March 8, 2025 by Philip Lewenstein

Invest in Students: Save the Minnesota State Grant Program

A vibrant economy for Minnesota’s future will require an educated workforce. Thanks to its historic commitment to higher education, Minnesota has a variety of quality public and private colleges available to educate its residents.

However, gaining access to these higher education opportunities can be difficult, especially for many low-and moderate-income students who face high prices and often must borrow money.

For the past 60 years, state policymakers have helped students and families pay for college by developing and growing financial aid programs.

The need-based State Grant Program, established in the late 1960s, is the foundation for Minnesota’s financial aid effort with more than 71,000 recipients—half of whom had family- adjusted gross incomes of less than $40,000—in Fiscal Year 2024.

I left Minnesota’s higher education agency 20 years ago after working there for 31 years and gaining familiarity with the State Grant Program, which serves resident undergraduate students.

Alarmingly, I was surprised recently to learn that the the State Grant Program is in an “unprecedented situation” this year with an historic funding crisis, according to the Minnesota Office of Higher Education (OHE), the agency that administers the program. A shortfall of $210 million is projected for the Fiscal Year 2026-27 biennium.

The projected shortfall equals almost half of the program’s current funding, and the shortfall follows a $40 million shortage this year, which has required awards to be rationed.

Resolving this financial aid shortfall will test the will and ability of state policymakers to honor Minnesota’s historic commitment to ensure access to and choice of higher education opportunities that best meet students’ educational needs.

The 2025 Minnesota Legislature should prioritize fully funding the State Grant Program because of its important return on investment for the state and its students and families. Further, policymakers should ensure fairness in financial aid for students regardless of whether they choose to attend a public or private institution.

Higher Education Faces Challenges But Remains Worth It

In recent years, many people have been questioning whether higher education is worth the investment in money and effort. Confidence in higher education has declined. Alternatives to traditional degrees have gained favor. Participating in higher education costs a lot and often requires taking significant debt. Many graduates may be underemployed or unemployed (“Despite Doubts, Higher Education Is Worth It But Needs Change,” May 19, 2024, www.philsfocus.com).

Yet higher education continues to be worth the investment, and it matters for both individuals and society. It remains my family’s leading value. Family members have earned degrees at both public and private colleges.

Higher education provides the foundation for the ability to generate new ideas and knowledge, to think critically, to deal with change, to meet challenges, to overcome adversity, to appreciate diversity, and to support active, not passive, citizens and consumers.

Higher education benefits individuals economically and contributes significantly to the state’s economic strength.

However, several barriers affect participation in higher education. Affordability tops the list; other issues include mental health, academic shortcomings, food and housing insecurities, political divisions and intrusion, and resistance to change.

Over the years, the price of attendance has skyrocketed causing sticker shock, although net prices, when financial aid is considered, are somewhat more palatable.

Enrollments have fluctuated with increases, then declines, and now increases. However, a projected demographic shift, with fewer 18-year-olds, is expected to lead to big enrollment declines and college closures.

Minnesota Has Provided Financial Access for 60 Years

For about 60 years, Minnesota has valued access to and choice of higher education opportunities for its residents. The state has provided financial access through financial aid programs and geographic access by creating a variety of institutions around the state.

In the late 1960s, the Minnesota Legislature created a State Scholarship and Grant Program, stating that “The legislature finds and declares that the identification of men and women of the state who are economically disadvantaged and the encouragement of their educational development in eligible institutions are in the best interests of the state” (Minn. Stat. 136A.095).

I came to the Minnesota Higher Education Coordinating Commission (now OHE) in 1973 to work for Richard Hawk, the first executive director, a creative leader who strategically helped craft Minnesota’s nationally recognized higher education programs.

Hawk had many successes in business, music, and higher education. But perhaps his most significant achievements were developing Minnesota’s financial aid programs. His legacy is important and impressive, but his passing was mostly unnoticed here (“State Higher Education Leader Richard C. Hawk Developed Programs and Policies to Ensure Access and Choice of Education Opportunities, April 3, 2017, www.philsfocus.com).

The late David B. Laird Jr, then a division director for our agency when I arrived, and later president of the Minnesota Private College Council, took me under his wing. He taught me about the mission, purpose, and values of Minnesota higher education, about access, choice, and equal opportunity. He emphasized the importance of a diverse, dual system of higher education (“David B. Laird Jr.: Senior Statesman of Minnesota Higher Education,” November 14, 2020, www.philsfocus.com).

For almost half a century, Laird was the leading advocate of state support for need-based grants directly to students who chose to attend public or private institutions.

Both scholarships and grants were based on financial need. Students who qualified academically but lacked financial need received an honorary scholarship. Eventually, the scholarship component was eliminated, leaving solely the State Grant Program.

