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Economy Forces States to Scale Back Scholarship Programs

Students at Saginaw Valley State University in University Center, Mich., demonstrate last year in favor of restoring the Michigan Promise Scholarship program. The state legislature failed to renew the program, a decision that left thousands of college students expecting $1,000 to $2,000 awards in the lurch.
Students at Saginaw Valley State University in University Center, Mich., demonstrate last year in favor of restoring the Michigan Promise Scholarship program. The state legislature failed to renew the program, a decision that left thousands of college students expecting $1,000 to $2,000 awards in the lurch.
—Jeff Schrier/ The Saginaw News/AP-file
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Ever since elementary school, Bonnie Slocum knew that if she kept her grades up, her home state of Nevada would reward her by paying $10,000 toward college tuition.

As a low-income, first-generation college student, Ms. Slocum relied on $960 this year from the Gov. Guinn Millennium Scholarship, along with a federal Pell Grant, to pay for her freshman year at Truckee Meadows Community College in Reno. She’s anticipating $1,920 this fall from the state toward her studies in English and linguistics at the University of Nevada, Reno.

But Ms. Slocum is not sure what she can count on after that.

The state merit-based scholarship program was teetering on the edge this year, largely as a result of the legislature diverting nearly $33 million over the past three years toward other programs. To save it for next year, a legislative interim finance committee decided this month to transfer money within the state treasurer’s office to fill a $4 million gap for fiscal 2011. Only the legislature, which convenes in February, can decide if the funding mechanism for the scholarship program will be restored.

“It would be very reassuring if the treasurer and members of the legislature would outline viable solutions for the future rather than continually leaving us guessing about their next move,” Ms. Slocum said. “I expected this was more of a promise from our state government than just a luxury that might or might not be there.”

In Nevada and across the country, the weak economy is forcing many states to cut back their merit-based scholarship programs. The combination of rising tuition and decreasing tax revenues has put many lawmakers at a crossroads. To keep programs from going under, some states are raising the minimum grade point average or testing criteria to reduce the number of awards. Others are offering a set amount rather than total tuition coverage. Some states, such as Michigan, have ceased financing merit-based scholarship programs altogether.

When states were flush in the 1990s, large-scale, merit-based programs popped up across the country, but now limited resources need to be used with more sophistication, said Paul E. Lingenfelter, the president of the State Higher Education Executive Officers in Boulder, Colo.

“In this economic climate, and given the educational needs of the country, making it very cheap for some students with ample financial resources to go to college, while others are denied the opportunity to enroll and complete in a timely fashion, doesn’t make any sense,” he said. “It’s a matter of balance and a matter of priorities.”

Political Considerations

Of the money that states spent on grants helping undergraduates in 2008-09, 72 percent was need-based and 28 percent non-need based, according to a recent survey by the National Association of State Student Grant and Aid Programs. Overall, states spent about 5.6 percent more this year on all college grants. Even with the increase, though, state financial aid didn’t keep up with inflation as in-state tuition rates rose by 6.4 percent in 2008-09, the College Board reports.

States have learned lessons from merit-based programs that will affect future policy. Too often, programs spent money on students who would have gone to college with or without the state’s help, said Mr. Lingenfelter. Also, using grades as the single criteria wasn’t the smartest approach for motivating students. Some avoided challenging courses or reduced their course load to maintain a B, he said.

And now, states are realizing that when times get tough, large programs are not designed in ways that can be sustained. Still, it’s difficult for politicians to cut popular education programs, especially those that help the middle class.

Look at the Tennessee Education Lottery Scholarship. It’s facing some financial challenges in light of the economy, but this is an election year. The study committee scheduled to meet over the summer to come up with recommendations to change eligibility requirements or aid has yet to convene, said Tim Phelps, the associate executive director for grants and scholarships at the Tennessee Student Assistance Corp., the agency that administers college loan programs and scholarships. Now, the committee is scheduled to meet Aug. 24.

In Michigan, lawmakers failed to renew funding last year for the Michigan Promise Scholarship, which would have provided $140 million in grants to about 35,000 Michigan college students.

“Everyone is saying this is a terrible thing, but there wasn’t the will or the money,” said Val Meyers, the associate director of the office of financial aid at Michigan State University.

The decision was made so late last year that it left 10,000 students at MSU who were expecting $1,000 to $2,000 awards in the lurch. The university used $8 million in federal economic-stimulus funds to cover the shortfall. Ms. Meyers does not expect the Promise Scholarship will be revived, although all the candidates for governor say they want to restore it.

