RALEIGH, N.C. – Families across North Carolina and state government felt the same financial pressures this year as they cobbled together paths for children to get a college degree.
More parents needed outside help to send their kids to school as the state’s unemployment rate hovered near 11 percent, tuition and fees rose and family college investments tumbled in value.
At East Carolina University alone, financial aid needs for in-state undergraduate students soared from $98 million last year to $135 million this year, according to the school’s financial aid office.
“The economy in general has meant more families having a difficult time to find the means for their children to attend college,” said Sen. Richard Stevens, R-Wake, co-chairman of a legislative study commission meeting for the first time this week to recommend reforms to the state’s financial aid system.
The panel begins after lawmakers this year shuffled around financial aid programs to keep the state budget balanced and University of North Carolina system campuses among the most affordable in the country.
They killed a college affordability program began just last year and championed by then-Gov. Mike Easley to try to make college debt-free for as many as 25,000 students. And while some pots of money for financial aid increased, lawmakers did it by siphoning more cash than ever from a special state fund as an alternative to dwindling tax revenues.
“The Escheats Fund just keeps going down,” said Sen. Tony Rand, D-Cumberland, one of the Legislature’s leading UNC system boosters. “We can’t destroy that fund. It’s really dangerous.”
The Joint Legislative Study Committee on State Funded Student Financial Aid will make recommendations to the full General Assembly over the next year.
The federal stimulus package approved this year raised the maximum Pell Grant for low-income students by 17 percent to $5,550 next year, and the Obama administration is considering federal loan changes. The Legislature also gave an additional $23 million this year to provide need-based aid to UNC-system students, which was sought by Gov. Beverly Perdue.
“North Carolina has made some gains in access to low-income funding,” said Steve Brooks, executive director of the N.C. State Education Assistance Authority, which distributed $1.2 billion in student aid through 379,500 grants, scholarships and loans last year.
But the Legislature paid for additional need-based aid through the Escheats Fund, where property unclaimed or forgotten by its previous owners is sent to the State Treasurer’s Office by banks, utilities, government agencies or insurance companies.
The constitution requires fund proceeds go to help needy higher education students while the property owners are located.
Lawmakers historically had used interest to pay for scholarships, but in recent years they’ve tapped into the principal for scholarships, replacing money that had come from the general operating funds.
As of June 30, the fund balance was about $500 million after the Legislature spent $169 million in principal – a nearly threefold jump compared with 2006. This year, the principal withdrawal will be $185 million – the highest ever.
The fund will drop to $200 million by mid-2011 and almost $51 million the following year at the current rate, according to projections by State Treasurer Janet Cowell’s office.
“If the corpus of the fund continues to be drawn down at current rates scholarship opportunities for needy and worthy students will be severely impacted,” Cowell spokeswoman Heather Franco said.
Lawmakers learned how painful it could be to wean scholarship programs from the fund’s principal when they decided to pull the plug on Easley’s EARN Scholars program.
The General Assembly agreed in 2007 to approve the Educational Access Rewards North Carolina Scholars initiative, which gave $4,000 grants to students in families with incomes up to twice the poverty level. The grants replaced low-interest federal loans in the package of financial aid offered to students.
The program didn’t get started in earnest until the 2008-09 school year, when 13,798 students were awarded $48 million in grants, according to N.C. State Education Assistance Authority data.
“It was a really good idea and a really good program (because) you didn’t have to take on a ton of debt,” said Julie Poorman, financial aid director at East Carolina, which had 575 EARN recipients last year. “Your parents could afford to send you to college.”
The General Assembly earmarked escheats for more than half the grant money in part due to worsening budget numbers.
Faced with taking even more escheats or shifting tax money needed to close a huge budget gap, lawmakers decided to end the program after $2,000 grants were issued this fall.
The decision left thousands of students scrambling for replacement funds come January. Poorman said East Carolina was able to tap into university funds to pay an additional $2,000 in the spring to less than 300 students of the 891 who received money this fall.
“When EARN goes away, all that will replace it is debt,” Poorman said.