In Fiscal Year 2023, 67,000 students received state grants totaling $215 million. About 54% of recipients had family-adjusted gross incomes of less than $40,000. Of the recipients, 59% attended state colleges and universities, 17% attended the University of Minnesota, and 24% attended private institutions.

Public Policy for State Grants Is National Model

A public policy framework for awarding grants, the Design for Shared Responsibility, was proposed by the agency and enacted by the 1983 Minnesota Legislature. The policy has long been recognized and praised by state and federal policymakers as a model policy.

The House author was John Brandl, a strong advocate of need-based aid, who later served in the Minnesota Senate. The late Brandl was dean of the Hubert H. Humphrey Institute of Public Affairs at the University of Minnesota.

Several years after the enactment of the policy, Brandl was speaking at a statewide policy conference. He singled me out in the audience as he highlighted the Design for Shared Responsibility as a model public policy.

In fact, I did not create the policy but did serve on an agency team that developed and communicated it. I prepared talking points for Brandl, which he then articulated brilliantly and persuasively in his own words.

Students and families have the primary responsibility for paying for post-secondary education in Minnesota. Financial aid programs help families draw upon past, current, and future income to pay. The Design for Shared Responsibility helps to lesson the disproportionate price burden faced by low-and moderate-income students.

The goal is to ensure that Minnesota students and families from all economic backgrounds can invest in and obtain a post-secondary education that best meets their needs.

Grants are based on a sharing of responsibility for covering the recognized price of attendance by the applicant, the applicant’s family, and, if necessary, taxpayers. The grant amount is coordinated with the amount of the federal Pell grant for which the applicant is eligible. Pell grant funds, the main federal source of aid for low-income students, are counted before taxpayer contributions are made through the State Grant Program.

The assigned student responsibility is to be at least 50% of the cost of attending the institution of the applicant’s choosing; the assigned family responsibility is the amount of a family’s contribution to a student’s cost of attendance, as determined by a federal need analysis.

The cost of attendance that is recognized consists of an allowance specified in law for living and miscellaneous expenses and an allowance for tuition and fees equal to the lesser of the average tuition and fees charged by the institution, or a tuition and fee maximum if one is established in law, typically no more than highest tuition and fees charged at a public two or four-year public university.

Program parameters—living and miscellaneous expense allowance, assigned student responsibility, tuition maximums, and Pell grant maximums—have fluctuated over the years.

For example, the assigned student responsibility, initially 50% of the cost of attending, fell to 47% in fiscal years 1998 and 1999, then 46% from Fiscal Year 2000 through Fiscal Year 2010. The assigned student responsibility was 48.2% in Fiscal Year 2011, 46.2% in Fiscal Year 2012, and 46% in Fiscal Year 2013. It has been 50% for the past 12 years.

The living and miscellaneous expense allowance was set in session law for many years until the 2015 Legislature put in statute language tying the living and miscellaneous expense allowance to  the federal poverty guidelines (FPG) for a one-person household for nine months.

The 2017 Legislature changed the living and miscellaneous expense allowance to 101% of the federal poverty guidelines. The allowance was changed to 106% by the 2019 Legislature, to 109% by the 2021 Legislature, and 115% by the 2023 Legislature.

If the appropriation is determined to be insufficient to make full awards, the awards must be rationed by adding a surcharge to the applicant’s assigned family responsibility and a percentage increase to the applicant’s assigned student responsibility. The surcharge to the assigned family responsibility and the percentage increase to the assigned student responsibility must be equal dollar amounts.

OHE projected spending would exceed appropriations in Fiscal Years 2010, 2011, and 2012. Funds from the appropriation for 2011 were used to make full awards in Fiscal Year 2010. OHE rationed awards in Fiscal Years 2011 and 2012.

Building on the State Grant Program, the Minnesota Legislature created additional financial aid programs such as the Post-Secondary Education Child Care Grant Program, the Minnesota Work-Study Program, the Student Educational Loan Fund, and several smaller, targeted programs.

The 2023 Minnesota Legislature created the North Star Promise Scholarship Program, and it began operation in fall 2024. The program provides awards to Minnesota residents with family adjusted gross incomes of below $80,000. The award covers costs for tuition and fees after all other aid has been awarded. It does not cover housing, food, transportation, or books and supplies. All Minnesota public higher education institutions and tribal colleges are eligible.

With a $17 billion surplus in the state budget, the legislature appropriated $112 million for the program for awards in Fiscal Year 2025. In fall 2024, 14,516 students received awards averaging $376.

Funding for the Promise program was part of an additional $650 million invested in higher education by the 2023 Legislature for the 2024-2025 biennium. The increased funding supports financial aid, Minnesota State and University of Minnesota budgets, workforce initiatives, data and research, and emergency support for students.

