Federal financial aid, especially Pell Grants, makes up a large portion of community colleges' revenue. A decrease in available financial aid could result in up to a 50% drop in tuition revenue for some colleges. Colleges are highly dependent on tuition as their main source of funding due to state budget cuts. Changes to financial aid legislation and eligibility can significantly impact enrollment numbers and a college's financial stability.
2. It is estimated that over 50% of community
college students receive federal financial aid
A decreased availability of financial aid may
impact the ability of all of these students to
attend, thus cutting tuition revenue by 50% or
more.
Because of state funding cuts, community
colleges are increasingly dependent of tuition as
their major source of revenue. A loss of this
nature could have dramatic effects on community
colleges and their ability to operate.
3. Consider this sample snap shot of one fiscal year
for a community college with a total revenue of
$21.0 million:
Total Tuition and fee revenue $9.7 million
(46.2% of total revenue)
Federal Financial Aid awards *$12.3 million
State and other awards *$1.9 million
*Not all award dollars go to tuition or fees. After tuition, fees and
book expenses any remaining funds are given directly to
students in the form of disbursements to cover other expenses.
4. As you can see from the previous slide, close
to 50% of the college’s revenue comes from
tuition and a major part of that tuition is
funded through Federal Financial Aid,
primarily Pell Grants.
For the 2013-2014 fiscal year the maximum
Pell Grant award for any student is $5,500.
Federal and state financial award programs
are tied to rigorous eligibility rules that apply
to the student, and implementation
guidelines to which the college must adhere.
5. From a student’s perspective there are 4 types
of financial aid – grants, loans, work-study
and tax relief for educational expenses.
1. Grants are awarded on the basis of need or
merit and do not require repayment. Grants
can be federal, state or private.
2. Loans must be repaid and may or may not
include subsidized interest and do not
require collateral.
6. 3. Federal dollars also subsidize work-study
programs, which are need based programs
that provide on-campus employment for
eligible students.
4. Under certain conditions, there may be
state and/or federal tax credits for
education expenses.
7. Of the biggest impact to the community college
are Federal Financial Aid and then, as a distant
second, State Financial Aid.
Federal Financial Aid includes
1. Pell Grants – need based, portable funding for
degree and certificate programs
2. Direct Loans – low interest federal loans
3. Perkins Loans – low interest federal loans for
specific occupational programs
4. Federal Work-Study – federally subsidized on-
campus student employment (for Title IV eligible
colleges there is no institutional match required
for all others it is 20%)
8. State funded Programs in Michigan include:
TIP (need based award based on eligibility for
Medicare)
Michigan Competitive Scholarship – academic
merit based award based on completion of
pre-approved high school curricula
9. Consider this example of annual financial aid awards from our
sample college with the $21million annual budget.
Federal Financial Aid Awards Amount % of Total
Pell $6,750,000 48%
Direct Loan 4,900,000 35%
Perkins Loans 304,000 2%
Work Study 112,000 <1%
Total Federal Awards $12,266,000 85%
State Financial Aid Awards
TIP 410,500 3%
MI Competitive Grants 20,00 <1%
Total State Awards $430,000 3%
Internal Endowment Awards $1,333,500 9%
Private Awards $400,000 3%
Total Financial Aid Awards $14,200,000
10. In order to become eligible for federal financial
aid students and their parents or legal guardians,
if they are dependents, must submit a FAFSA
(Free Application for Federal Student Aid).
The federal government does a need analysis to
determine the expected family contribution (EFC)
compared to the “cost of attendance” in order to
determine the amount of the award.
Colleges must provide “cost of attendance”
information that include tuition, fees, room and
board, and related expenses. This information
must be updated annually.
11. As tuition continues to grow as a source of
revenue for the college, risks related to federal
aid increase.
Pell legislation is constantly changing. Consider
that for the 2009-10 and 2010-11 academic
years Pell funding could be used throughout the
summer. Most community college summer
enrollments dramatically increased. Beginning in
2012, “summer Pell” was no longer available.
Community colleges in general experienced a
dramatic decline in summer enrollments in 2012.
12. Federal Financial Aid legislation is changing
rapidly. Sweeping changes took effect in July of
2011 that have overwhelmed many Financial Aid
offices and changed the landscape for students.
If students from your college have too high a
default rate on their federal loans, over 30% for 3
years, your college can lose all Pell funding for its
students. Such a lose could put some colleges
out of business. Therefore, colleges must have
aggressive loan counseling and follow-up
programs.
Another strategy to reduce the college’s risks
related to Pell dependence is to build internal
scholarship endowments.
13. Financial aid, in particular Federal Financial Aid to students
makes up a very large portion of the revenue of most
community colleges.
For this reason, colleges must carefully attend to all of the
implementation and reporting requirements required by
the federal government. These requirements change on a
regular basis so it is important that college personnel, in
particular financial aid staff and institutional research staff
keep abreast of these guidelines.
It is also in the best interest of the college to make
financial aid information readily accessible to potential
students and to assist them in applying for financial aid.
Finally, colleges may want to find ways to reduce their
dependence on Pell awards in order to mitigate the risks
that this dependence creates.
