Aid for N.C. college students is running low

North Carolina is giving low-income students more than $210 million in grants this year to help them go to state community colleges and universities.

But that money is likely to slow to a trickle in the near future, when families may need it most.

Of the $210 million, only about $34 million is a sure thing that state leaders can count on; it's money reserved for scholarships from state lottery proceeds.

The rest will be hard to come by, particularly because North Carolina's largest single source for financial aid - the state's escheats fund of unclaimed property - is nearly tapped out.

About 90,000 to 100,000 low- to middle-income students now receive state grants, which do not have to be repaid. Most students also take on loans to pay for tuition, room, food and books. The state grants are layered on to other forms of financial aid, including the federal Pell Grant for low-income students and other grants and loans provided by universities.

Cassandra Stokes, a Kinston sophomore at N.C. Central University in Durham, said she and her classmates are already fretting about a tuition increase for next fall.

"If I did not get grants and loans, I would not be here at all," said Stokes, who comes from a single-parent home and has two younger brothers.

She pieces her education together semester by semester. An honors student majoring in political science and history, she has a 3.5 grade point average. She has an office job on campus, where she works five hours a week. She also receives a Pell Grant, a couple of academic awards and, so far, her loans have reached about $9,500.

"I'll probably have to take out more loans," she said.

North Carolina's grant program, which has been around for a little more than a decade, has helped many students such as Stokes pursue higher education.

Attendance rising

Between 1999 and 2009, college participation rates for students from lower-income families in North Carolina jumped 7.9 percentage points, according to statistics released in October by Tom Mortenson, policy analyst and author of Postsecondary Education Opportunity, an Iowa-based monthly research publication.

The state recently surpassed the national average, 27.4 percent, for college attendance by low-income students. Last year, North Carolina ranked 20th overall in its lower-income college participation rate - 28.5 percent - and fourth in the nation in its increase during the past decade. "I think we've got an awful good case to make that this is an investment in North Carolina's future," said Steve Brooks, executive director of the N.C. State Education Assistance Authority, the agency that distributes financial aid. "There's clearly an individual gain and a societal gain."

Studies show those with higher education degrees have more economic well-being and are less likely to end up incarcerated or dependent on government-funded social programs such as Medicaid and food stamps.

Closing the door

The question is whether state financial aid will continue to flow and drive up the college-enrollment rate.

North Carolina's unclaimed property fund, which contained $419 million in June, has long been a source for college scholarships, going back to a constitutional provision in 1789 to transfer unclaimed property to the University of North Carolina. The interest earned on the fund's investments was used for scholarships for many years.

Then, in 1999, the state university system and the community college system started new grant programs to help low-income students. Previously, the state had not provided much in the way of grants to low-income students, instead clinging to the philosophy that the best form of financial aid was low tuition.

The community colleges' need-based fund has been stable in recent years at about $15 million a year. But as university tuition increased, spending on need-based grants mushroomed. The UNC program cost $6 million in 2000; this year, the figure is $162 million.

As the cost grew, so did the pressure on the state's escheats fund. In 2003-04, lawmakers began to dip into the fund's principal and have since paid the college grants entirely from the fund.

State Treasurer Janet Cowell has warned that if the withdrawals continue, the fund will have a negative balance by 2012. "That means money available for an incoming college freshman for financial aid will not be there by senior year," Cowell wrote in a letter to lawmakers last year.

The grants are vitally important, said Jennifer Haygood, vice president of business and finance for the state's community college system.

"Obviously this program is key to our ability to provide financial aid for our students," Haygood said, "to support and maintain our open door."

Nowhere to turn

There aren't many other places to turn for the money. The state faces a $3.5 billion shortfall next year, and state agencies are facing deep budget cuts.

Last month, Republicans won control of the legislature for the first time in more than a century. GOP leaders have said the voters sent a message that government spending is excessive. Some of them have promised to return state spending to what it was four, five or six years ago.

Sen. Richard Stevens, a Wake County Republican, said it's too early to have any clear indication about the future of the grant programs. Stevens, a former UNC-CH trustee who has co-chaired a Senate education appropriations committee, added: "We all know, of course, the importance of financial aid for those students who need it."

Rep. Mickey Michaux, a Durham Democrat who until the election held the top appropriations post in the House, said one possibility is to plow any revenue from tuition increases directly to financial aid.

In recent years, UNC campuses have set aside a chunk of the proceeds from tuition increases to cover the bill for low-income students, resulting in tens of millions of dollars in new spending on financial aid. In 2008-09, grants from UNC institutions to their students totaled nearly $103 million, though nearly $45 million was spent at two campuses - UNC-Chapel Hill and N.C. State University.

Campuses could face significant cuts next year, though. And lawmakers will have to deal with other education budget pressures - keeping K-12 teachers in the classroom, for example.

"Those who are coming in are going to have to put their minds to it and see what they can come up with," Michaux said of the Republican majority. "They're in charge now."

One recommendation on the table is to merge university, community college and lottery scholarships into one program that would simplify things. But it would not save money.

A study group last month recommended consolidation, using the federal financial aid formula as a single standard. That might cut some middle-class students out and would result in a reduction of money to some campuses, such as UNC-Chapel Hill and N.C. State University.

Pell Grants hurting, too

Complicating the situation is what's going on nationally. Congress last year approved an increase in the Pell Grant, which now has a maximum annual award of $5,550. But the Pell program also faces a huge shortfall for the 2011-12 year. Meanwhile, the Department of Education forecasts the number of Pell recipients will grow to 8.7 million next year - about 1 million more than received them last year.

Job losses and tuition increases during the recession have meant more students seek need-based financial aid and qualify for it.

"The needs are not going down, they're going up," Brooks said. "There's not enough money as it is."

Joseph Lancaster, a student at NCSU, doesn't get a penny of it, though. The freshman from Mount Olive dutifully filled out his federal financial aid request forms, but he was rejected. His mother is a teacher and his father is a timber buyer whose business is down.

"We're not rich," said Lancaster, an agricultural business major who works on a tobacco farm in the summer. "It's unreal the people they turn away because they say their parents make too much money. My parents are doing what they can to keep me here."

His classmate Kathleen Bell, a freshman bioengineering major, received a Pell Grant, state grants and loans worth nearly $6,000 this year. She is prepared to borrow more money if she has to.

"It's not fair," she said, "but you do what you can. It will pay off down the line."

She hopes. Students are fearful of taking on big debt, even though studies show a college degree is important for future earning power.

Michaux points out that even though the financial aid program was created during the state's good times, access to higher education should still be a priority.

"Those people who cannot afford it, we're going to have to find a way for them," he said.