ICHE recommends cuts to grant awards after FAFSA changes
In a significant move that could affect thousands of Hoosier students, the Indiana Commission for Higher Education plans to reduce the Frank O’Bannon Grant awards for the upcoming academic year.
Commission staff and leaders are pointing a lot of the blame toward the federal government.
This decision, unanimously approved by the commission on November 14, comes in response to changes in the Free Application for Federal Student Aid (FAFSA), which resulted in a lot more students qualifying for various forms of financial aid.
“We typically see around 40% of our students in the highest need bucket. For this year, we saw 60% of our students in that highest need of the bucket – all under the Frank O’Bannon Grant,” explains ICHE Chief of Staff Josh Garrison.
The change is forcing the hand of the commission to spend down its reserves currently for the grant, as it is expecting to spend more than $50 million in excess of the $168 million appropriation for this year.
The proposed cuts to the O’Bannon Grant, which assists Hoosier students attending eligible public, private, and proprietary institutions, range from 14% to 86% depending on the institution and the student’s financial needs.
For instance, the maximum award for high-need students at public colleges would decrease from $6,200 to $5,300, while those at private institutions would see a drop from $12,400 to $10,600. Students attending proprietary schools like Ivy Tech Community College would experience a reduction from $4,700 to $4,050.
Despite the reductions, the commission plans to maintain the same number of awards – approximately 30,000 – at a total cost of around $175 million. This is a decrease from the $225 million allocated this year, which was inflated due to the FAFSA rollout issue.
As you likely recall, last year’s FAFSA rollout didn’t go well, to say the least. The “FAFSA fiasco,” as it’s described by ICHE officials, on top of the general changes anyway, further complicated the O’Bannon Grant situation.
Garrison points out that the problematic rollout of the FAFSA caused headaches and complicated financial aid awards for students, families, and institutions, making it difficult to find a clear path forward on what to do with the O’Bannon awards. You may recall the months-long delays and technical errors with the FAFSA caused issues with states and institutions getting the data they needed to determine how much aid students needed.
And the delays are still affecting aid and spilling into the 2025-26 FAFSA. The application once again delayed its public release to on or before December 1, instead of the usual October 1.
With backing from the Indiana Student Financial Aid Association Government Relations Committee, the commission decided in February to maintain the O’Bannon Grant award amounts for the current fiscal year.
This decision raised estimated expenditures to $225 million, according to Garrison, who noted at the time earlier this year that while the commission chose to keep the awards steady, future adjustments would be necessary.
He remarked that while they could have opted to reduce the awards last year, it would have been akin to “cutting your hair in the dark.”
As a result of these challenges, the commission anticipates that expenditures for the grant program will exceed state lawmakers’ projections by about $57 million this fiscal year, potentially draining the program’s reserves by a similar amount. They also foresee a $7 million shortfall in the next fiscal year.
Indiana Commissioner for Higher Education Chris Lowery warns that if the state maintains the current award amounts, it will deplete reserves and surpass the state’s appropriation.
Due to declining enrollments in recent years, the grant program accumulated approximately $125 million in reserves. However, if their current fiscal year estimates are accurate, this amount could decrease to $68 million.
Continuing the existing grant amounts would require an additional $50 million each fiscal year . . . and ICHE isn’t planning on asking the General Assembly to increase the appropriation by that much, or really at all.
Now, you may be wondering; didn’t lawmakers just expand O’Bannon grant funding in the last budget? Yes, two years ago, the commission raised the maximum grant award amounts by 35%, restoring them to levels last seen before the Great Recession. As a result, the maximum awards were set at the $12,400 for students attending private institutions and $6,200 for those at public institutions.
The recommendation must next be reviewed by the State Budget Committee, where adjustments could still be made, likely next month.
When presenting its budget to BudCom last week, ICHE did not request any increases in funds for the O’Bannon Grant or 21st Century Scholars . . . though officials did inform committee members they are expected to spend over the O’Bannon appropriations.
ICHE isn’t ruling out not receiving some more cash to direct toward O’Bannon awards in the next budget cycle, but Garrison advises to not count on it.
Why? The reasoning the commission gives is that when it requested the 35% adjustment in 2022, it “committed to living within the appropriation after spending down reserves.” At each State Budget Committee presentation over the last year, the commission recommitted to staying within that appropriation.
We’ve also been telling you that legislative leaders are expecting a considerably tighter budget than in past years, so that also probably plays a role in ICHE wishing to stick within its current appropriation.
What’s a little unclear is how exactly the State Budget Committee will react to the proposed award schedule cuts when ICHE comes before them again. Rep. Greg Porter (D) of Indianapolis following the commission’s vote to change the schedule issued a lengthy statement criticizing ICHE for not being transparent to lawmakers about the amount of cuts they planned to make ahead of time.
