Now that California faces a $38 billion deficit, a decade of growth in state funding for public higher education may be coming to an end. Budget woes in 2001 and 2009 led to significant funding reductions for the University of California (UC) and California State University (CSU) systems, which in turn reduced access to college and increased tuition for middle- and upper-income students. This time around, there is some good news: the state now has a $23 billion budget reserve, and some spending could be deferred. However, policymakers will want to prioritize higher education funding that advances state goals. In this context, we have identified several key opportunities and areas of concern.

Federal financial aid changes could impact admissions and enrollment. The US Department of Education “soft launched” its new, shorter Free Application for Federal Student Aid (FAFSA) form on December 30. The new FAFSA automatically imports family financial data from the IRS, reducing the amount of information that students and their families need to fill in. The department also implemented changes to the formula that determines how much students and their families must contribute and expanded access to Pell grants.

In theory, these changes should benefit not just students but also colleges—in order to generate financial aid packages by March to the students they admit, colleges need to have financial information in hand by the end of January. However, the rollout of the new FAFSA has been rocky: very few students have been able to access the form, and the Department of Education is struggling to handle the volume of applications it needs to process. Unless the situation improves soon, students and colleges could be scrambling to understand the cost of college while they are deciding which school to attend.

Dual enrollment is a key area of growth. Research in California and other states has shown that dual enrollment—which provides opportunities for high school students to take college courses for credit—improves a range of educational outcomes, including high school graduation, college enrollment, and college completion. Over the next year, we expect to see higher education and legislative leaders make sustained efforts to ensure equitable access to and success in dual enrollment.

Our research recommends that community colleges prioritize growth among courses that meet key requirements for high school graduation and college completion. We also recommend reinforcing policies that promote equity. For example, College and Career Access Pathways (CCAP) could be leveraged to help expand access to transfer-level math and English—courses that are key to college completion.

Streamlining the transfer process remains an important goal. Community colleges are the primary access point to higher education for California high school graduates; most community college students intend to transfer to a four-year institution, but relatively few meet that goal. Notably, our recent research found that Latino and Black students remain underrepresented among transfer enrollees in comparison to their share of transfer-intending community college students at both UC and CSU. There are some important regional differences by segment as well, with regions being well represented among transfer students at CSU, while students from the Inland Empire and San Joaquin Valley are especially unlikely to transfer to a UC campus.

However, our research also highlights the impact of recent reforms—including the growth of dual enrollment, AB 705, which has expanded access to transfer-level courses in the community college system, and the Associate Degree for Transfer (ADT) program, which has helped streamline the transfer process. Since these reforms were enacted, a higher share of students are now transferring within two years of enrolling in community college. Our work suggests that coordination among these and other initiatives will be key to making further progress.

Colleges need support in addressing students’ basic needs and mental health issues. While learning loss during the pandemic remains a concern, mental health challenges and basic needs also have an impact on student outcomes. During the 2020–21 school year, more than 60% of students met criteria for one or more mental health problems, such as major depression and anxiety disorder—an increase of 50% from 2013. The National Institutes of Health has linked poor mental health to dropout rates in vocational and higher education. Food and housing insecurity are also growing. In a recent survey conducted by the California Student Aid Commission, 53% percent of college students reported challenges with housing and 63% reported struggles with food insecurity.

In the past several years, college campuses have launched or expanded basic needs centers and mental health programs to address these challenges. Ensuring continued state and federal support for these efforts will be critical to improving student outcomes.

The new longitudinal data system could provide important insights. In October 2023, California’s Cradle to Career Data System (C2C), received over one billion data points from the state’s public education systems as well as the Department of Health Services, the Department of Social Services, and the Commission on Teacher Credentialing. The integration of previously siloed data systems will help practitioners, parents, and students make informed educational and career choices. If made available to independent researchers, it could be used to assess the effectiveness of policies and interventions, investigate labor market returns to educational pathways, and identify barriers to student success along the educational and career pipeline. Finally, this data could help state policymakers prioritize successful polices and investments.

Building on the progress made in higher education over the past several years will involve the close coordination of policies and initiatives and a strong focus on equity and efficiency. PPIC’s Higher Education Center will continue to highlight opportunities and challenges, with the goal of informing and improving policy and practice.