Minnesota Contends With $131M Aid Shortfall

For several years now, enrollment at colleges across the state of Minnesota has been increasing, a major win for the state after a decade of declines. But the state’s financial aid program has failed to meet demand for the past two years. And it’s not likely to get better this fall, when the program is slated to serve 88,000 students: The Legislature is on track to pass a budget bill next week that underfunds the grants by a whopping $131 million.

If more money isn’t allocated to the program, the awards will have to be rationed, meaning that many students will receive less aid next academic year than last. Grants will be slashed by about 38 percent over all, according to the Minnesota Private College Council, although students with more need will see smaller cuts; 18,000 students will lose their grants completely.

Those funding gaps could prevent students from continuing to pursue higher education, according to Paul Cerkvenik, president of the MPCC.

“It’s going to be very challenging for students to stay in college if they lose thousands of dollars in their need-based financial aid. Colleges, public or private, generally do not have the resources to make up these kinds of losses in financial aid,” he said. “There would be real threats to enrollment, which would be very hard on institutions and would be a disaster” for workforce needs in the state.

Minnesota isn’t the only state that has faced aid shortfalls in recent history; a miscalculation in South Carolina this year led to a $25 million deficit, while in Indiana, the simplified Free Application for Federal Student Aid formula made too many students eligible for aid last year. Research has shown that even a small dip in a student’s financial aid can increase the likelihood that they stop out of college.

Rising Demand

Minnesota has been working to increase its enrollment numbers since they began declining in 2013. Those declines were particularly precipitous from 2018 to 2022, when the number of students in Minnesota colleges dropped by 10,000, or 25 percent. But head count finally began climbing again in 2024, with the greatest increases at the state’s public two- and four-year institutions.

At the time, state higher ed leaders attributed the growth to a surge in state funding—especially the North Star Promise program, which offers students whose families make less than $80,000 annually free tuition at the state’s public colleges. Other efforts to improve enrollment in recent years include a grant program for former foster youth.

Additionally, changes to the formula for calculating the FAFSA—which is also the basis for calculating the state awards—have contributed to the shortfall; those changes revealed even greater need than anticipated for the state’s poorest students, according to experts. Rising tuition costs are also a factor.

In both 2024 and 2025, the number of students who received state aid increased by almost 6 percent from the previous year. But state legislators haven’t found a way for aid to keep up with the growing demand. The House’s version of the 2026 budget, which passed last week, didn’t address the gap at all, while the Senate’s version included a one-time $52 million appropriation that Cerkvenik said would “make a tremendous difference for students” and “soften the hit to their state grants really significantly.”

Ultimately, though, the two chambers reached a budget agreement late Wednesday that did not include the $52 million allocation. In a statement released by Gov. Tim Walz’s office, Senate Majority Leader Erin Murphy said much of the budget will go toward offsetting the Trump administration’s sweeping cuts to state allotments, as well as to addressing priorities like health care, community infrastructure and “the affordability crisis.” The agreement, which hasn’t been officially passed yet, will have to move through both chambers before the legislative session adjourns Monday.

This is the second year of Minnesota’s two-year budget, which is partly why the Legislature opted not to make sweeping changes this year that would have required cutting funding elsewhere.

“We made some pretty significant cuts to deal with the shortfall in the state grant program last year, and so we are not interested in eliminating any other programs that are really, really valuable for our students, nor are we interested in making cuts to operations and maintenance funding for” the state’s public institutions, said Nathan Coulter, a Democratic representative and the co–vice chair of the House Higher Education Finance and Policy committee.

Coulter had suggested an amendment that would prevent students who attend for-profit colleges from receiving state aid, which would have saved about $6.5 million, but it was unsuccessful. Legislators also considered changing the way aid is calculated so that the maximum award is no longer based on the highest tuition in the state—at the University of Minnesota Twin Cities—but instead based on the average tuition of the state’s public universities. UMN leaders opposed the proposal, arguing it could cut grants for some UMN Twin Cities students by thousands of dollars, and it was ultimately rejected.

Legislators are hopeful that the deficit will be less severe next year. That may involve revamping how the grant itself works; the state’s Office of Higher Education recently won a grant from the Lumina Foundation, Coulter said, to investigate how to make the aid model more stable so that students aren’t getting vastly different awards from year to year.

But the shortfall is still likely to impact students substantially this year, as William Luthor, director of student affairs for the Undergraduate Student Government at UMN Twin Cities, described in an April hearing regarding the higher education budget.

“The reality of these changes will be that students will have to make a difficult choice: Either they take extra credits, sacrificing their GPA so they can graduate early, or they will start their transfer application out of this state to see if other states better meet their needs,” he said. “They may take on another job to cover the added cost, or more likely, they will just drop out of higher education altogether and not complete their degree.”