Assembly subcommittee weighs budget plan that halves Middle Class Scholarship coverage as Cal Grant spending rises

Chair Alicia Alvarez convened the Assembly Budget Subcommittee No. 3 on Education Finance to hear testimony on the governor's higher-education proposals, including changes to the Middle Class Scholarship program and projected increases in Cal Grant spending.

The Department of Finance said the governor's budget would fully fund the Cal Grant program at an estimated $2.898 billion for 2025-26 and $3.235 billion for 2026-27. "The governor's budget proposes fully funding Cal Grant at its estimated level," Hugo Solis Galena of the Department of Finance told the panel. Finance also described a proposal to set Middle Class Scholarship (MCS) award coverage at roughly 17.5% of unmet need for 2026-27, an ongoing level the administration estimates would cost $513 million.

The Legislative Analyst's Office urged the Legislature to consider the reduction as a way to limit out-year spending pressure. "We recommend the legislature consider adopting the governor's proposal to reduce middle class scholarship award coverage," Natalie Gonzalez of the LAO said, noting the change would produce an estimated $541 million in savings in the budget scoring the administration provided.

University and segment officials warned the reduction would reduce support for many families. A University of California policy director told lawmakers the system's average MCS award is about $3,200; the administration's proposal would lower that by roughly $1,600 per UC recipient, the UC witness said, slowing progress toward the state's "debt-free" education goals. Noelia Gonzalez, systemwide director for financial aid at the California State University chancellor's office, said CSU received about $709 million in MCS funding for 250,000 students in 2024-25 (an average award of $2,835) and that cutting coverage to the proposed level would nearly halve the average award.

Panelists described how MCS awards are determined. A UC official explained awards begin with the total cost of attendance, subtract federal and state gift aid (including Cal Grant) and institutional need-based aid, and then factor in an assumed parental contribution; for some families the parental share is counted at 33 percent of the calculated contribution. "Whatever is remaining after that is the MCS eligibility," the UC witness said.

Members asked whether campuses could expand work-study to make up lost MCS funding. CSU and UC officials said campuses have limited additional resources and cannot fully backfill the proposed reductions. The CSU chancellor's office said federal work-study funds are not increasing and in some cases are projected to decline next year.

The Student Aid Commission reported higher application activity: over 383,000 FAFSAs and more than 5,700 California Dream Act applications had been received as of a recent point-in-time update, evidence that demand for aid remains strong, Justin Hurst of the Commission said.

The subcommittee did not take a vote. Members asked staff to provide additional breakdowns (including counts of professional-degree graduate borrowers affected by federal loan changes discussed later in the hearing) and held the item open for future action.