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A. Develop a long-range plan for state financial aid.

State financial aid programs must be sustainable for more than one or two biennia if they are to meet the state's goals for closing gaps in participation and completion. The Texas Higher Education Coordinating Board (THECB) should develop a long-range plan for financial aid to complement the Closing the Gaps plan for higher education, which extends to 2015. The plan should address the state's demographic challenges, particularly its need to assist more first-generation and minority college students. The plan should establish objectives and strategies to realize the goals of the Closing the Gaps plan, simplify programs and ensure the most efficient use of state dollars.

B. Create the TexasNextStep program to provide access to recent high school graduates for the first two years of college at state two-year institutions.

The state's two-year institutions are particularly attractive to first-generation college students and can play a major role in meeting the state's higher education participation goals. A guarantee of tuition, fees and books is especially important for attracting first-generation college students, since they may be skeptical of their ability to qualify for assistance. By requiring that recipients apply for federal grant aid and apply it to the cost of tuition and fees, the program would encourage more students to complete federal applications for financial aid, decrease program costs and increase the amount of federal student aid given to Texas college students.

C. Provide B-On-time Loans to TexasNextStep graduates.

Students who complete the TexasNextStep program within three years should receive B-On-time loans if they are otherwise eligible for the program and choose to finish a baccalaureate degree at a four-year institution. Currently, students completing associate degrees in more than two calendar years and transferring to four-year institutions are not eligible for the B-On-time loan; providing the loan to TexasNextStep graduates would facilitate additional students to complete their baccalaureate degree.

D. Standardize eligibility requirements and benefits, to the extent practicable, and limit benefits covered by exemption and waiver programs.

Texas offers many tuition exemption and waiver programs, but the specific fees they cover vary. Exemption and waiver eligibility requirements should be standardized, to the extent practicable, to make the programs easier for students to understand and for financial aid offices to administer. Given the need to maximize limited funds, programs should establish limits, such as the number of semester credit hours or semesters allowed, or a dollar limit or a time frame within which a student must enter and complete the program.

E. Require public colleges and universities that receive state funds for financial aid to provide the THECB with annual performance reports on every student financial aid program, including assistance funded by private sources. Include links to each institutional aid program on the College for Texans Web site.

State policymakers should be able to examine the whole financial aid picture when establishing new programs, appropriating funds and allocating state resources among institutions. Since large amounts of financial aid are provided by the institutions themselves, often from private donations or endowments, and are reported to the THECB as a lump sum for need-based programs only, the Legislature presently lacks the information it needs to structure the most efficient and effective financial aid program for the state.

In addition, campus financial aid offices distribute much financial aid based on their own professional judgment. Individual college and university philosophies on the distribution of available financial aid vary by institution; for instance, some try to provide awards to as many eligible students as possible, while others concentrate the aid on their most financially needy students. A greater understanding of student aid programs at the campus level would allow state policymakers to compare the effectiveness of different strategies for distributing student aid.

Fiscal Impact

Recommendations A and E would have a negligible fiscal impact. Recommendation D could have savings, but these cannot be estimated since limits, if any, have not been determined. Recommendation B would entail costs to the General Revenue Fund for the tuition, fees and books of eligible students at community, technical and state two-year institutions. Eligible students would be those enrolling within 16 months of high school graduation and completing an associate's degree within three years. Attrition would further reduce program costs.

The estimate assumes that 23.5 percent of high school graduates would enter a two-year institution within the eligibility time frame and that 38.9 percent of these students would participate. It also assumes that 70 percent of students participating in the first year would participate in the second year, and that 35 percent of those students would continue for the third year. The estimate assumes that in-district tuition and fee rates will increase at an annual average rate of 6.98 percent and that high school graduates will increase at an annual average rate of 2.7 percent. It also assumes that book grants will remain at $30 per semester credit hour. Finally, the estimate assumes that the program could be established in one year and that students graduating in 2006 or later would be eligible for grants beginning in 2007.

Administrative costs would include additional computing equipment and programming acquired during the first year, and the addition of two full-time equivalent employees (FTEs) in the first year and another FTE in the second year of the program. Total TexasNextStep grant awards and administrative costs for the 2006-2007 biennium are estimated at $114,836,000.

Recommendation C would entail no costs to the General Revenue Fund until after fiscal 2010. Eligible students would be those who complete an associate's degree under the TexasNextStep program; transfer to a four-year institution in fiscal 2009 or later; and fulfill the other requirements of the B On-Time Loan program for the final two years of their progress toward a baccalaureate degree. Reimbursements for students who fulfill the requirements would begin in fiscal 2011.

Fiscal Year

Net Savings (Costs) to the General Revenue Fund

Change in FTEs

2006 ($361,000) 2.0
2007 ($114,475,000) 3.0
2008 ($139,902,000) 3.0
2009 ($150,450,000) 3.0
2010 ($161,941,000) 3.0