For-Profit Colleges May Lose Cal Grant Eligibility

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(AP)

(AP)

SACRAMENTO (CBS / AP) — Many for-profit career colleges could lose their eligibility for California higher-education grants under new rules proposed as part of legislation to close the state’s massive budget deficit.

The measure would bar schools with high student loan default rates from being eligible for the state’s Cal Grants financial aid program, according to Mark Hedlund, a spokesman for Senate President Pro Tem Darrell Steinberg.

The proposal aims to save the state money and “protect students from graduating from institutions with excessive loan debt that they’re not able to pay off,” Hedlund said. It’s expected to save the state an estimated $24 million annually.

The measure would also require all students who receive Cal Grants to be re-evaluated for eligibility each year. Currently they only need to qualify when they start college.

A legislative committee adopted the rules this week as part of a budget deal to address California’s nearly $27 billion deficit. The full Legislature is expected to vote on the budget package soon.

“This proposal will strengthen the Cal Grants program, decrease costs for the state and improve outcomes for students,” said Debbie Cochrane, a program director at the Institute for College Access and Success, an Oakland-based advocacy group.

Under the proposed rules, the student aid commission would determine which colleges are eligible for Cal Grants by using a “student default risk index.” The index would take into account the percentage of a college’s students who take out loans and the share of those borrowers who default during the repayment period.

Currently, for-profit colleges receive about $94 million of the roughly $1 billion in Cal Grants the state distributes each year, Hedlund said.

The measure would affect the country’s biggest for-profit institutions of higher education, including the University of Phoenix, DeVry University, Corinthian Colleges, ITT Educational Services and Kaplan Colleges.

Opponents say the proposal discriminates against the nontraditional students who attend for-profit schools, many of whom are low-income, minority and working Americans as well as military veterans.

“This proposal effectively targets low-income students, making their likelihood of educational and career success that much more difficult, while stripping them of the educational choice,” said Laura Brown, president of the California Coalition of Accredited Career Schools.

The higher loan default rates at many career colleges reflect the schools’ demographic makeup not their educational quality, Brown said.

The Cal Grants program currently offers awards up to $9,703 to students at for-profit colleges, compared with $1,551 for community college students, $4,884 for California State University students and $11,124 for University of California students, according to the student aid commission.

In recent years, for-profit colleges have come under scrutiny for aggressive recruiting tactics, low graduation rates and high student loan default rates that indicate that graduates are not finding jobs that pay enough for them to repay their loans.

The U.S. Department of Education is preparing new rules that would link eligibility for federal student aid programs to a college’s loan default rates.

(Copyright 2011 by CBS San Francisco. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. Wire services may have contributed to this report.)

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