Report: State Funding of Higher Education, Financial Aid Directly Impacts Student Outcomes

By Owen Daugherty, NASFAA Staff Reporter

State funding of higher education, whether it comes in the form of student financial aid or general operating funds, is directly tied to students’ enrollment, retention and completion rates, and post-college outcomes.

While that conclusion may seem unsurprising, for too long there was a lack of empirical evidence to document the impact.

A new report from the State Higher Education Executive Officers Association (SHEEO) is the product of reviewing more than 100 research studies spanning decades that measured the impacts of state appropriations to institutions and student financial aid programs on institutional and student outcomes.

The findings from the review show how state appropriations for higher education directly impact the total revenue available for education at public institutions, with funding cuts resulting in public two- and four-year institutions being more likely to cut spending on things like instruction, academic support, and student services.

Student enrollment declines are directly tied to state appropriations cuts, the report found, with in-state undergraduate enrollment declines leading students to move from the public to the for-profit sector as a result.

Additionally, a drop in state funding levels often leads to declining graduation rates at four-year colleges.

On the flip side, state investment in student financial aid leads to students being less likely to leave the state to attend college, and students receiving aid are more likely to persist and graduate from their institutions while being more likely to graduate on time.

The report also found that well-marketed financial aid programs with built-in student support services showcased to students have the greatest positive impact on enrollment, retention, and graduation rates. 

“If states continue deprioritizing institutional funding, we will see measurable negative impacts on student enrollment, student completions, and graduation rates. At the same time, we present continued evidence that student financial aid can influence where students enroll and help them graduate on time. Overall, we found that public investment matters for students,” David Tandberg, SHEEO senior vice president and a coauthor of the report, said in a statement.

The findings come as the economy is recovering from its worst point since the Great Recession — and generally, states look to decrease their higher education funding during economic downturns. The report notes that the opposite should actually happen, as state funding for public higher education may be more important now than ever as individuals enter a competitive job market in a rapidly changing economy. Paired with increased global competition, the current landscape demands a healthy public higher education system.

The national trend over the past four decades has been stagnant state appropriations for general operations — which does not include student financial aid — at higher education institutions, resulting in declines in state support per full-time equivalent (FTE) student.

These declines have “grown steeper, and recoveries have become slower and less complete with each recession since 1980,” the report notes, and “even though general operating support increases during economic expansions, it has not kept pace with enrollment increases and inflation.”

When viewing snapshots taken over the past 20 years, it's evident that state funding has not kept pace with operating costs and increased enrollment. In 2001, public institutions enrolled 8.7 million students and received $82.6 billion in general operating support, equaling $9,547 per FTE student. In 2008, public institutions enrolled slightly more than 10 million students and received $85.6 billion in state support, amounting to $8,377 per FTE student. More than a decade later, in 2019, public institutions enrolled nearly 11 million students and received $80.8 billion in general operating support, equaling $7,388 per FTE student, the report found.

In reviewing the national trends in state grant aid, the report found that state support for student grant aid is less correlated with the economic cycle. Since 2001, state grant aid has increased about 72% in inflation-adjusted dollars, with over $12.3 billion awarded in the most recent year. Overall, state grant aid increased every year over the time period — with the exception of a slight decrease during the 2012 fiscal year.

Broken down further to differentiate between need-based and non-need-based aid between 2001 and 2019, the report shows the proportion of need-based grant aid awarded oscillates between 70% and 77% of total state aid. Over that time period, the amount of need-based grant aid increased 69%, while non-need-based grant aid increased at a rate of nearly 83%.

Additionally, state-level trends support the overall national picture, the report notes, as 29 states from 2001-19 decreased general operating appropriations but increased financial aid allocations. Only 11 states decreased both general operating appropriations and financial aid allocations, while five states increased both.

For policymakers, the report makes a simple recommendation: increase funding to higher education whenever possible.

NASFAA recently developed a state advocacy toolkit to provide resources and materials to support state-level advocacy for those interested in engaging in state-level student aid policy.

Further, the report calls on policymakers at the state level to adjust funding allocation strategies to promote equity and completion, in addition to ensuring that student financial aid programs are effective by increasing messaging for programs and investing in student support services to complement dollars awarded to students.


Publication Date: 5/24/2021

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