LAO Reports

An Analysis of New Cal Grant Eligibility Rules

January 7, 2013

 


In response to concerns about the quality of some postsecondary institutions, California recently adopted new eligibility standards for colleges participating in the Cal Grant programs. The standards include a maximum student loan default rate and a minimum graduation rate. This report traces the history of these changes and assesses their impacts. We find that the changes, which primarily affect students at for-profit schools, are generally working as intended but have three notable drawbacks: (1) schools can manipulate the default rate, (2) the rules exempt some institutions without strong justification for doing so, and (3) the standards penalize institutions serving more disadvantaged students. We recommend exploring alternative student debt measures when the information needed to calculate these measures becomes more readily available. We also recommend applying the graduation rate requirement to all schools but modifying the measure to track the graduation rate only of Cal Grant recipients. In addition, we recommend taking into consideration a school's student characteristics to avoid creating a disincentive to serve disadvantaged students.