Lana Oconnell
State universities in the US receive funding from federal and state sources, which contribute to financial aid for students and research projects. In 2013, revenue from federal and state sources made up 37% of the total revenue at public colleges and universities. However, in recent years, there has been a shift in the relative levels of funding provided by states and the federal government, with federal revenue per full-time equivalent (FTE) student surpassing state revenue. This has resulted in budget cuts and reduced funding for public universities, impacting both students and the functioning of colleges. While some states have implemented performance-based funding (PBF) policies, these have not always successfully addressed equity gaps in resources, access, and completion. The ongoing pandemic-driven recession further highlights the need for investments in higher education, but state finances are facing challenges, and the outlook for increased funding is uncertain.
| Characteristics | Values |
|---|---|
| State funding for universities | State governments have cut funding for public universities in the US in the last few decades. |
| Federal funding for universities | Federal funding has increased in recent years, surpassing state funding per full-time student in 2010. |
| Impact of funding cuts | Budget cuts affect scholarship programs and the functioning of colleges. |
| Reasons for funding cuts | State governments typically fail to prioritize education funding during economic downturns, and there are no clear standards for "adequate" spending. |
| Alternative funding sources | Some states have performance-based funding (PBF) policies, but these have not effectively addressed equity gaps. |
| Strategies for improving funding | States should ensure adequate funding, efficient use of funds, and targeted investment in students and institutions with the greatest needs. |
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What You'll Learn
- State funding for public universities has decreased in recent decades
- Federal government provides financial aid to students and research projects
- State funds cover general operations of public institutions
- Budget cuts impact scholarship programs and college functioning
- Performance-based funding policies can widen racial and economic gaps
State funding for public universities has decreased in recent decades
State funding for public universities has been declining for over a decade. States have been cutting their support for higher education, with the most dramatic reductions occurring between 2001 and 2004, and in the aftermath of the Great Recession, which saw a decline in tax revenue. While spending increased slightly in 2013 and 2014, these increases were outweighed by the magnitude of prior cuts. Spending per full-time equivalent (FTE) student in 2014 was nearly 30% below its level in 2000, after adjusting for inflation.
The shift in funding sources has altered the level of public support directed to students and institutions. States have traditionally provided a larger share of assistance to postsecondary institutions and students than the federal government. In 1990, state per-student funding was almost 140% more than that of the federal government. However, over the past two decades, state investments have declined, particularly in general-purpose support for institutions, while federal funding has increased, largely driven by the need-based Pell Grant financial aid program. As a result, the gap has narrowed, and state funding per student in 2015 was only 12% above federal levels.
State appropriations for research and agricultural and medical education have also seen a net decline over the past decade, dropping by $2.3 billion, or 18%, from their highs in 2008. At the same time, federal research funding has primarily benefited a small number of institutions classified as doctoral institutions with the highest level of research activity. Nearly three-quarters of federal research funding to public colleges and universities went to only 16% of such institutions.
The decrease in state funding for public universities has had significant impacts on both institutions and students. To cope with funding cuts, colleges have increased tuition fees, reduced faculty, limited course offerings, and even closed campuses in some cases. As a result, the cost of college has shifted from states to students, making it more challenging for them to enroll and graduate. Annual published tuition at four-year public colleges has risen by $2,708, or 37%, since the 2008 school year. In some states, such as Louisiana, published tuition at four-year schools has doubled, while in seven other states, it has increased by more than 60%. These tuition hikes have exacerbated the long-term trend of college becoming less affordable, particularly for students from low-income backgrounds, students of color, and those from non-traditional backgrounds.
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Federal government provides financial aid to students and research projects
The US Federal Government provides financial aid to students and research projects through the Federal Student Aid (FSA) office of the US Department of Education. The FSA manages student financial assistance programs authorized under Title IV of the Higher Education Act of 1965. These programs provide grants, work-study funds, and loans to students attending college or career school. The Federal Government awarded more than $120 billion in 2022 in grants, work-study funds, and low-interest loans to approximately 13 million students.
The Federal Government also provides financial support for research projects, primarily through grants. These grants are awarded to research institutions to support meritorious scientific research that deepens understanding, stimulates innovation, and contributes to the advancement of scientific knowledge for the public good. The National Institutes of Health (NIH), for example, awards grants to fund research aimed at reducing the spread of communicable diseases. The Department of Health and Human Services (HHS) and the Department of Energy (DOE) are the two federal agencies that have committed the most funding to universities, with each providing over $100 billion in grants and contracts in fiscal year 2024.
The Federal Government has also provided additional funding in response to the COVID-19 pandemic, such as through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Furthermore, the Federal Government seeks to optimize the use of federal funds for research support, as there has been a decline in the level of funding allocated to research in recent years.
To receive federal financial aid for college, students can visit StudentAid.gov for complete information. The Federal Student Aid Information Center helps students complete the necessary forms and provides free information about the available programs. Specialists are also available by phone to provide assistance and guidance regarding financial aid programs.
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State funds cover general operations of public institutions
State and federal governments have long provided substantial financial support for higher education. However, in recent years, their respective levels of contribution have shifted significantly. While the federal government primarily provides financial assistance to individual students and funds specific research projects, state funds cover the general operations of public institutions.
