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Office of Higher Education warns of state grant imbalance tied to enrollment growth and FAFSA changes
Summary
The Minnesota Office of Higher Education told legislators that enrollment increases and federal FAFSA changes have raised state grant demand, prompting rationing of awards for fiscal year 2025 and projecting large potential deficits in later years without additional funding or statutory changes.
Dennis Olsen, commissioner of the Minnesota Office of Higher Education, and staff briefed the House Higher Education Finance and Policy Committee on the state grant program’s finances, projections and the effect of federal FAFSA changes on need-based awards.
OHE research director Carrie Schneider and state financial aid manager Megan Flores told the committee the program is need-based, targeted to Minnesota residents attending Minnesota institutions, and that the office served approximately 71,530 students in fiscal year 2024 with an average award of about $3,400 (figures presented by OHE). Flores said roughly half of state grant recipients have family adjusted gross income below $40,000.
OHE staff attributed current budget pressure to two main factors: unexpectedly large increases in enrollment across Minnesota institutions and the federal FAFSA Simplification Act, which replaced the Expected Family Contribution with a Student Aid Index (SAI) and introduced a new lowest possible SAI of negative $1,500 for the most financially disadvantaged applicants. Flores said the new negative SAI substantially increased the number of students eligible for larger state grants.
To keep the program solvent, OHE said it rationed awards for fiscal year 2025 by taking several steps: increasing the assigned student responsibility (ASR) to 52.7 percent, increasing assigned family responsibility (AFR) to 100 percent, eliminating state grant awards for summer 2025 and implementing an application deadline of Nov. 30, 2024. OHE also said it shifted $12 million from fiscal year 2025 to cover a shortfall in fiscal year 2024 and that without rationing fiscal year 2026 would have faced an estimated $91 million deficit in earlier projections.
Schneider and Flores said the February projections show a much smaller projected surplus for fiscal year 2026 (approximately $2.5 million) after the rationing steps; however, they said fiscal year 2027 would revert to statutory parameters unless changed by the legislature and that current projections under statute show a $136 million shortfall for fiscal year 2027.
Commissioner Olsen previewed the governor’s budget recommendation to address the imbalance that includes a proposed $7.5 million per year increase (totaling $15 million for the biennium) and parameter changes intended to avoid additional rationing. Olsen and OHE staff emphasized that uncertainties at the federal level — including a nationally projected Pell Grant shortfall that OHE said could be $2.7 billion for Federal FY2025 — would further complicate state planning.
Committee members asked for additional details and requested the agency return for further briefing and discussion; OHE agreed to come back for a deeper discussion of state grant parameters and the interaction with North Star Promise and other programs.
