Proposed Welfare Rule Change May Alter State Scholarship Funding Practices

Some states were using welfare program funds intended for low-income parents on scholarships or grants for middle- and high-income students without children.

clipboard reading temporary assistance for needy families

Colleges and universities in at least eight states could lose a total of between $970 million and $1.3 billion in scholarship funding under a new rule proposed by the U.S. Department of Health and Human Services.

The states have been misusing funds from the federal welfare program Temporary Assistance for Needy Families that were intended to help low-income parents on public assistance pay for college. In many cases, the money went instead to state residents who were not eligible for the tuition assistance under TANF guidelines.

If the proposal is approved, it could force state lawmakers and welfare administrators to reassess how they spend TANF dollars and adjust how they continue to fund existing scholarships.

States have long had broad flexibility to decide how to use TANF money under the program’s guidelines, but there was no explicit ceiling for who qualified as “needy.” The rule change would “establish a federal limit on how states may define the term ‘needy,’” cap income eligibility for the scholarships at 200 percent of the federal poverty level and clarify that allocations can only go to welfare recipients with children. The notice of proposed rule making is currently open for public comment until Dec. 1.

“Education and training for parents with low incomes is a critical element of the TANF program’s capacity to increase opportunities for family economic mobility,” the proposal reads. “However, the Department is aware of instances of TANF funds being used for college scholarships for adults without children. Under the proposed rule, college scholarships for adults without children would not meet the reasonable person standard.”

HHS officials say the new rule is targeted at eight states that are not in compliance with the law—the department did not respond to inquiries about which eight states are in question—and have given scholarships to adults without children as of the 2021 fiscal year. The department estimates the states’ combined spending on the scholarships totals $1.14 billion. However, it also notes that this approximation may “overstate the college scholarship expenditures in identified states” and/or exclude states with smaller amounts of college scholarship spending that were not detected “due to current reporting limitations.”


A ‘Downstream Effect’

Some education policy experts believe state officials and college administrators have little cause for worry and that the impact of the rule change will be relatively minor. However, others expressed some hesitation and noted that lawmakers and university administrators in affected states should consider how they will compensate for the loss of scholarship funds.

“States are really going to need to think significantly about how they may have to find the state general funds to supplant these TANF dollars,” said Carrie Welton, a senior director of policy and advocacy at the Institute for College Access and Success. “There’s certainly going to be a downstream effect for higher education institutions.”

Welton said the changes are “appropriate and overdue” and will ensure the TANF dollars go to those that need them. However, if states don’t make up for the loss of TANF funding, it could influence whether students decide to go to college.