Universities can’t withdraw financial aid from students who get private scholarships, says new law

As Dixie Samaniego prepared for her first semester at California State University Fullerton, she had one goal: find a way to pay.

“I knew my family wasn’t going to be able to pay or help financially in any way,” said Samaniego, now elderly, “so I started applying for scholarships everywhere.”

As a low-income student, she qualified for a Federal Pell Grant and a State Cal Grant, but still had a substantial balance to cover. After hours of applying, writing essays and interviewing, she received a $5,000 scholarship for her freshman year from a private foundation that aimed to help students who were facing barriers in college.

But then, Samaniego said, she received some unwanted news from Cal State Fullerton’s financial aid office: Adding the scholarship to her financial aid package would reduce the amount of aid she was getting from school. ‘university.

Confused and disappointed, Samaniego decided not to accept the scholarship she had worked hard for.

“I didn’t know anything about higher education. I didn’t know anything about financial aid,” said Samaniego, who is the first in her family to attend college. “I had all this money and then I had to make some really tough decisions.”

What Samaniego says he experienced has a name: the displacement of scholarships. The practice occurs when a student receives a scholarship after their initial financial aid award and their college or university revamps their institutional aid program, often resulting in a zero net gain for the student. And starting next fall, it will be banned in California for low-income students eligible for a Pell grant or state financial aid under the California Dream Act.

California is one of five US states with such laws, and only the second in the country to relocation of the bar bursary in public and private colleges and universities.

It is difficult to quantify the number of students affected by the displacement of scholarships or how much money they lose. But a 2013 National Scholarship Providers Association study found that 20% of colleges nationwide cut institutional grants when a student gets a private scholarship, even if a student still needs it. Advocates for low-income students say the practice can be a significant barrier to college affordability.

A spokesperson for Cal State Fullerton said federal privacy law prevents the university from commenting on a specific student’s financial aid package. But the federal student aid office guidelines asking universities and colleges to renegotiate financial aid scholarships if there is a possibility that the funds will exceed either the cost of attendance or the needs of the student, as indicated on their application for free federal aid for students. The the rules also give financial aid officers some leeway working with students to package their scholarships, however, and colleges have their own policies that they follow in addition to federal law.

“Within the financial aid office, the details are more complex,” said Christina Tangalakis, president of the California Association of Student Financial Aid Administrators. “Some students do very well in their search for college funding and are offered more help than they have to bear” according to the federal government’s methodology, Tangalakis said. But schools vary in their response to so-called “general awards,” she said.

Complicating the issue is the debate over whether colleges accurately calculate the cost of attendance in California, where living costs have skyrocketed in recent years. Colleges and universities are required by the government to provide “reasonable” estimates of costs incurred during an academic year, according to the Federal Student Aid Guide. Most schools use averages of spending in an area when calculating estimated costs for housing, transportation, and supplies, which can skew results.

Yet it is precisely these non-tuition expenses that impose the heaviest burden on students. A study 2021 on college affordability by the Public Policy Institute of California concluded that “for the majority of students attending public post-secondary institutions in California, the combined cost of housing, fees, books, and transportation exceeds tuition “.

“We believe California leads the nation in student financial aid…but the full cost of education, and especially non-tuition costs, are not covered by the financial assistance programs. So students have to rely on external sources,” said Marcos Montes, director of policy for the Southern California College Attainment Network.

With the new law, Montes said, students will be able to maximize the use of scholarships. “A student can use this money to pay for housing, books, food, transportation, a new device, a new computer.”

Montes, himself, coped with the stress of moving scholarships while an undergraduate at California State University Los Angeles. Schools often calculate different attendance costs for students based on their living situation. As a suburban student living at home, Montes was in the lowest category for cost of attendance. But he still needed money for schoolbooks and car maintenance.

“I was getting a scholarship as a student government representative,” Montes said. “And when that scholarship came, I was expecting a check to come to me so that I could use it to cover some expenses other than tuition, and that check wasn’t coming.”

The school’s financial aid office told him it had maxed out the amount of aid the school was willing to offer, Montes said. To access the funds, Montes was forced to leave his parents’ home and change his residency status. He was able to use the scholarship – but not in the way he had planned.

“I found, you know, a little one-bedroom apartment where I could live, and I used that money to pay the rent,” he said.

Before the law was passed, the Southern California College Attainment Network and other advocacy organizations were already working one-on-one with students facing scholarship displacement.

Counseling these students can take hours and requires studying the financial aid award letter, understanding what dollars have been moved, and working with counselors to come up with strategies to recover the funds. And not all students even realize what happened to their financial aid package or know where to go for help, said Mer Curry, executive director of the Northern California College Promise Coalition.

“It’s inefficient to be (advocating) student by student, but it’s also inequitable,” Curry said. “What we found in the students was that they felt lucky, privileged, that they were in a program or that someone had explained to them what the problem was so that they could even go through a advocacy or request for assistance process.”

Cal State Student Association President Krishan Malhotra said he received no explanation from his university’s financial aid office when he lost $5,500 in aid after receiving a stipend for his work in student government – ​​money he relied on to pay for digital textbooks.

“I watch my money pretty well,” Malhotra said, “But when you have a million things to do, when you have a full-time job, when you take 18, 15 units, some students have families or people dependent, and there’s so much going on that you can definitely miss it.

Malhotra called the conversation about moving scholarships “long overdue.”

The new law, passed by the Legislative Assembly in August and signed by Governor Gavin Newsom, will allow the most vulnerable students who are able to obtain additional funds for post-secondary education to have more freedom in how which they use their funds.

The Cal State Student Association worked with advocacy groups to pass the law, and the California community college system pledged to support it. Scholarship providers, frustrated that their funds don’t always reach the students who needed them, also weighed in.

“Scholarships play a vital role, not only in increasing access, but in reducing student loan debt,” said Mike Nylund, president and CEO of Scholarship America, a Minneapolis-based nonprofit. which helps students find and manage scholarship funds. “This new law will ensure that the neediest students will not lose their private scholarship funds.”

Tangalakis said the new rules might be confusing at first, but would eventually cause some schools to reprioritize aid policies to accommodate scholarships.

“Students will benefit from more consistent treatment of scholarship funds and fewer adjustments to their institutional funding,” she said.

The ban on scholarship displacement, however, excludes some students: those who do not have a low enough income to qualify for Pell Grants or the California Dream Act, but who might still be in financial need.

“The bill has limits. It doesn’t apply to everyone,” said Sbeydeh Viveros-Walton, director of higher education for Public Advocates, a nonprofit law firm that has backed the bill. And students will still need to be made aware of the issue so they can monitor their financial aid programs and ensure colleges are compliant, she said. “It still puts the burden of solving this problem on the students.”

With the bill set to begin protecting low-income students in the 2023-24 academic year, its sponsors are eager to ensure these students are educated and prepared.

“I think the next step is to focus on implementation,” Samaniego said. “To determine if these bills and efforts are actually reaching the students they were meant to reach.”

Story is a member of the CalMatters College Journalism Network, a collaboration between CalMatters and student journalists across California. This story and other articles on higher education are supported by the College Futures Foundation.