SHEF: State Higher Education Finance - SHEF

STATE HIGHER EDUCATION FINANCE

Despite eight years of increases in state support, public colleges entered the 2020 recession with historically low funding.

Most states have not recovered from prior recessionary cuts in state funding and now face declines in their other revenue sources. Public institutions may be in a more precarious financial situation than at any other time in recent history. Amid this uncertainty, the SHEF report offers a comprehensive look at where states stood as they weathered the COVID-19 pandemic and economic recession.

In fiscal year 2020, a 2.9% increase in per-student education appropriations marked the likely end of an eight-year recovery in higher education funding. Higher education continues to serve as a pressure release valve for state budgets. 1 1During previous economic recessions, states have disproportionately cut funding to higher education in order to balance their budgets. For more information, see Delaney, J., & Doyle, W. (2011). State spending on higher education: Testing the balance wheel over time. Journal of Education Finance, 36(4). http://www.jstor.org/stable/23018116 VIEW ALL FOOTNOTES

Nationally, public institutions in 2020 received an average of $8,636 in education appropriations per full-time equivalent (FTE) enrollment. i i Net full-time equivalent (FTE) enrollment Full-time equivalent (FTE) enrollment converts student credit hours to full-time academic year students. FTE excludes medical students. VIEW ALL DATA DEFINITIONS

State funding has declined over time

After unprecedented cuts during the last two economic recessions, education appropriations per FTE today remain 6.0% and 14.6% below 2008 and 2001 levels, respectively. i i Education appropriations Education appropriations measure state and local support available for public higher education operating expenses and exclude research, hospitals, and medical education. VIEW ALL DATA DEFINITIONS

As state funding declined, public institutions became increasingly supported by tuition and fees

Net tuition revenue has grown 62% over the last 20 years but has recently begun to decline. In 2020, public institutions received $6,723 per FTE in net tuition revenue. i i Net tuition revenue Net tuition revenue is the total amount of tuition and fees, minus state and institutional financial aid and medical tuition and fees. Net tuition is affected by changes in tuition rates as well as proportional differences in out-of-state, international, and graduate student enrollment. VIEW ALL DATA DEFINITIONS

These two revenue sources, which total $167 billion, serve 10.9 million FTE students

2020 marks a likely high point in total education revenue, i i Total education revenues Total education revenues refer to the sum of education appropriations and net tuition, excluding net tuition revenue used for capital debt service. VIEW ALL DATA DEFINITIONS as tuition and state funding are both expected to decline in 2021. 2 2Laderman, S., & Tandberg, D. (2021). SHEEO analysis of fiscal year 2021 state funding for higher education. State Higher Education Executive Officers Association. https://sheeo.org/wp-content/uploads/2021/03/SHEEO_Analysis_FiscalYear2021_State_Funding.pdf VIEW ALL FOOTNOTES

Past recessions have seen countercyclical growth in student enrollment

In the past, enrollment increased rapidly during and following economic downturns, while state funding decreased, and tuition rose. In contrast, the years following the 2020 recession will likely be marked by declining enrollment and decreases in tuition revenue.

State and local funding comes from a variety of sources

Across the board, support is primarily made up of state tax appropriations. These funds are supplemented with local appropriations in 31 states. Many states also rely on non-tax sources (lottery, tobacco, and gaming revenues).

Higher education uses these state and local funds in numerous ways

While the majority of state funding is used for general operations at public institutions, 11% goes to student financial aid and 10% is used for research, agriculture, and medical purposes.

Most state financial aid dollars go to students at public, in-state institutions

Public aid accounts for $9.1 billion of the $11.5 billion in total state financial aid. In 2019, 74% of state financial aid was allocated based on financial need. 3 3National Association of State Student Grant Aid Programs. (2020). Annual survey report on state-sponsored student financial aid. https://www.nassgapsurvey.com/survey_reports/2018-2019-50th.pdf VIEW ALL FOOTNOTES

Unlike the rest of state support, financial aid has increased over the last two decades

In 2020, states provided $830 per FTE in public financial aid, i i State public financial aid State public financial aid is any state appropriated student financial aid for public institutions, excluding loans. These funds are included in education appropriations. VIEW ALL DATA DEFINITIONS an all-time high and a 7% increase over last year.

Financial aid accounts for an ever-growing portion of education appropriations

Only 5.1% of education appropriations were used for public financial aid at the height of per-student appropriations in 2001. This proportion increased dramatically during the last two economic recessions and reached 9.6% in 2020.

Increases in financial aid mirror changes in the student share

During the last two recessions, state funding declined, and tuition revenue increased, placing a growing burden on students to fund public higher education. In 2020, 44% of total revenues came from tuition. i i Student share The student share is a measure of the proportion of total education revenues at public institutions coming from net tuition revenue. VIEW ALL DATA DEFINITIONS It is not clear how this will change following the 2020 recession.

However, the student share differs greatly across the U.S.

The share of total revenue coming from students is highest in the Midwest and Northeast and lowest in the West. At two-year institutions, the average student share was less than a quarter (24%). At four-year institutions, the average student share was over half (53%).

In half of all states, tuition and fees have become the primary revenue source for public higher education

Although every state has different levels of state support and tuition revenue over time, the student share has increased in all states. In seven states, the four-year student share is greater than 75%.

Explore the 2020 findings with all new sector-level details

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