Colorado higher education doesn’t have the money to get exactly what it wants. So it's trying to buy something else.
The Colorado Commission on Higher Education approved Tuesday a new state financial aid distribution policy  that will increase financial aid awards when students meet certain credit milestones and eventually decrease awards if students do not graduate in a timely manner, among other changes.
The new policy reflects something of a shift in objective for the state aid program, said Matt Gianneschi, deputy executive director of the Colorado Department of Higher Education. During the past five years, the number of needy students increased, state appropriations for aid fell or held constant and the price of college increased. The commission found that its awards were not substantial enough to affect students' college choices. Rather than trying to make college affordable – the traditional aim of state aid programs – the new Colorado policy is designed to motivate students to complete credits and institutional administrators to help students get there.
“We don’t have the ability with the limited number of dollars we have to fundamentally change the cost of attending an institution,” Gianneschi said. “Instead of trying to have our policies do a poor job of keeping up with a vastly differing universe of costs, we figured it was a more appropriate way to target funds to have some effect on progress.”
See a breakdown of how new policy would allocate funding to each campus here .
While Colorado lawmakers still hold some responsibility for making college affordable – they appropriate money to state universities, which has a large effect on tuition prices; appoint members of institutional governing boards who set tuition prices; and can publicly pressure those appointees and institutional leaders – the policy shift highlights the diminishing role of states in keeping college affordable and the growing role of the national government, institutions, students and their families in covering the cost of attendance, a trend seen nationwide  over the past two decades.
The four-campus University of Colorado system generated about $120 million in student aid from philanthropy and tuition this year while receiving only $16.7 million in funding from the state for the state grant program.
The Colorado shift is also another instance of performance funding entering the discussion about state appropriations in higher education. Tying state grant dollars to something other than pure financial need is not new, and many states have merit aid programs with GPA requirements, but the idea of using aid dollars to motivate certain institutional and student behaviors while students are in college -- such as taking a certain number of credits per semester -- is gaining greater traction across higher education.
“In a resource-scarce environment, everyone’s thinking about how to get more from each dollar while we also think about addressing students’ needs,” Gianneschi said.
Earlier this month, the American Association of State Colleges and Universities listed performance funding as the top state higher education policy issue for 2013. While that report focused on appropriations directly to higher education institutions, Colorado’s new policy is an example of the drive to ensure outcomes can seep into other aspects of higher education funding.
The policy change is mostly driven by a diminution of the influence of state grant aid on college-going decisions, driven by an increase in need following the Great Recession and no commensurate increase in state appropriations for the grant aid program -- meaning the same amount of dollars had to be spread over more students.
“As a result of historic structural changes in student populations, increases in college costs, and flat financial aid dollars, the financial aid allocation method used by the [Colorado Commission on Higher Education] during the recent past does not achieve the goals it was designed to achieve,” wrote Celina Duran, financial aid director for the commission, in a December meeting brief.
Before adopting the new policy, the Department of Higher Education awarded different amounts to students based on the cost of the institution, breaking institutions into three tiers. Between 2008-09 and 1012-13, the average award per full-time equivalent student at the most expensive tier dropped from $1,154 to $755. Over the same time period, tuition prices increased, further decreasing the “buying power” of state aid. At the University of Colorado at Boulder, for example, annual resident tuition grew from $7,278 to $9,482.
The new Colorado proposal calls for a $610 award for freshmen who qualify for Pell Grants. That award amount would increase by $200 for every 30 credit hours completed up to 90 credit hours. Under that formula, the total award would be $1,210 by the time a student is a senior. Those numbers are based on initial enrollment estimates and an initial budget proposal, though they could change based on how much the state decides to appropriate and could change each year with state budget decisions.
The policy adopted Tuesday did not include a component that would decrease award amounts if students took too long to graduate, as had been discussed at previous meetings, but the commission did request that department staff design a policy that would do that for consideration next year. But under the new system, the award amount for students who do not advance at stated goals would stay at whatever threshold they have met.
Unlike most states, Colorado awards state grant aid to the institutions rather than directly to students. Under the policy adopted Tuesday, institutions would be free to determine what to do with the aid dollars they receive, but since the incentive is to ensure that low-income students progress towards their degrees, the idea is that such money would target those students – whether in the form of aid directly to students or toward institutional initiatives.
Sandy Baum, a higher education policy analyst who studies financial aid and gave a presentation to the Colorado commission, said policies like the one adopted in Colorado tend to have an effect on both institutional and student behavior, rather than simply one or the other. “The consensus is that it is both,” she said. “It is some combination of student and institutional behaviors that leads to outcomes."
The idea that academic incentives produce better outcomes that no-strings-attached grants is the subject of much research as the federal government gears up to consider renewal of the Higher Education Act and potential changes to the federal Pell Grant program. While some research suggests that academic incentives augment aid effectiveness, those findings have been the subject of debate .
Gianneschi said the commission purposefully stayed away from any kind of grade point average requirement for the credit awarded out of fear of creating “perverse incentives” for students to enroll in easy classes or majors to keep their awards.
The commission also made several other changes to its state grant program Tuesday. It targeted allocations to Pell-eligible full- and part-time students. The state previously allowed awards up to 150 percent of the Pell eligibility threshold, but is scaling back to make better use of limited dollars, Gianneschi said.
The commission also eliminated distinctions that awarded different amounts to institutions of different cost levels. It will now award the same amount of aid to students at different types of institutions, based on student completion levels. The plan adopted last week includes a "hold harmless" provision, so no institutions will see a decrease in funding for the next fiscal year.
The University of Colorado system will likely see the biggest hit over time from the changes. It enrolls fewer low-income students as a percentage of its student body than other institutions, and the per-student grant was larger because it was in a higher "tier."
"Essentially, the pie got bigger, but our slice of the pie is shrinking," said Ken McConnellogue, vice president of communications for the system. "We never like to see slices of the pie shrink, but students shouldn’t see an appreciable change in how we allocate financial aid."
Next year the state will discuss its funding for graduate student financial aid, which McConnellogue said could have a significant effect on the system's budget.