Rationing Required in 2024-2025 Due to Funding Shortfall

In summer 2024, OHE announced significant reductions in the size of State Grant awards for 2024-2025 to make up for a $40 million program deficit, 9% above resources. Rationing was necessary to lower student awards and keep program spending within biennial appropriations for Fiscal Year 2025. Federal changes to the award formula and enrollment increases caused faster- than-anticipated program spending, OHE said.

OHE announced revised parameters for campus administrators to use in calculating awards.

Included are a reduction in the living and miscellaneous expense allowance used in the price of attendance, increases in tuition and fee maximums, an increase in the assigned student responsibility to 52.8%, and a surcharge on the assigned family responsibility.

The agency reported that annually across all sectors, income levels, and enrollment levels, the average State Grant award would decrease about $375 from Fiscal Year 2024 to 2025. The lowest-income students would not be affected by the surcharge on the assigned family responsibility; decreases in awards would be higher among higher-income students.

The revised State Grant parameters reflect “an unprecedented situation in state financial aid,” OHE told legislators. The agency said it would be unable to fund State Grants for any students for the summer 2025 term or students who file their Free Application for Federal Student Aid (FAFSA) on or after December 1, 2024.

Students eligible for the North Star Promise Scholarship would see an increase in their awards to compensate for the State Grant award decrease, only up to tuition and fees. The average combined award decrease from the State Grant plus North Star Promise Scholarship for income eligible students at public institutions would be about $175.

For students above $80,000 family-adjusted gross income, the average award reduction would be $730. (Memorandum: Mandatory State Grant Parameters to Minnesota State Grant Campus Administrators from Meghan Flores, State Financial Aid Program manager, June 26, 2024).

According to the Minnesota Private College Council, the shortfall affects students at all kinds of institutions, but it falls most heavily on students at private nonprofit colleges who aren’t helped by the Promise program. Students at private nonprofit colleges would experience an average $1,500 cut to their State Grant awards compared to Fiscal Year 2024.

Major Funding Shortfall Projected for 2026-2027 Biennium

In its November 2024 Minnesota State Grant Projections report, OHE projected a $210 million shortfall, or 47% higher than available resources, for the 2026-2027 biennium—about half of the program’s current funding.

The shortfall is reportedly due to increased enrollments, higher tuition and fees, and incomplete and incorrect data from the U.S. Department of Education. Changes have occurred in the federal need analysis. Recently, projected shortages in Pell grant funding have been reported.

To maintain spending within available resources, the program will require changes to award parameters or an added investment for the Fiscal Year 2026-2027 biennium.

Addressing the shortfall will be difficult because the state faces a shrinking budget surplus while needing to fund spending commitments made in 2023 when the surplus was more than $17 billion. A surplus of $616 million is projected at the end of the Fiscal Year 2026-2027 biennium, and a $5.1 billion deficit is projected during the two years starting July 2027.

Governor’s Budget Proposes Statutory Changes for State Grant Program, Some Increased Investment

Given the projected shortfall, the governor’s budget proposes several statutory changes and some increased investment in the State Grant Program to ensure that State Grant spending does not exceed biennial appropriations while eliminating the need to ration awards.

The governor’s plan would decrease the living and miscellaneous expense allowance to 110% of the federal poverty guideline, increase the assigned student responsibility to 51% of the student’s calculated State Grant budget beginning in Fiscal Year 2027, and increase the assigned family responsibility to 100% of the federal need analysis for all families with a positive parental contribution or student contribution.

An additional $7.5 million in Fiscal Year 2026 and $7.5 million in Fiscal Year 2027, and $7.5 million per year in ongoing years would be appropriated.

The proposed change would decrease grants to all students by $900 on average in Fiscal Year 2026 and $960 in Fiscal Year 2027 and would reduce the estimated number of State Grant recipients by 8,700 in Fiscal Year 2026 and 7,000 in Fiscal Year 2027 and subsequent years, according to the governor’s budget.

The Minnesota Private College Council is urging the governor and legislature to fully fund the State Grant Program for the next two years, noting that without action, students from low-and middle-income families will have their State Grant awards cut significantly or eliminated starting next fall.

“The unprecedented cuts will have a major impact, hurting students at private nonprofit colleges, Minnesota state institutions, tribal colleges, and the University of Minnesota,” the Council says.

The Council also recommends that the governor and legislature prioritize financial aid fairness for low-and middle-income students at private colleges by creating a new equalization scholarship for its students.

Thousands of Minnesota students from low-and middle-income families do not benefit from the North Star Promise program because they attend nonprofit colleges, the Council says. The new equalization scholarships would help 13,000 low-and middle-income students at nonprofit colleges.

Advocating fairness, the Council notes that while the average North Star Promise award is zero for students at private nonprofit colleges, the average award for students at the University of Minnesota-Twin Cities is $3,930.

