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Data indicates decreased funding for higher ed points to worsening outcomes for students

November 19, 2020
By: Ellen Marrison

In addition to decreasing enrollment numbers at both two- and four-year institutions of higher education, detailed in an earlier SSTI Digest story, higher ed is facing other threats from looming state budget cuts. While enrollment numbers are still in flux, many universities are already making drastic budget reductions, and that pain will ultimately land on students, which could impact educational attainment and student debt for years.

A press release accompanying the most recent State Higher Education Finance (SHEF) report noted that “public higher education finance has never been more precarious. Institutions face increased costs, loss of tuition revenue, and unknown enrollment for the coming academic year.” Moody’s Investors Service found that both private and public colleges are likely to lose net tuition revenue in FY 2021, the first time in 12 years the tuition survey has reported such a loss. Meanwhile, reductions in state budgets firmly indicate sweeping cuts are coming for higher education. The SHEF report for FY 2019 noted that the “2.4 percent increase in per-student education appropriations marks the likely end of a seven-year recovery in higher education funding.”

The picture worsens for students and families that rely on college promise programs, which are place-based scholarship programs, some of which appear to be increasingly under threat.

An Inside Higher Ed story found that the Oregon Legislature cut its promise program by $3.6 million, New Jersey’s Garden State Guarantee was withdrawn in May, and New York’s Excelsior Scholarship, while funded for this fall, is also reportedly facing cuts as the state deals with a projected $62 billion revenue loss over four years.

Declining state funding for higher education isn’t new. In 1990-1991, state appropriations covered 39 percent of total expenditures. That dropped to 33 percent by 2000 and 26 percent by 2005. In 2017-2018, state appropriations accounted for 19 percent of total expenditures among all public institutions, according to a September staff report from Rajashri Chakrabarti, Nicole Gorton and Michael Lovenheim at the Federal Reserve Bank of New York. Their report examines whether reduced support for higher education lowers the return to postsecondary investments made by students. Their analysis examines student debt and default as well as long-run outcomes of students.

The authors found that state appropriations have positive long-run effects on student outcomes, although that varies between four- and two-year sectors. In the four-year sector, cuts lead to price effects that are reflected in student loans. Among two-year students, there are effects that impact student loan, educational attainment, and consumption/credit outcomes of students into their mid-30s. In both sectors, the authors found that cuts in state funding are likely to have contributed to the increase in student debt over the past several decades.

“Furthermore,” the report states, “because schools that serve students from lower-income backgrounds are most affected by state appropriations cuts, reductions in state support have helped exacerbate inequality and stratification of outcomes in the postsecondary sector.”

higher ed, funding