Improving Postsecondary Education Through the Budget Process

Thursday, April 11, 2013

The current approach to funding public higher education may have worked well in past decades, but fiscal changes at the federal and state levels make reform inevitable. Present financing models are unsustainable and the incentives created by them need to change.

Public Higher Education Funding Landscape
Following are some of the key forces and challenges currently facing public higher education finance, which policymakers at the state level as well as higher education institution officials should keep in mind when developing and assessing the merits of potential reforms.

Enrollment growth will persist.
The postsecondary funding problem will not gradually fade away, even if enrollment growth rates appear to be slowing. To meet future goals for increased degree attainment, enrollments will need to continue to grow for the foreseeable future.

State funding will be limited.
State revenues for higher education are still a major source of operating support for public higher education institutions. However, state funds for higher education have been declining on a per capita basis and as a percentage of state appropriations. State spending on higher education is also more erratic than other major areas of state spending—higher increases of state funds for higher education in ‘good economic times,’ and deeper reductions in ‘bad economic times.’

Tuition growth rates will need to slow.
Students are paying more, but in many cases, less is being spent on them. When state and other funds have declined, institutions have tended to shift costs on to student tuitions and fees. Tuitions are rising much more rapidly than spending. One driver of tuition increases is replacement of state funds. However, higher education may have less and less of an ability to increase tuition, as current trends indicate that softened market demand will require institutions to slow tuition growth rates going forward.

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