Under new rules signed into law in June, California colleges must have a student loan default rate of 15.5 percent or less and a graduation rate of 30 percent or higher for students to qualify for Cal Grants, which do not have to be repaid. The law exempts colleges where less than 40 percent of students borrow federal student loans, such as community colleges.
The goal of the new eligibility rules was to focus the state's limited financial aid dollars on colleges that provide a significant return on taxpayers' and students' investments in terms of jobs and degrees. The Academy of Art was one of 154 institutions kicked out of the program this fall - most of which are for-profit colleges.
The Academy of Art serves more than 18,000 students, providing associate, bachelor's and master's degrees in the arts, as well as certificate programs.
According to figures from the college, about 100 new Academy of Art students who would have been eligible for Cal Grants worth up to $1,473 this fall will not receive them, and 350 returning students who would have been eligible for up to $9,223 will see their Cal Grants reduced by 20 percent.
The university has promised these students they will not feel the impact, however, because the academy will provide scholarships to make up the difference. In all, the academy estimates its students will forgo up to $1.2 million in Cal Grant aid, said Kirke Hasson, an attorney representing the university.
In its lawsuit, filed Aug. 30 in San Francisco Superior Court, the university's lawyers argue the student aid commission erred in using the college's 2010 graduation rate to determine eligibility. They say the commission should have used the preliminary 2011 rate posted by the U.S. Department of Education on its College Navigator website. That rate is 34 percent and would put the academy in the clear.
The suit points to a part of the California Education Code that says the commission must certify each college's most "recently reported" default rate and graduation rate.
The commission says those rates are preliminary and that the Department of Education has not yet released official 2011 graduation rates.
Diana Fuentes-Michel, executive director of the California Student Aid Commission, wrote an Aug. 15 letter to Academy of Art Vice President Joe Vollaro, stating that the Department of Education's provisional graduation rates have not yet been fully evaluated by the National Center for Education Statistics. She said those rates could change and should not be used to create national, state or other aggregate estimates.
"We can't make official an unofficial rate," Fuentes-Michel said.
Hasson said Education Code has a provision that indicates there will be situations where the commission acts upon Department of Education data that is later revised.
"There's no question that the higher and satisfactory rate was publicly available and any concerns about how to aggregate data for the state are beside the point," he said.
The Academy of Art's petition also contended that if an institution misses state standards for one year, it should only sit out of the Cal Grant program for one year, rather than two. But that part of the suit is no longer an issue because lawmakers approved an education trailer bill last month that defined the penalty period as one year long.
The university lawyers asked for a stay, which would have immediately prohibited the commission from enforcing the Cal Grant restrictions this fall on the Academy of Art, but Superior Court Judge Harold E. Kahn denied the request. The first hearing is scheduled for Oct. 31.
Read more California investigative reports at CaliforniaWatch.org.