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With the state experiencing huge revenue shortfalls during the recession in the late 2000s, Michigan lawmakers got creative with their budget process.

Their maneuvering led the state to direct federal welfare funds to state college tuition grants -- one of a handful of options to tackle a huge state budget shortfall. But nearly a decade later, that budget tactic has become a permanent feature of Michigan’s funding of higher education.

That means that at least a portion of federal money designated for safety net spending in the state is going to the children of middle- and upper-income families attending institutions in the state like Aquinas College, Albion College and Kalamazoo College -- an arrangement that is getting new scrutiny. According to the Michigan Department of Treasury, more than $93 million of Michigan's allocation of funds from the Temporary Assistance for Needy Families (TANF) program goes to tuition grants, and more than $40 million went to private institutions in fiscal year 2016.

Advocates for college access and private institutions that benefit from the tuition grants say what’s needed in Michigan isn’t removal of those welfare dollars but expanding support for higher education over all.

Other states have used funds from the federal TANF program for postsecondary education, experts say. But the funds are clearly targeted to low-income populations.

“I would say it is out of the ordinary, definitely, at the level of income Michigan has allowed the grants to creep up to,” said Amy Ellen Duke-Benfield, a senior policy analyst at the Center for Law and Social Policy, which advocates for people not represented by interest groups in Washington.

One of the requirements for states receiving federal stimulus money was maintaining funding for higher education. Redirecting federal welfare funds to college tuition grants allowed the state to meet that requirement while continuing to cut back spending elsewhere in response to declining revenues.

Michigan has three tuition grant programs that are funded most or entirely with TANF money: the Tuition Incentive Program, the Michigan Tuition Grant and the Michigan Competitive Scholarship. The first program, which accounts for about half of TANF spending on tuition grants, is restricted to students whose families qualify for Medicaid.

The other programs are merit based but also take into account the cost of attending a particular college or university, which can be significantly higher at private institutions than public colleges.

The median family income is $49,000 for students receiving the Michigan Tuition Grant and $57,000 for those receiving the Michigan Competitive Scholarship, according to Michigan Independent Colleges and Universities, which represents private colleges in the state.

Depending on their circumstances, a student could qualify to receive awards from all three grant programs. No group has a clear breakdown of how many students from middle-class families receive welfare money.

About $31.6 million went to the Michigan Tuition Grant program, which provides a maximum award of $1,830 and is restricted to private institutions.

Another $3.6 million went to tuition grants for private institutions through the Michigan Competitive Scholarship program, an award of $636 per year. And $4.97 million was allocated to awards at private colleges through the Tuition Incentive Program, which pays out $500 per semester for a maximum of $2,000 over two years.

Peter Ruark, a senior policy analyst at the Michigan League for Public Policy, said to the extent that TANF funds are going to middle- and upper-income students, the state has a problem.

“We’re really in a sense robbing poor families in order to pay for financial aid for middle-class families,” he said.

Ruark said Michigan could be using money going to tuition grants for private colleges to improve the child care subsidy or increase the Family Independence Program, which is monthly cash assistance to poor families -- all forms of safety net spending for the extremely poor meant to be served by welfare.

“We’re using the TANF allocation as a slush fund with which we fund things that we used to fund out of the general fund,” Ruark said.

The reason the state can allocate TANF funds that way? The 1996 federal welfare reform law said states could allocate the money to programs serving one of four purposes: help needy families, end dependence on government benefits through job preparation or work, encourage the formation of two-parent families, and reduce out-of-wedlock pregnancies. It’s that last purpose that Michigan cites in justifying the allocation of welfare money to the college tuition grants. And the state isn’t required to demonstrate that the program is actually doing anything to address or meet that goal.

Robert LeFevre, president of the Michigan Independent Colleges and Universities, said there is wide agreement that student financial aid programs aren’t a great fit for TANF money.

“The problem is we don’t have $100 million in general fund money to replace it,” he said.

And although the colleges spend $415 million on institutional aid annually, LeFevre said, $2,000 could be a make-or-break amount for students at any income level. He said the real problem Michigan must address is inadequate state support for higher education over all.

“Michigan has the lowest financial aid amount in the region,” he said. “In order to be a top 10 state, we need to double or triple our investment in student financial aid in general.”

A study released this month by the National Association of State Student Grant and Aid Programs showed that Michigan allocated a lower amount of total student aid than any other state in the Midwest. It doesn’t appear that a significant boost in expenditures is on the horizon, although Governor Rick Snyder, a Republican, set up the 21st Century Education Commission to make recommendations for the state’s education system to meet economic demands.

Brandy Johnson, executive director of the Michigan College Access Network, said ideally the state would consolidate all scholarship programs so there isn’t a separate amount set aside for independent colleges. She said the state should also add a reasonable means test to make sure financial aid is really targeted to those who need it.

Absent such an overhaul, Johnson said the TANF money should remain in the college tuition programs.

“What Michigan needs is a more robust financial aid program that’s comprehensive,” she said. “We don’t think it would be wise to yank out $100 million now. It would be like yanking the rug out from students because the state isn’t in the position to immediately replace it.”

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