FINANCIAL AID 101 MSUSA OCTOBER 27, 2007 Chris Halling MnSCU Office of the Chancellor System Director for Student Financial Aid

TYPES OF FINANCIAL AID Grants and Scholarships Grants and Scholarships Loans Loans Student Employment and Work-Study Student Employment and Work-Study

Grants and Scholarships Grants are gifts; funds that do not have to be repaid, and are most commonly awarded to students on the basis of “financial need” (a theoretically progressive basis for distribution that provides the most funds to those students who have the least ability to pay, and provides no funds to those students who can afford to pay the full cost of their education) Grants are gifts; funds that do not have to be repaid, and are most commonly awarded to students on the basis of “financial need” (a theoretically progressive basis for distribution that provides the most funds to those students who have the least ability to pay, and provides no funds to those students who can afford to pay the full cost of their education) Scholarships are also gifts, usually awarded to a student in recognition of a specific talent or accomplishment Scholarships are also gifts, usually awarded to a student in recognition of a specific talent or accomplishment

Loans Loans are funds that must be repaid, either by the student, or in some cases, by the student’s parents or a co-signer. Student loans are generally available without collateral or a credit history. Loans are funds that must be repaid, either by the student, or in some cases, by the student’s parents or a co-signer. Student loans are generally available without collateral or a credit history. Student Loans often offer rates of interest that are below market rates; if the loan is being used to help meet a student’s “financial need” the loan may be interest-free while the student remains in school. Student Loans often offer rates of interest that are below market rates; if the loan is being used to help meet a student’s “financial need” the loan may be interest-free while the student remains in school.

Student Employment and Work-Study Student employment consists of funds that are paid to students in exchange for work performed (not class related “school-work” or homework, but other types of jobs that are available on and off campus) Student employment consists of funds that are paid to students in exchange for work performed (not class related “school-work” or homework, but other types of jobs that are available on and off campus) “Work-Study” funds are available to students to help them meet their “financial need”. The amount that students can earn is limited to the amount of their “financial need” minus any other financial aid that they are receiving. “Work-Study” funds are available to students to help them meet their “financial need”. The amount that students can earn is limited to the amount of their “financial need” minus any other financial aid that they are receiving.

SOURCES OF FINANCIAL AID Almost all financial aid in Minnesota comes from: The US Department of Education The US Department of Education The State of Minnesota The State of Minnesota Higher Education Institutions Higher Education Institutions Private Sources Private Sources

The US Department of Education The largest Federal financial aid programs are: Pell Grants Pell Grants SEOG grants SEOG grants FFELP (Federal Family Educational Loans Program) loans FFELP (Federal Family Educational Loans Program) loans Perkins loans Perkins loans Stafford Direct student loans Stafford Direct student loans College Work-Study College Work-Study Academic Competitive Grants Academic Competitive Grants SMART Grants SMART Grants

The State of Minnesota The main MN programs of aid are: Minnesota State Grants Minnesota State Grants Student Education Loan Funds (SELF) Student Education Loan Funds (SELF) Minnesota State Work-Study Minnesota State Work-Study Minnesota Post-Secondary Child Care Grants Minnesota Post-Secondary Child Care Grants MN GI Bill MN GI Bill ACHIEVE ACHIEVE

Higher Education Institutions Can either raise funds from community or foundation sources, or dedicate a portion of their own budget to financial aid Can either raise funds from community or foundation sources, or dedicate a portion of their own budget to financial aid These funds are frequently given to students in the form of scholarships and non-work-study student employment. These funds are frequently given to students in the form of scholarships and non-work-study student employment. Institutions (usually private) often offer substantial “tuition discounts”, that can, in combination with financial aid grants, equal a student’s “financial need”. These are usually funded from tuition revenue. In other words, some students and families subsidize other students. Institutions (usually private) often offer substantial “tuition discounts”, that can, in combination with financial aid grants, equal a student’s “financial need”. These are usually funded from tuition revenue. In other words, some students and families subsidize other students.

Private Sources may contribute funds to institutions, or directly to students; these are most commonly scholarships, but there is a large and growing body of private student loan programs. may contribute funds to institutions, or directly to students; these are most commonly scholarships, but there is a large and growing body of private student loan programs.

