RD506 - Review of Financial Aid Funding Formulas and Awarding Practices – November 2019

Executive Summary:

In 2019, the General Assembly directed SCHEV to review financial aid allocations and award policies including tuition revenue used for aid. This review primarily focuses on the state’s need-based financial aid programs: the Virginia Commonwealth Award (Commonwealth Award) and the Virginia Guaranteed Assistance Program (VGAP), which are funded from a single appropriation.

Over the summer of 2019, staff worked with a committee of representatives from various levels of state government and public institutions. Based on this review and input from stakeholders, the Council proposes the following four recommendations:

Recommendation 1: Refine the current Partnership Model and base funding recommendations on a combination of student need and expected family contribution.

Since 2005, the Commonwealth has used the Partnership Model to determine locations to institutions for the state’s need-based financial aid programs. After reviewing the current Partnership Model and developing other options for driving financial aid funding recommendations — including models that focused on the full cost of attendance, tuition and fees, and expected family contribution (EFC) — staff recommends the following steps to refine the Partnership Model and revise the allocation methodology:

1.1 Improve the accuracy of the model by using the individual student’s actual EFC.

1.2 Minimize impact of higher tuition costs on driving financial aid allocations.

1.3 Allocate funds based on both cost and enrollment of low- and middle-income students.

These changes improve the direction of funds to institutions whose students demonstrate the most financial need. SCHEV staff will continue to monitor these improvements in the coming biennium to ensure that these changes support an increased focus on low- and middle-income students and families.

Recommendation 2: Continue to review policies to simplify the award process.

Staff reviewed the current institutional award policies and received input on opportunities to significantly improve the administration, communication and impact of the program. While SCHEV plans to continue to review these opportunities through the summer of 2020, staff do not recommend changing the student award process until it receives additional input to ensure soundness and efficacy of the proposal and to guard against unintended negative consequences. In the coming year, staff will explore the following topics:

2.1 Combine the two financial aid programs into a single program.

2.2 Adjust the minimum award requirements.

2.3 Restrict aid to low- and middle-income students.

2.4 Restructure the incentives designed to encourage student progression to graduation.

2.5 Provide institutions with additional award flexibility while maintaining accountability in prioritizing low- and middle-income students and families.

Recommendation 3: Provide additional criteria for use of tuition revenue used for aid and combine similar programs.

Tuition revenue used for aid provides additional financial aid for participating institutions, although at varying levels of efficiency. Both low- and high-cost institutions benefit from redirecting tuition revenue, but for different reasons. In Virginia, where the state has high tuition but provides higher amounts of aid compared to other states, the use of tuition revenue is a natural strategy to increase financial aid. SCHEV does not recommend a roll back from current practice without replacing the lost financial aid as this would result in a net negative impact on students. Instead, staff recommends the following:

3.1 Continue to monitor tuition revenue used for aid as reported annually in the six-year plan process to allow reviewers to assess and provide feedback regarding an increase in the percentage.

3.2 Implement increased transparency by publicly reporting the amount of tuition revenue being used for financial aid.

3.3 Authorize institutions to use a portion of tuition revenue to fund emergency awards for low-income students facing unique expenses that threaten their continued enrollment.

3.4 Combine the existing Unfunded Scholarships Program (§ 23.1-612) with the policies pertaining to using tuition revenue for financial aid.

Staff note that the Unfunded Scholarship program, authorized by § 23.1-612, is closely related to redirecting tuition revenue as it also represents a loss of tuition revenue that can be used for operating expenses. Merging the two programs would simplify how institutions and the state track the loss of tuition revenue.

Recommendation 4: Continue to expand outreach to improve students’ preparation for higher education.

While a financial aid funding policy can have an active role in access, affordability and completion, other higher education policies can provide stronger support for these principles; therefore, staff recommends the following:

4.1 Support current college access programs.

4.2 Create online resources to help students better understand higher education finances.

4.3 Support Free Application for Federal Student Aid (FAFSA) completion programs.

4.4 Connect eligible students with other social services.

Access programs can encourage and provide support as high school students consider their education and career future and help them find the academic, financial and cultural “best fit" college that will enhance each student’s ability to succeed. Online resources can help prospective students understand the appropriate role of student debt as they finance their college education. Other programs can encourage students to complete the federal FAFSA to learn how they can reduce the cost of college with student financial aid. There also are proposals to help students find social support programs designed to assist with basic living expenses so students can focus on their education.