Fixing the formula: How the state plans to get more financial aid to the students who need it most

New changes to the formula that determines how much financial aid money colleges get from the state will redirect money to low-income students. 

The State Council of Higher Education for Virginia allocates aid money from the state to each public college and university, which is then responsible for awarding it to students.

The council has used the same allocation formula for aid since 2005, which has caused state financial aid to shift from low-income recipients to those who attend high-cost schools and usually have higher family incomes. In 2018, SCHEV estimated, $12 million, or more than 7% of financial aid money the state allocated to four-year schools, was awarded to students who meet the definition of high income — families of four making more than $98,400 a year.

The new model, approved by the state council in October, will start to reverse that trend.

The shift of financial aid awards to higher-income students was slow, said Lee Andes, assistant director for financial aid at SCHEV.

“I don’t know there was an epiphany moment as much as a gradual concern,” he said. In the 1992-1993 school year, low-income students received 94% of state-funded financial aid. Low-income students come from families with annual household incomes of less than $49,200 for a family of four, according to SCHEV definitions.

By 2017-2018, low-income students got 66% of state financial aid, a change attributed to SCHEV’s allocation model.

Forms of financial aid

College students can get financial aid from the federal and state government that doesn’t require repayment.

Federally, middle-class and low-income students can receive Pell Grants.

In Virginia, in-state students at public schools can receive several grants, like the Commonwealth Award the Virginia Guaranteed Assistance Program (VGAP). 

For students who opt for private school, the similar Virginia Tuition Assistance Grant provides some aid based on how much money the General Assembly approves for the program and how many students apply for it.

There are other forms of financial aid, like scholarships that can come from community groups, businesses or the school.

Student loans can be taken out through the government (and then managed by a private loan company) or from private loan companies, like Sallie Mae or a commercial bank.

The new model changes how the state estimates a student’s estimated family contribution (EFC). The old formula assumed some students could contribute small amounts of money from summer jobs or other sources. The state considered that part of the EFC for the state even if the Federal Application For Student Aid (FAFSA) estimated a person’s EFC to be zero.

Andes said the single most important change SCHEV made to the formula is considering the average cost of attendance among state schools instead of individual costs of attendance. The old formula rewarded schools with higher costs with more financial aid funding, Andes said, but it’s likely most students at high-cost institutions don’t have the highest need, as a higher cost naturally discourages middle and low-income students. 

“By overestimating a student’s financial strength, the funding models undercount a student’s unmet need,” SCHEV wrote in a report last month.

According to SCHEV’s data, Norfolk State and Virginia State universities have the highest percentage of students with EFCs of zero, at 56% and 51%, respectively. SCHEV estimates that from the number of students who complete a FAFSA. Virginia Military Institute and Christopher Newport University have the lowest percentage of students with an EFC of zero (11% and 12%).

Another change to the allocation model will consider how much money the average low- or middle-income student typically needs at a school and how many of those students attend an institution.

Every student with a zero EFC is now assigned a maximum value of $300 that could be awarded to the school for financial aid, said Tom Allison, a senior associate for finance and innovation at SCHEV. As students’ EFC amounts increase at an institution, that $300 will decrease. It functions like a bonus for having low- and middle-income students.

“Institutions wanted to know how they can get more financial aid dollars and here’s how they can do it: Enroll more low-income students with low EFCs,” Allison said.

The changes will affect some of the state’s largest schools, George Mason and Virginia Commonwealth universities, the most. 

In the next two-year budget cycle, the new formula would give GMU $10.3 million more for state financial aid, for a total of $66.4 million for state financial aid. VCU will get $6.9 million more for a total of $70.4 million over two years.

All of the funding is dependent upon the General Assembly’s approval. In total, the changes would require $45 million more for financial aid funding and is a significant portion of the $212 million budget increase SCHEV has recommended to the governor.