A $43 million hole in the state grant program could alter the way Minnesota students pay for college next school year.
In 2009, the grant program served about 84,000 Minnesotans, issuing roughly $143 million in funds. That’s an increase of about 20,000 students served and $30 million disbursed from fiscal year 2000.
The size of the increase is the main problem behind the shortfall today, spawned by increasing college enrollment throughout the state.
If the shortfall isn’t fixed, 8,000 to 9,000 students statewide could be dropped from the program, and others could face cuts in aid, Rep. Tom Rukavina, DFL-Virginia, said.
At the University of Minnesota in fiscal year 2009, slightly more than 6,000 students received a grant, according to a Minnesota Office of Higher Education report.
“There’s never ever been [a similar situation] in the history of the state grant program,” Rukavina said. “We always put extra money in when there’s a deficit like this.”
University enrollment rates have remained relatively flat, University Office of Student Finance Director Kris Wright said. But increases everywhere else, including the Minnesota State Colleges and Universities system, are taking money away from the program.
Rukavina is co-sponsor of a bill that would raise about $23 million, squashing half the shortfall by adding a fee to mutual fund transactions. The measure is currently making its way through the Legislature.
If the bill passes and Gov. Tim Pawlenty signs it, only 3,000 to 4,000 students could be cut from the program. However, Rukavina said Republican members of the House Higher Education Committee have indicated that the governor may not sign the bill.
Rukavina said he worked on more radical measures, including negotiating with Pawlenty and the Senate’s higher education chairwoman Sen. Sandra Pappas, DFL-St. Paul, to cut programs. He said this would solve the other half of the problem.
However, the only agreement that came to fruition resulted in a savings of about $3 million, Rukavina said — about $20 million short.
“The Senate didn’t give up anything and the governor’s office didn’t give up anything, and the students got the shaft,” Rukavina said.
The drop in available funds will likely increase student borrowing, said Ben Miller, a policy analyst at Education Sector, a Washington, D.C.-based think tank.
Rep. Lyndon Carlson, DFL-Crystal, introduced a bill to head off that problem. It passed a House committee Monday.
Carlson’s proposal would authorize additional bond allocations out of an existing pool of resources for the Student Educational Loan Fund, which provides low-interest loans to students enrolled in Minnesota colleges.
“The [Office of Higher Education] wants to position itself well, because, as a part of [the state grant program shortfall], another way students finance their education is through loans, and if they use the SELF loan program, that’s a lower interest rate,” Carlson said.
The SELF loan interest rate, which fluctuates every three months, is currently at 3.8 percent as opposed to federal loan interest rates, which are at about 7 percent.
Under Carlson’s bill, $15 million in additional tax-free bonds would be allocated to provide more funding, which would be useful if the amount of takers were to increase. Also, by adding to the number of tax-free bonds, Carlson said interest rates on loans could decrease, which would be a benefit for students.
Additionally, a bill recently signed into law ups the limit on the amount students can borrow under the program yearly from $7,500 to $10,000.
The loan was increasingly used until last year, when the number of applicants went flat, Mark Misukanis, Office of Higher Education director of fiscal policy and research, said.
In the 2008-09 school year, nearly 25,000 SELF loans were given out — almost three times higher than it was 15 years before. Lending last year totaled roughly $125 million.
University students used more than $32 million in SELF loans in 2009.
“It’s one more tool to help students meet their costs so they can finish their degree,” Carlson said.