State and Local Higher Education Funding Hits 25-Year Low

A new study shows that federal investments in economic recovery helped offset declining state and local funding for higher education which reached its lowest point in 25 years in 2010. Meanwhile, tuition rates increases caused net tuition revenue paid by students and parents to cover a growing share of higher education general operating costs.

"From 2008 to 2011 enrollments grew by an additional 12.5 percent; but state and local support, even with the assistance of the federal economic stimulus funds, has stagnated, declining modestly for the nation as a whole, and falling dramatically in some states," according to a study by the State Higher Education Executive Officers (SHEEO). "As is evident in this report, institutions have stretched to accommodate enrollment demand, students and their families have paid higher tuition, and expenditures per student have fallen in nearly every state."

State and local governments’ financial commitment to public higher education has generally increased over the last 25 years, but state revenues declined dramatically in 2008 amid a recession that ended the growth in state and local support achieved between 2004 and 2008, according to the SHEEO study. An increase in enrollment of more than 8 percent from 2009 to 2011 compounded the state and local funding cuts.

"Since the beginning of the 21st century, higher education enrollments have grown faster than any decade since the 1960s," the report states. "Simultaneously, state and local funding for higher education stagnated twice due to recessions. From 2002 to 2004, total state and local funding hovered around $70 billion. Then over the four years 2005 to 2008 state and local support for public higher education grew to $88.9 billion, partially restoring the per-student support eroded by the 2001 recession. This four-year recovery abruptly ended when, in 2008, the nation suffered the worst recession since the Great Depression."

  • In 2010, state and local support (appropriated to general operating expenses and financial aid) per full -time-equivalent (FTE) student declined by 7 percent from 2009 (a $500 decrease to equal $6,532 per FTE in constant 2011 dollars, the lowest in the last 25 years.) 
  • This trend continued in 2011, with an additional 3.7 percent decrease in state and local support per FTE (at $6,290 per FTE in constant dollars). 

The American Recovery and Reinvestment Act (ARRA), approved in early 2009, provided federal funding that helped stabilize state support for higher education in 2009, 2010, and 2011, though it generally only covered 2-3 percent of all revenues supporting general operating expenses for higher education.

In 2011, 31 states provided a total of $2.8 billion in ARRA funding to higher education, helping offset reductions in state and local support since 2008, according to the report. Including the ARRA funds, state and local governments provided a total of $87.5 billion to public higher education in 2011, showing a 2.5 percent increase in funding over 2010 (although still below 2008 and 2009 levels). 

Of the $87.5 billion in state and local support allocated to higher education in 2011:

  • About 78 percent went to general operating expenses 
  • About 12 percent went to special purpose appropriations including research, agricultural extension and medical education 
  • About 7.1 percent went to financial aid to students attending public institutions, up from 5.6 percent in 2006. 
  • About 3 percent went to independent institutions

Public institutions collected net tuition revenue of $56.3 billion in 2011; that number combined with state and local support equals about $143.8 billion to fund higher education general operating expenses. (The study did not collect information about tuition revenue from private, not-for-profit and for-profit institutions.)

From 2008 to 2011, net tuition revenue comprised a growing percentage of total revenue used for general operating expenses from 2008 to 2011, though state and local support still provides the bulk of the revenue to meet those expenses. 

  • The share or revenue from net tuition used to cover general operating expenses increased from 32.2 percent in 2008 to 39 percent in 2011. 
  • On the other hand, state support, local taxes and ARRA funding covered 61 percent of general operating expenses in 2011. 

Looking forward, the SHEEO’s forecast is dim. With a decrease in ARRA funds, state appropriations are expected to decrease further. State appropriations for 2012 are down by 4 percent, and total funding (including federal stimulus funds) is approximately $5.9 billion less than provided in 2011, according to the report. SHEEO anticipates full recovery for state revenues could take several years.

"One cannot responsibly ignore either the financial realities outlined in this report or the larger economic challenges facing the American people. Somehow the nation and its educators must come to grips with these realities and create effective responses to them," the report states. "Colleges and universities must find ways to reduce student attrition, the cost of instruction, and time to a degree, while improving instruction and increasing the numbers of students who graduate ready to be productive citizens. Parents, students, institutions, and states must make tough decisions about priorities - what investments are essential for a better future and where can we and should we reduce spending on non-essentials in order to secure what is essential?"



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