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Berkeley's financial aid
future grows stormier as Pell Grants dip
Berkeley.edu
By Bonnie Azab Powell
bpowell@berkeley.edu
NewsCenter
14 January 2005
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
|
2001-02 |
2002-03 |
2003-04 |
2004-05 |
Fees
|
$3,662
|
$3,694
|
$5,250
|
$5,956
|
Health insurance
|
$460
|
$506
|
$608
|
$774
|
Room & board
|
$9,073
|
$9,747
|
$10,342
|
$10,744
|
Add'l food
|
$973
|
$861
|
$870
|
$886
|
Books etc.
|
$1,072
|
$1,108
|
$1,158
|
$1,240
|
Transportation
|
$590
|
$604
|
$630
|
$640
|
Personal
|
$1,096
|
$1,156
|
$1,208
|
$1,298
|
Total budget
|
$16,926
|
$17,676
|
$20,066
|
$21,538
|
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.
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-mell changes
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.
Understanding financial aid packages
What parents are expected to contribute to their dependent
child's UC Berkeley education is calculated based on a federal
formula with several variables. It can come from savings, monthly
income, or loans.
Example 1
Parents' income = $26,000
Family size = 4 (2 parents, 2 kids)
Assets (cash, savings) = $15,000
Number of children in college = 1 Expected financial contribution
(EFC) = $1,000
Financial aid package
Financial need formula: $21,538 (2004-05 budget for attending UC
Berkeley) - $1,000 (family contribution) = $20,538
Unsubsidized loan for family
contribution:
|
$1,000
|
Grants/scholarships:
|
|
Pell Grant
|
$4,050
|
Cal Grant B
|
$1,551
|
UC grant or scholarship
|
$6,937
|
'Self-help' package:
|
|
Subsidized loans
|
$4,625
|
Work/study
|
$3,375
|
Financial aid package
|
$21,538
|
Example 2
Parents' income = $75,000
Family size = 4
Assets = $38,000
Number of children in college = 1
EFC = $13,000
Financial aid package
Financial need formula: $21,538 (2004-05 budget for attending UC
Berkeley) - $13,000 (family contribution) = $8,538
Unsubsidized loan for family
contribution:
|
$13,000
|
Grants/scholarships:
|
|
Pell Grant
|
$0
|
Cal Grant B
|
$0
|
UC grant or scholarship
|
$538
|
'Self-help' package:
|
Subsidized loans
|
$4,625
|
Work/study
|
$3,375
|
Financial aid package
|
$21,538
|
Source: UCB Office of Financial
Aid
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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.
Band-aids
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.
Self-help packages for Berkeley
students
All financial aid packages, regardless of parent contribution,
start with the student's 'self-help package,' a combination of
loans and work/study. The size of the student contribution has
increased dramatically in recent years.
|
2001-02 |
2002-03 |
2003-04 |
2004-05 |
2005-06* |
Self-help package
|
$6,100
|
$6,600
|
$7,400
|
$8,000 |
$8,775
|
Annual increase
|
|
8.2%
|
14.7%
|
8.1%
|
9.7%
|
Self-help expectations for private
university students
|
2004-05 |
Brown
|
$1,550-$5,550 |
Harvard
|
$3,500 |
Princeton
|
$2,465 |
Stanford
|
$2,250-6,000 |
MIT
|
$5,600 |
(UC Berkeley)
|
($8,000) |
*projected
Source: UC Berkeley Office of Financial Aid
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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."
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