California State University graduate students won a reprieve this week when officials decided to continue offering financial aid that helps about 20,000 postgrads pay for school.

Students learned last week that Cal State was considering eliminating State University Grants for graduate students, while maintaining the funding for undergrads.

The grant program currently waives tuition costs for about 120,000 low-income students, including about half of the university’s 40,000 postgrads. In 2009, about $430 million was spent on the grant program, $80 million for graduate students. More recent figures are not available, but the amount has grown, officials said.

After San Francisco State University sent out financial aid notices last week with news of the potential cut, students launched an online petition drive, gathering 2,500 signatures to save the aid. Many said they could not stay in school without the grants, which cover graduate tuition of $6,738. The amount will increase to $7,356 next fall.

A delegation of students took the petitions to a meeting Wednesday of Chancellor Charles Reed and the system’s 23 campus presidents who had already decided to continue offering the aid for the 2012-13 academic year.

Students, however, claimed a victory and erupted into applause when the decision was announced.

“This was [money] going to needy graduate students who would have been cut off basically from student aid and would be forced to drop out or take on more debt and students loans,” said Rich Anderson, president of UAW-Local 4123, which represents about 6,000 teaching assistants and other instructional aides, the majority of whom are graduate students.

Anderson said that students were particularly concerned about the juxtaposition of cuts to needy students at a time when the university has been criticized for giving 10% pay raises to new campus presidents. Meanwhile, students have had to absorb tuition increases for six years while the university recently announced plans to freeze enrollment next spring and to wait list all applicants the following fall, pending the outcome of a proposed tax initiative on the November ballot.

But after $750 million in state funding cuts this year with another potential $200-million cut next year, officials have been forced to consider whether the tuition grants allocated to graduate students might be better spent on other programs, officials said.

“We’re facing dire financial straits,” said university system spokesman Mike Uhlenkamp. “Graduate students are a smaller part of the student population. Does providing them financial aid make the most sense considering where we are with the budget?”

Although the aid will continue for now, Uhlenkamp said, the university will still review whether to extend it.

carla.rivera@latimes.com