New law says universities can’t pull financial aid from students who receive private scholarships

As Dixie Samaniego prepared for her first semester at Cal State University Fullerton, she focused on one thing: finding a way to pay.

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

As a low-income student, she was able to qualify for a federal Pell Grant and a California State Grant, but still had a significant balance to cover. After hours of applying, writing essays and interviews, she was awarded a $5,000 first-year scholarship from a private foundation that aims to help students who face barriers to college.

But then, Samanieg said, she got some bad news from Cal State Fullerton’s financial aid office: Adding the scholarship to her financial aid package would reduce the amount of aid she received from the university.

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

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

What Samaniego says she experienced has a name: scholarship displacement. This practice occurs when a student receives a scholarship after receiving initial financial aid and their college or university reorganizes their institutional aid package, often resulting in a net gain of zero for the student. And starting next fall, it will be banned in California for low-income students who qualify for a Pell Grant or state financial aid under the California Dream Act.

California is one of five U.S. states with such laws, and only the second in the nation, to prohibit scholarship transfers at both public and private colleges and universities.

It is difficult to estimate how many students will be affected by the scholarship move and how much money they will lose. But a 2013 study by the National Scholarship Association found that 20% of colleges nationwide reduce institutional grants when a student receives a private scholarship, even if the student has still demonstrated need. Advocates for low-income students say the practice can be a major barrier to college affordability.

A spokeswoman for Cal State Fullerton said federal privacy law prevents the university from commenting on a specific student’s financial aid package. But guidelines from the Federal Office of Student Aid direct universities and colleges to review financial aid awards if there is a possibility that the funds exceed either the cost of attendance or the student’s need, as shown on their Free Application for Federal Student Aid. The rules also give financial aid officers some leeway in working with students to package their awards, however, and colleges have their own policies they follow in addition to federal law.

“Inside the financial aid office, the details are more complicated,” said Christina Tangalakis, president of the California Association of Student Financial Aid Administrators. “Some students are very successful in finding college funding and are offered more aid than they have support costs” according to the federal government’s methodology, Tangalakis said. But schools respond differently to so-called “overruns,” she said.

Complicating the issue is a debate over whether colleges are accurately calculating the cost of attendance in California, where living costs have skyrocketed in recent years. According to the Federal Student Aid Handbook, the government requires colleges and universities to provide “reasonable” estimates of costs accrued during the academic year. Most schools use average costs in the region when calculating estimated costs for accommodation, transport and materials, which can skew the results.

But it is these non-tuition costs that place the greatest burden on students. The 2021 College Affordability Study by the Public Policy Institute of California concluded that “for most students attending public institutions of higher education in California, the combined cost of housing, fees, books and transportation exceeds the cost of tuition.”

“We believe that California leads the nation in providing financial aid to students … but the overall cost of education, and specifically non-tuition costs, are not covered by financial aid programs. So students have to rely on outside sources,” said Marcos Montes, policy director for the Southern California College Achievement Network.

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

Montes himself experienced the stress of moving a scholarship when he was a student at California State University, Los Angeles. Schools often calculate different costs for students to attend based on their living conditions. As a commuter student who lived at home, Montes was in the lowest cost-of-attendance category. But he still needed money for textbooks and car maintenance.

“I received a scholarship as a student government representative,” Montes said. “And when that scholarship came through, I was expecting to get a check for money so I could use it to cover some non-tuition related expenses, but that check didn’t come.”

The school’s financial aid office told him he had reached the maximum amount of aid the school was willing to offer, Montes said. In order to access the funds, Montes was forced to move out of his parents’ home and change his residency status. He managed to use the scholarship – although not in the way he wanted.

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

Before the law passed, the Southern California College Achievement Network and other advocacy organizations were already working one-on-one with students at risk of scholarship displacement.

Counseling these students can take hours and requires studying the financial aid letter, understanding which dollars were displaced, and working with counselors to come up with a strategy to get the funds back. And not all students even understand what happened to their financial aid package or know where to go for help, said Mer Curry, executive director of the Northern California College Coalition.

“It’s ineffective to (promote) a student to a student, but it’s also unfair,” Curry said. “What we learned from the students was that they felt lucky, privileged, that they were in a program or that someone explained to them what the problem was so that they could even go through the process of advocating or asking for help.”

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

“I watch my money pretty well,” Malhotra said, “but when you’ve got a million things to do, when you’re working full-time, when you’re getting 18-15 units, some students have families or dependents. , and there’s so much going on that you can probably miss it.”

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

The new law, passed by the Legislature in August and signed by Gov. Gavin Newsom, will allow the most vulnerable students who can receive additional funds for post-secondary education to have more freedom to use their funds.

The Cal State Student Association worked with advocacy groups to pass the law, and the California Community College System supported it. Scholarships, frustrated that their funds don’t always reach the students who need them, have also weighed in on their role.

“Scholarships play an integral role not only in increasing access, but also in reducing student loan debt,” said Mike Nylund, president and CEO of Scholarship America, a Minneapolis-based nonprofit that helps students find and manage scholarship funds. “This new law will ensure that those students who need it most do not lose their important private scholarships.”

Tangalakis said the new rules may cause confusion at first, but will eventually force some schools to change their aid policy priorities to accommodate scholarships.

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

However, the ban on moving scholarships leaves some students behind: those who are not low-income enough to qualify for Pell Grants or the California Dream Act but may have financial need.

“There are limitations in the bill. It doesn’t apply to everyone,” said Sbeidej Viveras-Walton, director of higher education at the nonprofit law firm Public Advocates, which supported the bill. And students will still need to be made aware of the issue so they can monitor their financial aid packages and make sure colleges are complying, she said. “It still puts the burden of fixing it on the students.”

With the bill set to begin protecting low-income students in the 2023-24 school year, its authors are committed to ensuring that these students are educated and prepared.

“I think the next focus will be on implementation,” Samaniego said. “Find out if these bills and these efforts are really reaching the students they were meant to reach.”

Story is a fellow of the CalMatters College Journalism Network, a collaboration between CalMatters and student journalists from across California. This story and other content about higher education is supported by the College Futures Foundation.