State funds are primarily used to support the general operations of public institutions, with smaller amounts appropriated for financial aid and research. This funding is essential for covering the daily and long-term operations of these institutions, ensuring that they can continue to provide education and services to their students and the community.
The general operations of public institutions include a range of expenses such as administrative costs, faculty and staff salaries, maintenance and upkeep of facilities, and other operational costs. State funding helps to ensure that these institutions have the necessary resources to cover these expenses and provide a high-quality education to their students.
In addition to supporting the general operations of public institutions, state funds also play a crucial role in increasing access to postsecondary education. By providing financial support to public institutions, states help to keep tuition costs lower than they would otherwise be, making college more affordable for students. This is particularly important for low-income and first-generation college students, who may rely heavily on financial aid and affordable tuition to access higher education.
While state funding for higher education is essential, it has faced significant challenges in recent years. Since the Great Recession, state spending on higher education has declined, while federal investments have grown sharply. This shift in funding sources has altered the landscape of higher education, with federal funding increasingly playing a more significant role in supporting public colleges and universities. Despite these changes, state funding remains crucial for covering the general operations of public institutions and ensuring that higher education is accessible to a wide range of students.
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Budget cuts impact scholarship programs and college functioning
State universities receive funding from a variety of sources, including federal and state governments, tuition fees, and private donations. However, when state funding is cut, it can have a significant impact on scholarship programs and the overall functioning of the university.
Budget cuts in higher education have contributed to rapid and substantial tuition increases, making it more challenging for students to enrol and graduate. These cuts also worsen racial and class inequality, as higher tuition fees can deter low-income students and students of colour from pursuing a college education. To compensate for the loss in funding, universities may increase tuition fees, reduce financial aid packages, or cut certain academic programs.
The complexity of university financial reporting can make it difficult to understand the full impact of budget cuts on their operations. While universities track every dollar in accordance with accounting rules, their financial reports may not fully reflect the costs of teaching and research, or the subsidization of programs. This lack of transparency can lead to decisions that negatively affect the productivity, efficiency, and overall quality of education at public universities.
In response to budget cuts, universities may focus on reducing costs associated with academic programs. However, this approach can be counterproductive, as the main costs in a university are typically not programs but faculty members. Decreasing the number of programs without reducing the size of the faculty can actually increase efficiency.
To mitigate the impact of budget cuts on scholarship programs and college functioning, universities can explore alternative funding sources and develop strategies to improve efficiency. Diversifying financial aid sources, such as institutional scholarships, state-specific aid programs, and work-study opportunities, can help offset the reduction in federal funding. Additionally, applying for scholarships early and reevaluating savings plans can help students and families navigate the financial challenges posed by budget cuts in higher education.
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Performance-based funding policies can widen racial and economic gaps
Performance-based funding policies in education can inadvertently widen racial and economic gaps. Research has shown that increased federal spending on education helps to mitigate funding disparities between low-poverty and high-poverty districts. When federal spending is inadequate, districts serving economically disadvantaged students and students of colour suffer greater funding declines, exacerbating existing inequities.
For example, during the Great Recession, all students in grades 3–8 experienced negative effects on their math and English language arts (ELA) achievement. However, the impact was more severe in districts with higher concentrations of economically disadvantaged students and students of colour. Similarly, while achievement gaps between racial and ethnic groups have narrowed over the last two decades, students from lower-income backgrounds continue to lag, with gaps persisting and even widening in some cases.
The racial wealth gap is a critical factor contributing to these disparities. Despite some improvements, the median wealth gap between white and Hispanic families remains significant, and the gap between white and Black families has shown little change over the years. These disparities in wealth by race have serious implications for the economic security of families and the overall economy. Structural solutions are needed to address discrimination and bias in markets and improve support for households during financial distress.
Furthermore, inequitable policies that hinder wealth accumulation for certain racial groups negatively impact economic security for all. Societies with greater inequality tend to invest less in public goods like education, infrastructure, and public transportation, which are essential for enhancing productivity and promoting social mobility.
To promote equity and shield students from funding shortfalls, a more substantial federal role in education funding is necessary. Increased federal spending after recessions can help boost economic recovery and ensure that all students, regardless of race or economic background, have access to a quality education. Without addressing these funding disparities, performance-based funding policies will likely widen racial and economic gaps, further disadvantaging already marginalized communities.
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Frequently asked questions
It refers to financial assistance provided by state universities to their students. This can include scholarships, grants, and other forms of monetary aid to support their education.
State universities provide financial aid to support students who may be facing financial hardships. It also helps promote educational opportunities for individuals from diverse backgrounds, ensuring that financial barriers do not prevent them from pursuing their academic goals.
The amount of money provided by state universities can vary significantly. It depends on various factors, including the student's financial need, academic merit, and the specific policies and funds available at the university and state level.
The funds can come from various sources. Primarily, state universities receive funding from state governments, which is then allocated towards financial aid for students. Additionally, universities may generate revenue through tuition fees, endowments, and research grants, which can also contribute to the financial aid budget.
