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State Spending on Higher Education Still Hasn't Recovered From the Recession

And progress on that front may be slowing.
A student walks in front of Dallas Hall on the Southern Methodist University campus in Dallas, Texas.

A student walks in front of Dallas Hall on the Southern Methodist University campus in Dallas, Texas.

In the depths of the Great Recession, states across the country, facing balanced-budget requirements, slashed their spending on higher education. In recent years, as the economy has slowly recovered, states have begun gradually increasing higher education spending, although not to pre-Recession levels. In a new report, researchers from the Center on Budget and Policy Priorities, a progressive think tank, offer concerning evidence that this slow progress has stalled in many states.

During the 2017–18 school year, total state spending on public two- and four-year colleges was $7 billion less (adjusted for inflation) than it was in 2008. As the report notes, "[t]he average state spent $1,502, or 16 percent, less per student in 2018 than in 2008." Only four states—California, Hawaii, North Dakota, and Wyoming—spend more per student today than they did in 2008. In some states, the cuts have been particularly deep—Arizona, for example, currently spends half what it did in 2008.

Perhaps even more concerning is that the trend of the last several years—one of slow, steady growth in higher ed spending in most states—shows signs of stalling in some parts of the country. While national spending was essentially flat between the 2017 and 2018 school years, 31 states actually cut per-student funding (by about 2.6 percent, on average). While some of these cuts were small, others were more significant. Per-student funding in North Dakota, for example, was $1,939 lower in 2018 than in 2017. (Eighteen states increased per-student funding in 2018.)

Public institutions of higher education, which rely heavily on state funding, have responded to these cuts in two ways: They've cut spending, reducing class offerings and eliminating other student services and supports; and they've increased tuition. In fact, according to the CBPP report, inflation-adjusted tuition today is 36 percent higher, on average, than it was in 2008. In Arizona—where cuts to state education funding have been particularly steep—tuition has increased 91.3 percent (or $5,355) since 2008.

These tuition increases have had meaningful effects for families across the income distribution. "In 2008, when the recession took hold, average in-state tuition and fees at a public four-year institution accounted for 14 percent of a family's median household income," the CBPP researchers note. "By 2017 they accounted for 16.5 percent, and in eight states, average annual tuition and fees at a public four-year university accounted for over 20 percent of a household's median pay."

And while low-income students are often eligible for financial aid that blunts the impact of tuition increases, researchers have repeatedly demonstrated that "sticker price" can have a big effect. The evidence suggests that tuition increases reduce enrollment, particularly among low-income students who may not be aware of the financial aid available to them. Past studies have found that cost concerns often lead low-income students to enroll in less selective institutions, despite the fact that the net price at more selective institutions may be equivalent (due to financial aid packages).

There's another reason to be concerned about inadequate state funding for institutions of higher education, particularly community colleges: The decline in funding for community colleges has been accompanied by tremendous growth in the for-profit college industry. Experts believe the two trends are likely related. One 2009 paper found that increases in public funding for community colleges in California led to a decline in the number of nearby for-profit institutions in operation. In other words, in the absence of adequately funded community colleges, the evidence suggests that students are turning to for-profit institutions, which offer dramatically lower economic returns than public institutions (and leave students saddled with much higher debt loads).

There's a vigorous, much-needed debate taking place right now about the college-for-all movement. Politicians and researchers across the ideological spectrum are advocating for innovative models of post-secondary learning that don't assume every student wants or needs a four-year college degree. Virtually everyone, however, agrees that American workers today, and in the future, will need some kind of post-secondary credential to achieve economic security and stability. And that means that the institutions that grant those credentials need more money, not less.