This story was reported and written by VPM News.
Gov. Glenn Youngkin wants to use $120 million in surplus funds from an old college savings plan to help pay for the tuition waivers under the Virginia Military Survivors & Dependents Education Program, or VMSDEP, through the current state budget cycle.
Lawmakers took this funding out in the budget draft they approved earlier this month, but Youngkin added it back in as part of the amendment process he completed Monday. If lawmakers take it out again next week, Youngkin won’t be able to add it back in during his final round of line-item vetoes.
“There’s no way the governor can then add that back in during the veto process,” said Levi Goren, director of research and education policy at the Commonwealth Institute for Fiscal Analysis. “In a veto, all you can do is take out what’s in there.”
There’s been a yearslong discussion about what to do with over $1 billion in surplus dollars associated with the Commonwealth Savers Plan. Virginia’s legacy prepaid college savings plan closed to new participants several years ago and was replaced with a different prepaid plan.
JLARC, the General Assembly’s research arm, issued a report about the fund in 2022 that detailed several policy options for the surplus dollars — including distributing them to low-income students, sending some dollars back to policyholders, or a combination of the two.
Kimberly Sarte, an associate director at JLARC who worked on the report, said the amount available is “way beyond what’s needed to pay the benefits to account holders.”
That’s why JLARC had independent experts figure out how much could be withdrawn responsibly while still fulfilling obligations to account holders. In 2022, that amount was a total of $1.3 billion over five years.
Sarte said since then, about $500 million of surplus dollars have already been tentatively earmarked to support low-income college students in Virginia, with about $870 million remaining that could be used for other purposes.
Some of the options put forth in the JLARC report have manifested in draft legislation that hasn’t been approved. Del. Kathy Tran (D–Fairfax) proposed using $500 million of the surplus to pay for scholarships for low-income and first-generation college students, while also sending some money back to all account holders.
State Sen. Scott Surovell (D–Fairfax) proposed creating an endowment fund for scholarships for some Pell Grant–eligible students, without sending funds back to account holders.
Surovell said the fund would help “level the playing field” for various colleges’ abilities to recruit Pell-eligible students to their universities — especially those without large endowments to help cover enrollment costs for low-income students.
But Youngkin wants to use at least some of the surplus funds to help pay for the VMSDEP tuition waiver program, which has grown exponentially in recent years.
Historically, the tuition waiver program has been entirely funded by colleges, not the state. But over the past year, universities have spoken up about the high — and rising — cost of the program as enrollment has increased in recent years.
Since 2019, the program’s cost has grown exponentially, according to a House Appropriations Committee summary. In the 2023-24 academic year, over 8,000 students were enrolled in VMSDEP — nearly six times as many as in 2018-19.
The cost of the program has also grown from $12 million to $92 million over that period, according to data from the State Council of Higher Education for Virginia.
Lawmakers reconvened last summer to reverse controversial cost-management changes to the program. During that session, they also approved $65 million in annual funding for the colleges which has already been allocated, according to SCHEV’s finance director, Lee Andes.
The additional $60 million yearly investment from the state’s higher education surplus fund would be on top of the $65 million annual general fund investment, for a total of $125 million annually in fiscal years 2025 and 2026. (State fiscal years run from July 1–June 30.)
A spokesperson for the governor did not respond to VPM by deadline to clarify if Youngkin intended to create a separate fund for VMSDEP using the surplus funding going forward.
Andes said based on an unofficial quick check of this past fall’s VMSDEP enrollment figures, SCHEV’s projection of $125 million for the cost of the tuition waivers in FY25 should be pretty close to the actual cost for this fiscal year.
That’s in contrast to the budget lawmakers agreed to, which includes $75 million in FY25 — with a potential for up to $20 million in additional funding if the state runs a surplus in FY25 — and $65 million in FY26 for the waiver program.
“We worked so hard on this over the course of the summer last year to address the shortfall in funding of this benefit that has been earned by our military heroes, and yet there is still significant concern about the sustainability of this program and the impact on affordability for other students,” Youngkin said on Monday when discussing his budget amendments.
Kayla Owen, co-founder of the group Friends of VMSDEP, said she’s happy with the governor’s funding proposal.
“I do think it’s an opportunity to have a sustainable funding mechanism,” Owen said. “But I would love to see it paired with transparency and accountability that I think everybody, including the taxpayers, is continuing to call for.”
Owen wants to ensure colleges aren’t overpaid for the program — and that funds are distributed judiciously.
If the extra $60 million in non-general fund spending is approved for VMSDEP, Andes said a May survey of estimated 2024-2025 tuition waiver totals would be conducted to guide how the funding is distributed to colleges. That would ensure funds aren’t allocated to any given institution beyond the total cost of its tuition waivers.
Language in the budget specifies that allocations to colleges must be based on the amount of tuition and fees waived. But it also states that SCHEV may provide “preliminary allocations” of up to 60% of the “estimated impact at each institution” for each fiscal year.
Andes said that provision would apply to how funds are disbursed starting next fall. But he said SCHEV hasn’t yet formulated how its 2025-26 projections would be calculated just yet. He said the current methodology of watching the numerical increases has served the council well over the last few years, but SCHEV expects the large enrollment spikes to lessen over time.
“We believe the trend line will likely bend down soon,” he said.
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