It is no secret. Most state budgets are in terrible shape. Estimates from the Center on Budget and Policy Priorities are that budget gaps for all states, combining fiscal years 2010 and 2011, will total approximately $375 billion. These budget woes have already begun to affect states’ spending on higher education. Leading up to the 2009-2010 academic year, many states were considering or implementing plans to cut financial aid to college students. Some were in the news more than others.
In Michigan, where the economic downturn took hold long before it affected other states, cuts in state grant programs were deep. The big ticket item was the state’s Promise Scholarship. In FY2009, funding for the scholarship was more than $80 million, and in FY2010, it was estimated to reach approximately $100 million before it was completely eliminated. In addition, two need-based programs were reduced by 48 percent. A variety of other Michigan college aid programs were reduced or eliminated. All told, the reduction compared to FY2009 was almost $140 million, or 64 percent. A proposal has already been made for next year to completely eliminate one of the need-based aid programs—the Tuition Grant—which is targeted to needy students at private colleges in the state.
In Indiana, the state grant budget actually increased slightly, but a 27 percent increase in the number of on-time aid applicants forced the state to reduce the value of the awards by 31 percent. Legislators did so by decreasing award caps in July, less than two months before the start of the semester on most Indiana campuses. Indiana Commission for Higher Education reports indicated that although award caps had been used as a rationing device since 2003, these cap reductions were unprecedented. A number of Indiana institutions stepped in to make up some or all of the funding shortfall that individual students faced.
Consider using the most recent award schedule, with a caveat about the availability of state funds.
And therein lies the dilemma. What is an institution to do when a state decides to reduce or eliminate state grant funding? Or what about a state that is considering cuts, but hasn’t made decisions yet, and your packaging season is approaching?
Timing and certainty (or lack thereof) will make a difference in decisions an institution’s leaders must make if state aid cuts are on the horizon. But even prior to that, senior leadership should have an understanding of the institution’s exposure to changes in external resources. They should have hard data on the number and percentage of students who receive state aid and the amount of the average award. The same holds true for federal aid. How many Pell Grant recipients are there? How many of our students borrow? This is information that should be known beyond the boundaries of the financial aid office and disseminated annually to leadership, including to the board of trustees.
Here are three scenarios institutions have had to navigate and are likely to continue to need to address:
1. It is packaging season and you just aren’t sure about reductions.
If your state is considering cuts to state financial aid programs that could impact your packaging for new students, not to mention returning students, there are a few things to keep in mind. First, the obvious: Find out as much as possible about what the state has proposed. What has the history been? Have aid cuts been proposed each year and rarely enacted, or is this proposal to reduce or eliminate aid new for your state? Financial aid officers should be communicating with other senior leadership on this issue to decide collaboratively on the approach to take.
If it is reasonable to assume state aid will be available, but the amount is unknown, consider using the most recent award schedule along with a caveat about the availability of state funds. Some colleges hesitate to include state funds in an award letter unless funding has been completely approved, based on the notion that the student will be impacted by the cut to state aid regardless of which institution within the state he or she attends.
Admitted students and their families are comparing award letters. If a competitor institution decides to list the estimated state aid and yours doesn’t, it could put you at a competitive disadvantage. The financial aid process is confusing to many families. It will not always be obvious to a student that the same state grant is available. In many states the available grants are determined, in part, by cost of tuition, so a student may already be seeing varying amounts based on whether the award letter is from a private or public institution. Total grant is known to be a key factor in many students’ decisions to enroll, so enrollment leadership must think through the approach and be even-handed based on the best information available. Yet, the financial aid office should not carry the burden of that decision alone.
