One of the most widely cited explanations for rising college prices is that state and local governments have been cutting funding for higher education for decades. According to this view, universities raise tuition to make up for the lost funding. This type of observation has been repeated so frequently that it is accepted as gospel. Just last month, a New York Times article stunned readers when it suggested that states have cut funding for colleges in half since 1980.The problem with these claims is that they are based on a lot of rhetorical and statistical gymnastics that render even true statements misleading.
But before we dive into these creative interpretations, let’s start with the basic facts about state and local funding (referred to hereafter as state funding for simplicity). The nearby figure shows that inflation-adjusted state funding per student increased by almost $2,000 from 1980 to 2019. As we note shortly, these endpoint to endpoint comparisons can be misleading, so we prefer looking at the long-run trend, which shows that state funding increases by a more modest $30 per student per year. Put simply, state funding has been increasing over time, not decreasing.
Higher Education State Funding per Student
While the facts above are clear, there’s a large and sympathetic audience for a different interpretation of the data—one that shows a decline in funding. And the data can easily be repackaged to give that impression. Here are some of the popular approaches used to achieve that result.
One approach focuses on a narrower time frame than what we present. As the nearby figure shows, funding as we’ve measured it hardly moves in a straight line. In fact, it is highly cyclical, following economic booms and busts. That means anyone who wants to show that funding has declined can easily find two points in time where that was true.
For example, from 2008 to 2012, state funding fell by over $1,900 per student, and even after seven years of recovery, state funding per student was still $260 less in 2019 than it was in 2008. Such drastic changes surely have disruptive effects for colleges and students. But it is fair to point out that 2008 saw the fourth highest level of state funding ever recorded in inflation-adjusted terms, so just about any year that does not set a new high record will show a decline compared to 2008. One could instead pick 2012 as the starting date, in which case state funding has increased by over $1,600 per student. That is a remarkable trend, but one that receives far less attention than analyses that start in 2008.
A second way that the data can be manipulated to show a decline in funding is by not correcting for inflation. The most widely cited study on state funding, the State Higher Education Executive Officers Association’s annual State Higher Education Finance report, takes this approach. The report does not use a broad-based measure of inflation to gauge funding trends, but rather a custom-built price index measuring the changes in the cost of inputs used by universities. While using a custom price index does have valid uses, documenting the change in state support for higher education over time is not among them.
The third way of repackaging the increase in state support into a decline is to compare it with something else that is rising even faster. That is the sleight-of-hand in the New York Times article mentioned earlier that claims funding has been cut in half. The article compares state funding for colleges with personal income. Both are rising faster than inflation, but incomes have risen by much more over time. The Times article labels the gap between the two rates of faster-than-inflation growth as a “cut” relative to income.
Another version of this “relative cut” argument measures state funding relative to total college revenue. In 1980, for example, state funding accounted for 79% of total revenues at universities (state funding plus tuition). By 2019, that percentage had declined to 55%, meaning state funding shrunk dramatically as a relative source of universities’ income. But like the Times example, that’s not because funding declined (it increased by almost $2,000 per student after inflation over that period). It’s because colleges raised tuition at a faster rate than state legislators increased state funding.
All of the focus among policymakers and advocates on state funding—rather than affordability—can be misleading in its own right. State funding is only a proxy for affordability at public colleges, yet that’s what most of the debate is about. So why not simply look at the price that students pay?
That’s the focus of a recent American Enterprise Institute study. It shows that the tuition prices that students from low- and middle-income families pay at public universities after receiving all forms of student aid is less than $2,500 per year. Moreover, that figure has barely increased since the mid-1990s because lawmakers have been increasing student aid by about as much as universities have been raising tuition. Student aid from all sources now averages well over $6,000 per year among low- and middle-income students at public universities. Student aid policies, such as grants, scholarships, and tax credits, have worked quite well in shielding families from rising tuition prices and keeping college within reach regardless of what is happening with state funding. The debate over state funding for colleges misses this important fact.
State budgets are going to be under enormous strain in the coming years as a result of the coronavirus pandemic. And university budgets will surely come under pressure. That doesn’t mean, however, that all statistics regarding dire trends in state funding for universities should be given the benefit of the doubt. If anything, the past decade of debates on the topic shows they should be interpreted with a healthy dose of skepticism.