Minnesota colleges are breathing a sigh of relief as they prepare to collect more than $300 million in federal stimulus aid, which will help them narrow daunting budget holes and distribute emergency grants to students in need.

Minnesota State's 37 colleges and universities will receive a total of $186 million from the latest coronavirus relief bill, which was signed into law last month, while the University of Minnesota will get $55 million for its five campuses. More than $60 million will go to the state's private colleges.

Leaders from the two public college systems say the funding could not have come at a better time: The U is grappling with an estimated $166 million budget deficit this fiscal year, which ends June 30, and Minnesota State is facing a $51 million shortfall. Students, who began their spring semester this month, are pushing for the one-time funding to be used to freeze tuition, forgive some debts and invest in campus mental health services.

"It is tremendously helpful to deal with some of these enrollment losses and lost revenue and extra expenses that we've experienced during the pandemic," said Bill Maki, Minnesota State's vice chancellor for finance and facilities. "I expect that that [shortfall] amount will go down considerably when we next update our budgets in March."

The latest round of federal funding dwarfs the $180 million that Minnesota colleges received from the CARES Act last spring. Most of these funds may be used to cover institutional costs, but colleges must spend a portion of the money on emergency grants for students.

Minnesota State must spend at least $46 million of its funding on student financial aid. At the guidance of the U.S. Education Department, colleges in the system will target emergency grants to students with "exceptional needs," such as low-income students who are eligible for Pell grants, Maki said. Some colleges may spend above what's required on student aid, he added.

The bulk of the money Minnesota State colleges get will be used to offset pandemic-related expenses and recoup lost revenue. The system will now be able to plug much of its budget deficit with the one-time funding instead of previously planned internal reallocations, Maki said. However, he believes a smaller deficit will remain because individual colleges with large shortfalls may not receive enough money to cover them.

The University of Minnesota will have about $37 million to spend on institutional needs and $18 million to allocate to students. Myron Frans, the U's senior vice president for finance and operations, said administrators are still determining how best to use the funds.

The money could help reduce the amount of debt the university takes on to cover its shortfall; U leaders have proposed taking out an $82 million loan to cover losses in athletics, parking and student housing and dining revenue. Or it could be used to put an early end to an employee furlough and pay reduction program that is set to expire June 30, Frans said. The funds will not be used to undo long-term cost cuts, such as the elimination of three men's sports programs — gymnastics, tennis and indoor track and field — that were announced in September.

"I haven't heard of any reconsideration of that decision," Frans said.

U regent Michael Hsu said he supports decreasing the size of any possible loans. He said the university should also consider freezing tuition for a second straight year.

LeadMN, the statewide community college student association, wrote a letter to Minnesota State Chancellor Devinder Malhotra this month outlining students' wishes. The group wants system colleges to forgive overdue balances for students who dropped out of school during the pandemic so they can easily re-enroll in the future.

Students are also calling on Minnesota State to buy more laptops and Wi-Fi hot spots for those learning online, invest in mental health services and refund students for a 3% tuition hike that took effect this spring semester.

"In light of all that money coming in, should they really be raising tuition this semester?" said LeadMN Executive Director Mike Dean, noting that many students are facing "dire circumstances."

Hamline University in St. Paul will focus its $4 million in funding on supporting students with emergency grants, investing in mental health services and supplying its campus food pantry, said President Fayneese Miller. The private college will also invest in campus safety needs such as masks, hand sanitizer stations and air filtration systems.

"That money is very useful in helping us to address such basic needs of students," Miller said.

State Higher Education Commissioner Dennis Olson cautioned the relief funding is no windfall for colleges and universities. In fact, he said institutions may require more help in the future to ensure they emerge from the pandemic with their finances intact.

"While it was appreciated, it's not even close to enough," Olson said.

Ryan Faircloth • 612-673-4234