“Putting it mildly, I’m flabbergasted and deeply disappointed that the CHE moved forward with a proposal to drastically cut student financial aid. This plan was not mentioned last Tuesday to the State Budget Committee when the commission presented its 2025 budget. Not mentioning these major cuts to student assistance to the legislature is a glaring omission,” Rep. Porter, the Democratic House fiscal leader, scolds.
Porter, an aide to the man for whom the grants honor during O’Bannon’s tenure as lieutenant governor, believes ICHE is not being transparent about the effect the changes will have on students, and wonders how the decision will help increase college attainment in Indiana.
“This non-transparent decision could not have come at a worse time. Indiana’s college-going rate is at an all-time low, and now we’re pulling the rug out from under the shrinking percentage of Hoosiers who want a degree,” Rep. Porter asserts. He questions, “How does cutting financial aid inspire prospective students to attend college? How does cutting aid further the CHE’s own goals of inspiring Hoosier graduates to attend Indiana’s universities? Here’s your answer: It doesn’t.”
While ICHE did not specifically lay out the exact award schedule plans when it presented its budget just two days before approving the changes – the commission defends, in response to Porter’s comments, that it gave plenty of notice to lawmakers of their intentions back in April.
At the April 19 BudCom meeting, ICHE CFO Seth Hinshaw and Chief Program Officer Michelle Ashcraft, informed the committee (albeit a little vaguely and with few details) to expect to see changes to next year’s O’Bannon award schedule this winter because the commission projected it would likely overspend the appropriation.
Hinshaw and Ashcraft faced questions from Rep. Porter and Senate Committee on Appropriations Chair Ryan Mishler (R) of Mishawaka about its exact plans, in which Porter asked if they planned to ask for more money. To that, Hinshaw repeated that ICHE “committed to living with the appropriation,” even if it spent down its reserves. “We’re still committed to living with that appropriation,” Hinshaw told Rep. Porter in April.
He reminded members as well that ICHE had processed the 35% increase well before the new FAFSA came down the pipeline.
Back in April, however, ICHE could not offer an idea of how much the cuts would be because the majority of institutions billed the commission for their fall 2024 Frank O’Bannon awards by October 11, 2024. ICHE then had a quick turnaround to use that information to create projections for the 2025-26 schedule of awards.
For many Indiana students, the Frank O’Bannon Grant has been a lifeline, helping to bridge the gap between rising tuition costs and the financial resources available to them. With college affordability becoming an increasingly pressing issue nationwide, the proposed cuts raise concerns about access to higher education for low- and middle-income families.
Inside Higher Ed in its report this week on the award reductions showcases some worries that ripple effects may cause students to be less inclined to attend college in-state. Melissa Smurdon, executive director of financial aid for Butler University, tells the publication “We’ll be forced to really strongly consider how we help the students impacted.” She adds, “We really have our eyes on completion. We have our eyes on retention. It’s going to be challenging financially if we need to make up these dollars, but it’s going to challenge students individually to be able to stay.”
Mary Jane Michalak, senior vice president for legal and public affairs at Ivy Tech, reveals to the Indiana Capital Chronicle that a preliminary analysis suggests Ivy Tech students will lose $6 million, with 7,200 students impacted and 400 facing a total loss of eligibility.
The uncertainty of the effects was also felt by some of the ICHE members as well.
Commission member Nancy Jordan questions how the optics will work to tell the public ICHE is cutting aid following very recent celebrations of enrollment increases in other financial aid programs, like 21st Century Scholars, which we told you last issue has doubled its enrollment.
“It feels like we’re put in a position to do the least harm,” she states, highlighting the difficult balance the commission is trying to strike.
Still, Garrison emphasizes that even with the cuts, the program remains one of the most generous in the nation, noting, again, that the overall funding is still higher than it was two years ago.
“I do not like having to see any cuts in financial aid, but it is our responsibility to right-size the program,” he asserts.
Indiana isn’t alone in dealing with the effects of the new FAFSA. Minnesota recently cut its need-based grant program’s award amounts, for similar reasons.
Inside Higher Ed details that “states with first-dollar programs, like the Frank O’Bannon Grant, which provide students with a specific amount of aid before layering federal aid on top, are feeling the squeeze much more than those last-dollar programs that fill the gap between the Pell Grant and the total cost of attending college.”
Expect to hear more on the O’Bannon award reductions in the coming weeks as the commission prepares to face the Budget Committee, and don’t be surprised to hear more about it during the 2025 session amidst higher education budget talks.