in the federal formula will increase the parent contribution levels. That means "many parents and students will have to take out additional, more expensive loans to cover the difference," explains Resh.
Forget formulas and equations for a minute. The heart of the problem, Resh says, is that financial aid is being reduced or remaining constant at a time when the cost of education is rapidly rising. The maximum federal Pell Grant of $4,050 has been nearly frozen for four years, and the Berkeley campus has not seen any increases in federal money for the Perkins Loan or Work Study Programs in that time. Federal Perkins Loans are low-interest loans available to undergraduate and graduate students with financial need. The school makes the loans with government funds and a school contribution.
On Jan. 14, the Associated Press reported that President Bush was proposing to raise the maximum Pell Grant award by $100 per year over the next five years. It is rumored that Bush plans to pay for the increase by eliminating the Perkins Loan Program entirely.
Meanwhile, the cost of attending Berkeley has risen 21 percent since this year's seniors arrived on campus in 2001-02. One way or another, students and their families are shouldering that difference. Berkeley's standard student "self-help" package - the combination of loans and work/study that provides the starting point for any financial aid package - has risen from $5,400 in 1999-00 to $8,000 in 2004-05. That's a staggering 48 percent increase in what students themselves are expected to come up with, before any grants, scholarships, or parental contributions are factored in. As the San Francisco Chronicle Magazine's Jan. 9 cover story illuminated in heartbreaking detail, many students are really struggling to stay at Berkeley.
for Berkeley students
Self-help expectations for private university students
And what's more, the federal formulas for determining who is eligible for Pell Grants or other aid are not regionally weighted. "The federal formula doesn't take into account how far $30,000 goes for a family of four in the Bay Area versus in Nebraska," Resh complains. Berkeley has almost 2,000 students whose families' incomes are below the poverty level and another 3,000 who are close to it. "When a family of five lives on $20,000 a year, the cost of one year of education at Berkeley really worries them, and you can imagine why - we're saying the budget for one year is more than the entire family's income. Many parents are justifiably wary about their students taking out those loans."
Tougher times ahead
Student fee increases have traditionally been accompanied with a "return to aid" rebate to UC campuses, usually one-third of the fee increase, which the universities can use to help their neediest students meet the higher obligations. But last year the return to aid was only 20 percent. So, right off the bat, Financial Aid Offices UC campuses were scrambling to make up the missing 13 percent.
This year, although the compact between UC and the state still sets the return to aid at 20 percent, UC's Office of the President and the chancellors have agreed on a 25 percent rebate for 2005-06. Combined with the governor's increase for Cal Grants, Resh's office is able to send out initial aid packages that include the higher Cal Grant amounts as well as the increase in the return to aid.
"At this point, it's good news for this year," says Resh. "But we in the financial-aid community can see that costs are just going to keep going up even as our financial aid packages fall further behind. There's still a significant need for additional grant and scholarship funds for our students — now and in the future."