Before 1984, the state provided aid directly to private colleges for educating low-income students and enrolling an increased number of Minnesota students. The 1983 Legislature eliminated the Minnesota Private College Contract program, instead directing financial aid directly to students, not institutions.

However, the legislature made clear its support for the role of private colleges, stating that “private colleges have the capacity for educating significant numbers of Minnesota residents and that providing for the education of Minnesota residents in private colleges, rather than in state institutions of higher education, results in a savings of tax money. The Minnesota private colleges are encouraged to facilitate the education of significant numbers of Minnesota residents in private colleges located in Minnesota (Minn. Stat.136A.18).”

Investing in need-based aid through the State Grant Program is one of the most effective tools available to meet two of Minnesota’s critical priorities: meeting the state’s future workforce needs and driving upward social mobility for young people growing up in less-privileged circumstances, say the Private College Council presidents (“All Minnesota college students deserve financial aid fairness,” Barbara McDonald, et. al., January 22, 2025, MinnPost).

“The evidence overwhelmingly shows that a post-secondary degree or credential leads to increased income, greater employment stability, better health outcomes, longer life expectancy, and increases in other measures of economic and social well-being,” says McDonald, president of The College of St. Scholastica and chair of the Private College Council board. She wrote the MinnPost column with the other presidents of the Council member institutions.

McDonald states that public colleges alone cannot solve Minnesota’s social and economic challenges, nor should they be expected to do so. Private nonprofit colleges serve these same purposes.

“To meet its workforce development and social mobility goals, the state needs to increase financial investments in all students with demonstrated need and take full advantage of all of Minnesota’s educational assets—including its stellar private colleges,” McDonald says.

The State Grant Program treats all students fairly, she notes. By law, the State Grant limits the amount the student would receive if he or she attended the University of Minnesota-Twin Cities campus. The average State Grant at private nonprofit colleges is $5,342, which is lower than the average grant of $5,736 at the University of Minnesota.

Further, McDonald adds, University of Minnesota students constitute 17% of State Grant recipients and receive 32% of State Grant funding, similar percentages to those for private college students (20% and 33%). Students in the Minnesota State system receive smaller grants because their tuition is much lower than University of Minnesota and private college students.

An especially important consideration is that Minnesota State students receive a state subsidy through appropriations to help them pay for their higher education.

This institutional appropriation to the State System, over $900 million annually, covers about 56% of the cost of tuition, amounting to a 56% tuition subsidy for every student in the system, including all State Grant and North Star Promise recipients, McDonald says.

More than 2,300 notes were sent in December and January to Governor Tim Walz and OHE Commissioner Dennis Olson urging them to save the State Grant Program, according to Advocates for Minnesota Student Aid, an initiative of the Minnesota Private College Council, which represents 18 nonprofit colleges and universities.

Policymakers Should Invest More in Higher Education

State policymakers in 2025 face difficult decisions in allocating funds to balance the state budget. Keen competition exists between and within state services. In assessing appropriations for higher education, the challenge is exacerbated by the unprecedented State Grant situation, creating the historic crisis.

The higher education share of the state budget has been decreasing for many years. For example, the higher education share of the general fund balance was 15.5% in Fiscal Year 1987; it fell to 9.8% in Fiscal Year 2003, and 5.9% in the state’s November 2024 forecast.

Over the years, general fund spending has grown significantly for health and human services, now 29.7%, and E12 education, now 34.7%, according to the forecast.

Of the state’s higher education spending, about 90% goes to the University of Minnesota and the state colleges and universities, about 10% to OHE. Most of the OHE share funds financial aid programs. About 4% of the state’s higher education spending goes to private college students who receive state grants.

Each budget year, a tension exists as policymakers determine how much to allocate to public colleges and universities and how much to allocate to financial aid that goes directly to students who choose whether to attend a public or private institution.

The amount allocated to the University of Minnesota and state colleges and universities constitutes a subsidy to help public system students afford the price of attendance. The subsidy is much less than envisioned 50 years ago when state policy was for state appropriations to cover two-thirds of the cost and students and parents the remaining third.

That policy has been significantly eroded over the years as higher education became seen more as a private good than a public good.

In tight economic times, policymakers should allocate more, not less, need-based assistance to preserve and expand higher education opportunities for all students, especially of low-and moderate-income backgrounds.

Policymakers also should address the issue of financial aid fairness for all students, particularly private college students who are ineligible for the new North Star Promise program.

The return on an increased investment in higher education overall and financial aid specifically will enable Minnesota to provide opportunities to prepare a well-educated workforce needed for a vibrant economy and a high quality of life for residents of all economic backgrounds.

With an increased investment, the state will continue to honor its historic commitment of access to and choice of higher education opportunities for all residents.