States gave more money to higher ed in 2021, but will pattern hold in the future?

With declining enrollments and lower tuition revenues, institution survival may hinge on increased appropriations.

Backed by federal COVID-19 stimulus money, states broke a long trend of declines in support for higher education by increasing funding by 4.5% to colleges and universities in fiscal year 2021. But will that trend continue once the pandemic subsides?

The commitment by states to fund higher ed was both welcome and surprising, given a pattern of cuts that typically occur after recessions and helped deliver an extra $400 to each full-time student, according to the latest State Higher Education Funding (SHEF) report. However, with tuition revenue declining last year and with enrollments falling by another 3%, officials at the State Higher Education Executive Officers Association (SHEEO) raised concerns about whether institutions could rely on similar allocations in the future.

“We know that many of these investments were made possible by federal stimulus funding, and while federal stimulus funds serve an important purpose in stabilizing state revenues, they should not be considered a replacement for long-term state investments,” SHEEO president Robert Anderson said. “States must continue prioritizing higher education in the years ahead to ensure that institutions are able to serve our students.”

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Last year, without that stimulus money going toward institutions and enrollments declining, SHEEO notes that allocations likely would have dropped by 1%. The SHEF report also highlighted that revenue from tuition and fees again did not keep pace with inflation and likely won’t again in 2022 as inflation has soared above 8%. “This continued decline in tuition revenue puts greater pressure on states not to cut funding to public higher education in the coming years,” the authors wrote. “When federal stimulus funds run out, states will face difficult budgetary decisions, and higher education may face cuts in some states.”

All but five states increased their funding to higher education despite the added stimulus appropriations. Another five—Colorado, Minnesota, New Hampshire, Vermont, and Wyoming—plus Washington, D.C., allocated 20% to support higher ed. Despite those increases, states are still lagging to cover rising costs, and the 4.5% boost can be misleading.

“The trends presented are not reflective of the story in every state,” said Sophia Laderman, associate vice president at SHEEO and lead author. “While only 10 states saw funding declines this year, 29 states have yet to reach funding levels seen prior to the Great Recession. In those states, the national narrative of continued increases may not represent their reality. Even more, there are inequalities in the total revenue public institutions have to educate their students. We know that state funding and institutional revenue impact student outcomes, and the negative impacts of low and disparate institutional revenues disproportionately affect students of color and low-income students.”

Inside the numbers

One of the pivotal data points for higher education leaders is the 3% drop in enrollment, largely among two-year institutions. While COVID-19 can be to blame partly for the 1.4 million lost students since January 2020, SHEEO noted that enrollments have declined now for 10 years and last year’s dip was the worst since 1980. Historically, enrollments should be improving after a deep economic slump, but that is not happening this time. Colleges and universities have relied on tuition revenue to compensate for potential shortfalls over the past two decades, but that has fallen each of the past three years and dipped another 3.2% in 2021. These past two years, higher ed has been saved by the stimulus.

The SHEF report highlights other key statistics from FY2021:

  • Net tuition and fee revenue per full-time student plummeted 72%, and 50% of states got less money from colleges than five years ago. The worst performers in FY2021 were four-year colleges, which saw a 4.8% decline.
  • Total revenue only increased by 1.1% because of stimulus funds ($15,959 per full-time student). Without it, revenue would have fallen 0.3%.
  • The total number of appropriations from stimulus funds increased by 3.6%. In 2020, the increase was 1.3%. Four-year institutions got $288 per full-time student, while community colleges got $214 per FTE.
  • Two-year institutions outpaced four-year institutions in overall allocations by 5.4%, despite getting far less from states. Local funding helped close that divide.
  • Nearly 10% of all allocated state funding went to financial aid in 2021, the most ever, while rising 8.8% year over year ($921 per full-time student).

Most of the state allocations toward higher ed last year were for general operations at public institutions (78.1%). Another 10% went toward research, agriculture programs and medical schools. Only around 2% went to private colleges and universities.

So what will the numbers look like for 2022 and beyond? “Public institutions face uncertainty on where their future revenues will come from,” SHEF authors, including SHEEO Committee Chair Blake Flanders, wrote. “With declining revenue from both states and students and after two years of increased costs due to the pandemic and the switch to online learning, state support for higher education is crucial for the continued success of public institutions. Now is a crucial time to make long-term, sustained investments to promote educational quality and student affordability and to reduce inequality in educational attainment.”

Chris Burt
Chris Burt
Chris is a reporter and associate editor for University Business and District Administration magazines, covering the entirety of higher education and K-12 schools. Prior to coming to LRP, Chris had a distinguished career as a multifaceted editor, designer and reporter for some of the top newspapers and media outlets in the country, including the Palm Beach Post, Sun-Sentinel, Albany Times-Union and The Boston Globe. He is a graduate of Northeastern University.

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