Coming up short

Last fall, the state promised to help thousands of low-income students pay for their college education. What the students didn’t know was that the state had made too many promises.

State officials didn’t know it either, but Minnesota’s largest college financial aid program, the state grant program, was about to be overwhelmed. Spurred by the slumping economy, college enrollment soared to record levels in 2009. Enrollment jumped 9 percent in the Minnesota State Colleges and Universities system and 4 percent at the University of Minnesota.

As laid-off workers flocked to college classrooms — and as the recession bumped parents into lower income brackets — far more students qualified for aid than anyone expected.

“We discovered in about November that we were overextended,” said Office of Higher Education Communications Director Barb Schlaefer.

The office, which administers the state’s financial aid programs, was faced with a choice: renege on the promises they had already made to students, or push the problem into the second year and hope for some new money.

Arguing it would be fairer to the students, they chose the latter option.

“Colleges had made commitments to students as early as the previous March, saying, ‘You can come here and here’s what your state grant will be,’” Schlaefer said. “So the decision was made to keep all those promises.”

As a result, the program is projected to spend nearly two-thirds of its $144 million biennial appropriation in the first year, leaving an estimated $43 million shortfall in the second year. Unless more money is found, students who received an average of $1,700 last year will see a roughly $300 cut when they return to class this fall.

For students, it’s another in a long line of blows handed down from the state. MnSCU and the university say their state funding has either been flat or declining for most of the last decade. This year, for the first time, students at public colleges and universities will be paying for a larger share of their education than the state.

“Right now, students are really getting hit from all sides,” said Paul Strain, president of the Minnesota Student Association at the University of Minnesota.

Strain said declining state support for the university has led to tuition hikes in recent years, which will only grow worse next year when the university’s share of one-time federal stimulus funding runs out. Strain himself is among the many students feeling the impact.

“I’m definitely concerned about my debt load. At least a good half of my education is financed through loans,” Strain said.

In search of funding

For lawmakers, the troubles in the state grant program arrive at the worst possible time. A nearly $1 billion state budget deficit left no extra cash to spare. As part of its overall budget fix, the Legislature slashed another $47 million from the state’s higher education funding this year — that’s on top of last year’s $63 million cut as well as Gov. Tim Pawlenty’s $100 million unallotments.

Rep. Tom Rukavina (DFL-Virginia), who chairs the House division that funds higher education, fought successfully to protect the state grant program from any cuts. But he said it’s a moot point unless lawmakers do something about the $43 million shortfall.

“We’re all ignoring this huge hole that’s sitting there,” Rukavina said. “Not to mention the fact that tuition is going up, not to mention the fact that the public institutions are being unalloted and cut.”

Legislators basically have two options to deal with the situation: they can find new revenues to boost the program’s funding, or they can tighten eligibility requirements to ease the burden on the program. In the House, plans are moving forward that would do both.

Rep. Bill Hilty (DFL-Finlayson) sponsors HF3757, which would raise $23 million for the program by doubling a filing fee the state charges on mutual funds. On a $10,000 mutual fund, Hilty said the fee might add a $5 cost to investors — a modest price to pay, he argues, for contributing to something as important as higher education.

House Republicans oppose the plan, arguing it will hurt middle-class investors and make the state’s substantially large mutual fund industry less competitive. Rukavina, who co-sponsors the legislation, admits that it’s not his first choice for a funding source.

“I would rather have an honest approach to raising revenue based on income,” Rukavina said at an April 8 hearing, noting that he had proposed an income tax increase to funnel money to the program. That proposal, included in the original higher education finance bill, fell through under a gubernatorial veto threat. House DFLers hope Pawlenty will look more kindly on a fee increase than a tax increase.

Rep. Sarah Anderson (R-Plymouth) said that’s doubtful.

“I don’t know why we’re repeating history when we know what the end result is going to be,” Anderson said. She unsuccessfully offered her own funding proposal: an amendment to Hilty’s bill that would have authorized racino gambling and used some of the tax proceeds for state grant awards.

Other options

Even if the increased fee on mutual funds survives the governor’s veto pen, an estimated $20 million shortfall would still exist in the program. To bridge the remaining gap, lawmakers are looking to change whom the program serves and how much they can get — basically, changing eligibility to match up with funding.

Some of these changes were already made in the supplemental budget bill signed into law April 1 by Pawlenty (HF1671*/ SF3223/CH215). The law eliminated a ninth semester of state grant eligibility for students, which will free up about $4 million. It also cut a second year of funding for the Achieve scholarship program, which had already used up all of its funding in the first year and would’ve had to borrow from state grant funds.

A more controversial proposal resides in HF3448, the omnibus higher education policy bill. Sponsored by Rukavina, the bill includes a provision to lower the cap on state grant awards for students at private, for-profit institutions.

Rukavina argues it’s fair to ask for-profit schools, which he said are profiting in part from the state grant program, to share the pain of public institutions. But some members, both DFL and Republican, argue that’s unfair to the students at the other schools.

“For some people, it’s going to be a double hit if we see state grant funds decreasing this year, and then see this policy change,” said Rep. Rob Eastlund (R-Isanti).

The change would not affect students at private nonprofit institutions like Hamline University or St. Olaf College.

Hilty’s bill awaits action by the House Finance Committee. A companion, SF3355, sponsored by Sen. David Tomassoni (DFL-Chisholm), awaits action by the Senate Higher Education Budget and Policy Division.

The omnibus higher education policy bill awaits action on the House floor. A companion, SF184, sponsored by Sen. Sandy Pappas (DFL-St. Paul), awaits action by the full Senate.