In 1993, Georgia Gov. Zell Miller championed the HOPE Scholarship program, promising free college for students graduating from the state's high schools with a B or higher average. Funded by a lottery, it was the first statewide merit-based program in the country with a goal of increasing high school achievement and college participation. The program has resulted in more students attending college, but whether it has helped increase completion or high school performance is hazier, said David Lee, the director of strategic research and analysis for the Georgia Student Finance Commission, which administers the program.

In its first year, the HOPE program spent $21 million helping about 43,000 students. By 2009, its costs had soared to $639 million to cover college expenses for 248,000 students. If the sheer growth weren’t enough, program costs have increased at double-digit rates, while lottery proceeds have been flat.

To shore up the program, changes were made in 2004 to keep it safe until this year. Beginning in 2007, the state standardized the method of computing who indeed had a 3.0 grade point average rather than leaving that to districts to determine. The result: a one-third reduction in the number of freshmen eligible in the first year, Mr. Lee said. Also, triggers were put in place so if the unrestricted reserve falls below a certain point, money for books and mandatory fee payments are cut.

This year, the HOPE program will spend more than it earns and likely remove about $150 million from its $600 million unrestricted reserve fund. Legislative committees are meeting in August to look at options.

“There are only two ways to go, unfortunately,” Mr. Lee said. “You either have to reduce the number who qualify or reduce the amount they get. So, we are looking at both sides.” A flat award may be considered rather than covering total tuition, which fluctuates and makes it difficult to budget.

“The state will have to make some tough decisions,” he said. “HOPE is the most popular program, probably, in the state. But that doesn’t mean it can go on as it is now. Revenues won’t permit it.”

Shifting Criteria

West Virginia faced a similar plight with its Promise Scholarship Program, but the state has upped eligibility criteria and cut awards to keep it going. Started in 2001 and financed with video lottery-machine revenues and general funds, the program originally covered students who had a 3.0 GPA with full tuition and fees at in-state schools.

In 2008, the legislature capped the award at $4,750 a year—about 80 percent of tuition and fees. It also incrementally increased ACT score requirements. “Those were difficult decisions. Each time you raise standards, there are students that statistically will not qualify for the program,” said Brian Noland, the chancellor of the West Virginia Higher Education Policy Commission. Those changes will take effect this fall, and he anticipates that the program will be viable as is for the remainder of the next decade.

The state has more than doubled spending on need-based aid in the past six years, and the number of students receiving scholarships has increased markedly, added Mr. Noland.

Florida also changed its merit-based scholarship program last year to provide flat awards. The Florida Bright Future Program, which is underwritten by a lottery, originally paid a percentage of tuition (on average $3,000 a year), but now offers a flat award per credit hour enrolled, which last year amounted to about a 5 percent reduction in awards overall.

“Having a flat award may not equal exactly your tuition and fees, but it’s very predictable. Students and families can count on an exact amount to help with their funding exercise and planning,” said Theresa Antworth, the director of state scholarship and grant programs in Florida. This year, the legislature decided that future graduating high school classes will have to earn higher test scores to qualify for the program. Still, the state isn’t necessarily expecting fewer awards. “Sometimes student behavior meets the challenge,” Ms. Antworth said.

New Jersey’s Student Tuition Assistance Reward Program, or NJ STARS used to cover community college tuition for students in the top 20 percent of their high school graduating class; now, it’s for the top 15 percent. After two years in a community college earning at 3.0 GPA, students could get a second scholarship for two years at a state university. Now, they need a 3.25 GPA, and the award is limited to $7,000 all told. As of this fall, only tuition is covered—not fees.

“Everybody realizes we’re biting the bullet. Everyone has to absorb some,” said AnnMarie Bouse, a spokeswoman for the New Jersey Higher Education Student Assistance Authority, the state agency that oversees the STARS program. “We’re pushing to have complete funding restored, but we’re happy to have tuition restored.”

Merit-based programs have put the spotlight on higher education and meant more students often studied in their home states. But Mr. Lingenfelter of the State Higher Education Executive Officers group maintains that the objective in the future should be to get as many people into college as can benefit from it and help them all succeed.

One model approach, he suggests, is the Oklahoma Promise Scholarship Program. It requires high school students to take rigorous courses, keep up their grades, and have a family income under $50,000 to be eligible for full tuition coverage at an in-state school. Immune from a slipping economy, since its inception in 1992, the program is the first item funded by the state legislature with a dedicated source of general revenue.

Ms. Slocum is hoping she can persuade the Nevada legislature to guarantee funding as well. The rising college sophomore started a Facebook page to encourage students to speak up about the changes, and about 3,400 have joined so far. Still, she says it’s hard to be hopeful considering the condition of the state’s economy.

“Even though I’m a National Merit scholar finalist, graduated at the top of my class, with a 4.0 GPA, I’m still struggling to find a way to get through college even in a state college,” she said. “I think that’s ridiculous.”

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