FINANCIAL AID TO MNSCU STUDENTS Comparison of FY99 and FY05 end of year totals MnSCU Four-Year Institutions Y99 (% of total) FY05 (%of total) App. % of students receiving some type of fin aid 40% over 60% Total grants and scholarships (all sources) $ 53,000,000 (31) $ 78,000,000 (27) Total student and parent loans $ 104,000,000 (61) $ 203,000,000 (70) Total student earnings from work-study and institutional jobs $ 5,800,000 (7) $ 7,000,000 (2) Total grants, scholarships, loans and earnings $ 162,800,000 $ 288,000,000

DEFINITION OF NEED Cost of Attendance -Resources =Need

EFC Formula -- Parent Contribution Taxable Income +Untaxed Income =Total Income -US Income Tax -State Tax Allowance -Social Security Tax -Income Protection Allowance -Employment Expense Allowance =Available Income

EFC Formula -- Parent Contribution Cash, Savings, Checking Cash, Savings, Checking +Real Estate/Investments +Net Business Value +Net Farm Value =Net Worth -Asset Protection Allowance =Discretionary Net Worth xAsset Conversion Rate (12%) =Contribution from Assets

EFC Formula -- Parent Contribution Available Income Available Income +Asset Contribution =Adjusted Available Income xTaxation Rate =Parent Contribution

EFC Formula -- Student Contribution Taxable Income Taxable Income +Untaxed Income =Total Income -US Income Tax -State Tax Allowance -Social Security Tax -Income Protection Allowance ($2550 FY07) =Available Income xAssessment Rate (.5) =Contribution from Income

EFC Formula -- Student Contribution Cash, Savings, Checking +Real Estate/Investments +Net Business Value +Net Farm Value =Net Worth xAssessment Rate (.35) =Contribution from Assets

EFC Formula -- Student Contribution Student Contribution from Income Student Contribution from Income +Student Contribution from Assets + Parent Contribution =Expected Family Contribution

Computation of State Grant Award Cost of Attendance (COA) -(Student Share) -(PC) -(Pell Grant) = State Grant COA (Public) = Tuition and Fees + LME COA (Private) = Tuition and Fees (capped) + LME Student Share = 46% of COA Tuition Cap = $9438 (4yr), $6436 (2yr) LME = $6065

KEY ISSUES RELATED TO FINANCIAL AID  When the federal government has raised the amount of Pell grants for the financially most needy students, the MN State Grant formula has reduced those same students’ State Grants, dollar for dollar.  Those dollars have then been re-distributed to students from wealthier families, thus denying the increase in benefits that the federal government intended to provide for the neediest students.

KEY ISSUES RELATED TO FINANCIAL AID  Many students who are actually financially independent of their parents and who are paying for all of their own educational and living expenses are nevertheless considered by the federal “financial need” formula to be dependent on their parents.  These students do not have sufficient access to the financial aid resources that they need. [The federal rules define students as “independent” for financial aid purposes only if they are 24 years of age, a graduate or professional student, married, an orphan or ward of the court, a veteran of the US armed forces, or have legal dependents other than a spouse.]

KEY ISSUES RELATED TO FINANCIAL AID Students are borrowing more and more each year, in both real dollars and as a percentage of all financial aid received. Students are borrowing more and more each year, in both real dollars and as a percentage of all financial aid received. The long-term (up to 25 years in some cases) repayment process for these loans can place a significant burden on these students as they enter the work force and become consumers and tax payers. The long-term (up to 25 years in some cases) repayment process for these loans can place a significant burden on these students as they enter the work force and become consumers and tax payers.

KEY ISSUES RELATED TO FINANCIAL AID Because Federal borrowing limits have not been raised for many years, a greater percentage of student borrowing is from expensive private loan programs. Because Federal borrowing limits have not been raised for many years, a greater percentage of student borrowing is from expensive private loan programs.

KEY ISSUES RELATED TO FINANCIAL AID Independent students who work part-time and attend higher education part-time are not treated fairly by the Minnesota State grant program’s Shared Responsibility formula for pro-rating awards. Independent students who work part-time and attend higher education part-time are not treated fairly by the Minnesota State grant program’s Shared Responsibility formula for pro-rating awards. Because of the Shared Responsibility formula, increases in Public College and University tuition and fees are only partially offset by increased State Grants. Because of the Shared Responsibility formula, increases in Public College and University tuition and fees are only partially offset by increased State Grants. More and more grant programs (Federal, State and Institutional) are based, at least partially) on “merit” instead of or in addition to financial need. More and more grant programs (Federal, State and Institutional) are based, at least partially) on “merit” instead of or in addition to financial need.