State Funding Rose Last Year. Will it Last?

State funding for public higher education increased by nearly 5 percent in fiscal year 2022, according to the latest State Higher Education Finance (SHEF) report from the State Higher Education Executive Officers Association (SHEEO). 

The boost represents the largest state higher ed investment nationally since the 2008 recession, when massive budget cuts slashed public higher ed funding by $33.8 billion—the impact of which was still felt over a decade later, according to a 2019 SHEF report. 

“Fiscal year 2022 defied several long-term trends in higher education finance,” the report’s authors wrote. “The continued decline in net tuition revenue puts greater pressure on states to not cut funding to public higher education in the coming years.”

Kelsey Kunkle, a policy analyst for SHEEO and a co-author of this year’s SHEF report, told Inside Higher Ed the spike in funding may merely precipitate a steeper plunge. As federal American Rescue Plan Act (ARPA) funding dries up and pandemic-era budget issues persist, some states have been reluctant to foot the bill for higher education, instead pressuring public institutions to implement cost-cutting measures. And while the amount of federal stimulus money that went into higher ed appropriations declined by over 36 percent from 2021 to 2022, ARPA loomed large over states’ abilities to spend more freely in other areas.

SHEEO

“We saw policymakers in many states were willing to fund higher ed at high levels in 2022, but the important context there is that they still had the cushion of federal aid to fill in gaps in their budget even if they didn’t use as much for higher ed,” Kunkle said. “That federal stimulus is waning, and as it does, states are going to have to make some hard decisions.”

Dustin Weeden, SHEEO’s associate vice president, told Inside Higher Ed that the challenge facing state lawmakers and public higher ed leaders now is what to do if the economy takes a serious turn for the worse—as the debt ceiling showdown in Washington threatens to bring about—and federal bailouts are nowhere to be found.

“What we’re seeing is that public higher ed is doing ok for now, for the most part,” he said. “The question is, what does the future hold?”

Defying Expectations

The 2022 funding numbers confounded SHEEO’s predictions from the 2020 SHEF report , which projected cuts to higher ed budgets akin to those made in 2008. It also defied expectations of what usually happens to public higher ed revenue during a recession, even a brief one like the one caused by the COVID-19 pandemic. Usually, Kunkle said, a recession means increasing enrollments due to high unemployment and decreasing public funding due to diminished state revenue. 

Instead, as federal stimulus boosted state revenues and budget coffers overflowed, the exact opposite happened. State appropriations went up 3.8 percent at community colleges and 4 percent at four-year institutions. Meanwhile, full-time enrollment declined for the 11th year in a row. The 10.31 million students enrolled in 2022 represented a 2.5 percent decrease year over year and an 11.5 percent decline from the public enrollment peak in 2011. 

“I actually had a little bet going in the office about what would happen with state funding and revenues at the beginning of the pandemic,” said Eric Syverson, a policy analyst at the Education Commission of the States, an interstate agency that tracks state education policy. “What actually happened upended all expectations.”

SHEEO

Syverson added that as surprising as last year’s boost in state funding was, it does not actually represent a return to pre-Great Recession levels.

“The national trends can be deceiving,” he said. “What happened was many states found themselves in a particularly good position with revenue for a variety of reasons, and that allowed them to make investments in areas that are usually some of the first to be cut in lean times.”

But not all state budgets are created equal: although education appropriations have recovered to pre-recession levels on average, in 28 states, support for higher education is lower than it was in 2008.

Kunkle said she was particularly worried about states like Vermont and Connecticut, where ARPA funding made up a huge chunk of higher ed spending in 2021 and 2022;  in Vermont, it accounted for over 40 percent. And in Connecticut, the gap between depleted ARPA funds and proposed state investments was so large in the latest budget cycle that higher ed leaders have pleaded—and in some cases heatedly argued—with lawmakers for more money, while state officials said institutions would have to adapt to leaner budgets.

Weeden said that as colleges look out over the rim of a projected demographic cliff for traditional-age college students, more public institutions and state systems will likely face pressure from lawmakers to slim down or consolidate. 

“I think it’s very likely that more institutions are going to go the route of West Virginia [University],” he said, referring to the Mountain State’s flagship public institution, which announced last month that it would make proactive cuts to stay ahead of projected budget shortfalls in the coming year. “And like WVU showed, it’s going to be a lot of smaller regional [colleges] doing this, but the flagships are going to have to look at cuts as well.”

Keeping Costs Down

State financial aid increased an average of two percent nationwide in 2022, reaching a record high of $990 per student. Financial aid funding comprised 9.7 percent of all state education appropriations. Kunkle said that was a continuation of a years-long trend, whereby financial aid makes up a larger and larger portion of state higher ed appropriations. 

The more surprising—and for Kunkle, heartening—development was that costs also went down overall across all sectors. The student share of the cost of a degree decreased by 1.2 percent from 2021, falling to an average of 41.7 percent nationwide.

Syverson said reduced tuition rates could go even lower in the future, as public institutions look to attract more students and combat widespread public perceptions about the lack of economic return on a college degree. 

“The price of public college is going down, and it may well keep going that way,” he said. “I think a lot of institutions are realizing we’ve reached the price point that a critical mass of students is willing to pay for college.”

Kunkle said one key takeaway from her work on the latest SHEF report was the importance of enabling public institutions to continue the downward trend in tuition cost, which she said could revert to its pre-pandemic upward tilt unless institutional leaders and lawmakers are intentional about increasing accessibility.

“As federal stimulus money fades, states need to keep finding ways to lower the burden on students,” she said. “There need to be long-term solutions to make and keep college affordable.”