Report: Reimagining State Higher Education Funding

The effects of the COVID-19 pandemic are still unfolding, but already the pandemic seems likely to have an unprecedented impact on higher education finances. In response to declining tax revenues, states are beginning to curtail higher education funding, a key source of revenue for many public colleges and universities. Changing enrolment patterns and rising unemployment has softened demand for some colleges, which can negatively affect tuition revenues. Limitations on in-person activities and increased health-related costs are shrinking auxiliary revenues, a revenue source residential colleges and universities increasingly relied on after the Great Recession.

Much like the pandemic itself, these financial shocks have the greatest impact on the students and institutions with the greatest needs. Colleges and universities that are more reliant on state funding or more sensitive to softening demand are making ever-deeper cuts to expenditures in order to balance their budgets. The colleges that enrol disproportionate shares of lower-income students and students of colour are most affected, and the cuts they are imposing have an outsized impact on the quality of those students’ college experience and their likelihood of graduating. Gaps by race/ethnicity and income in students’ access, affordability, and outcomes pre-date the global pandemic and the Great Recession, but both of these events have put state policymakers in an increasingly precarious position to address them.

Yet, higher education is essential to a state’s economic recovery, both because colleges and universities fuel many local economies and because higher education attainment is vital to individual prosperity and state economic productivity. States that invest in higher education today are more likely to see a greater payoff in months and years of recovery to come.

In fall 2019, Ithaka S+R, with support from the Joyce Foundation, convened a group of experts to identify and discuss the weaknesses in current higher education funding models and develop new ideas and approaches to improve upon current models or revamp the funding system. These experts included researchers, state administrators and policy staff, foundation officials, and institution and system leaders who all have significant knowledge of postsecondary funding. While the world has changed significantly since that meeting, many of the insights that emerged have even greater resonance in a post-COVID context. This brief adapts the findings and recommendations of that discussion to today’s environment.

This brief puts forward four recommendations for how states should approach higher education funding to make it more equitable and cost effective in a time of financial upheaval: prioritising education funding, targeting investments to prioritise equity in access and outcomes, raising new revenues and building partnerships, and improving efficiency and equity of existing resources.

Read the report in full here.