State Grants Spread Thin

In a normal year, Nicole Whelan, a research analyst at the Minnesota Office of Higher Education, can predict how much money the need-based state grant program will need far in advance of when students return to campus.

But this is not a normal year. In line with Whelan’s projections, the program received $450 million in its biennial budget for this year and last—which turned out to be more than $40 million short of student demand this year.

As a result, the office notified students in late June that their grant awards would be cut by anywhere from a few hundred to a few thousand dollars. The average aid decrease comes out to about $375 per student, Whelan said, but reaches $1,500 for students attending private nonprofits, where tuition is higher.

While many factors led to the shortfall, Whelan said the most significant was the bungled rollout of the new Free Application for Federal Student Aid.

Though FAFSA completion for incoming freshmen has recovered over the summer, now down about 10 percent from this time last year, Whelan said completion rates overall—including returning students and adult learners—are still down by nearly 40 percent. That huge gap made predicting the number of students who would receive state grants this year far more challenging than usual, and a margin of error that’s usually just a few percentage points ballooned to double-digits.

Whelan also said she and other state officials underestimated the extent to which students’ new estimated contributions, now called Student Aid Indexes, would fall below the amount they were expected to pay under the old federal aid formula. Because the Minnesota State Grant is a last-dollar grant, meant to fill in any gaps not covered by students’ federal and institutional aid, the reduction in SAI meant low-income students needed more state dollars than usual.

“We’ve been dealing with constant changes and very little information, and that’s made it very difficult to make any kind of projections,” Whelan said. “We didn’t even know what the SAI formula would be until February.”

‘A Very Weird FAFSA Cycle’

This year’s chaotic financial aid cycle has thrown state grants into disarray across the country. Many had to push back their application deadlines by months, a move that required legislative approval in some states. And just as financial aid officers were waiting on long-delayed, often error-riddled FAFSAs to put together institutional aid packages, state grant managers needed to receive processed student forms from the federal education department before they could even begin calculating state financial aid.

Whelan said her office estimated in February that there would be some kind of shortfall, but the extent of it did not become clear until June. Officials didn’t know, for example, just how much state grant money would have to fill in for SAI reductions, and the FAFSA completion rate was down so much in the early spring that making projections based on that data seemed ridiculous.

“We wouldn’t normally be making these changes so late in the year, but it’s been a very weird FAFSA cycle,” Whelan said. “I didn’t want to just assume state grants would be down by 30 percent.”

There were other factors at play in Minnesota, as well. The introduction of the North Star Promise, an expanded free tuition program, led to a surge in postsecondary enrollment for students with especially high financial need this year, significantly increasing the number of students who qualify for larger state grant awards. After a ten-year enrollment decline, the surprise boost threw off state officials’ predictions, which is not without precedent: the last time Minnesota had to ration grant awards was in 2011, following the massive post-recession enrollment bump across higher ed. In addition, the state overspent on student grants by nearly $9 million last year, Whelan said, and the biennial funding model meant that ate into this year’s funding pool.

“We have a finite amount in appropriations and we have to make it work regardless of the circumstances,” Whelan said.

Paul Cerkvenik, president of the Minnesota Private College Council, said he thinks the agency could have done more earlier, namely when they received the new FAFSA aid calculation formula in February. Legislators were still in session, he said, and the Office of Higher Education could have asked for more money before they adjourned in May.

“They could have taken action, and they didn’t,” he said.

Students at private nonprofit colleges were disproportionately affected by the grant reductions. Twenty-seven percent of students across Cerkvenik’s 18 member institutions receive state grants, he said. While financial aid officers cited averages of up to $2,000 in reductions, he said he’d heard from students who were set to lose upwards of $9,000 in aid. In addition, lower-income students at private institutions don’t qualify for the North Star Promise tuition waiver, which is only available to students enrolled at public institutions.

“It’s never happened in 40 years that students have been told at the end of June that their aid was changing,” he said. “This is a big last-minute curveball for students and families.”

Filling In the Gap

Tom Harnisch, vice president of government relations at the State Higher Education Executive Officers Association, said there are a number of pathways state grant managers can take to avoid overcommitting their financial aid budgets. Some states have priority deadlines, culling the field of eligible applicants on a first-come-first-served basis—though Harnisch said many are moving away from this model because of equity concerns. Some pull from surpluses in other public coffers, like childcare stipends or more targeted aid programs.

But “the best approach is to make sure there’s enough funding available in the first place,” he said. “You don’t want to have to rob Peter to pay Paul.”

Cerkvenik said that a decade of falling enrollments and financial struggles meant many small private colleges in the state likely couldn’t beef up institutional aid packages significantly.

“I know they’ll do their best. But I also know that they do not have the resources to help every student receiving a grant cut on a permanent basis,” he said.

Whelan said she hopes that the shortfall will turn out to be smaller than anticipated, but the numbers are shifting every day, and it’s certainly possible that even with the grant rationing, the program will need an emergency cash infusion to meet demand. She said it’s been an enervating capstone to one of the most frustrating financial aid cycles of her career.

“It’s been really fluid and continues to change a lot,” Whelan said. “I do believe that by November we’ll have a much clearer idea of the impact … but It’s going to be a moving target for a while.”