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State Funds vs. Tuition: How Higher Ed Funding Models Have Changed Across States

In Brief

Historically, public colleges and universities have employed a range of funding models to finance their operations. However, over the past decade, on average and in most states, state funding levels have declined while student tuition and fees have increased. This brief explores the data behind public higher education funding trends nationwide.

Introduction

In recent months, several high-profile opinion editorials and reports have shone a spotlight on higher education funding, with particular focus on state disinvestment in public higher education. They found that over the past decade, states have designated less for public higher education, resulting in costs being disproportionately shifted to students in the form of higher tuition and fees.

As significant college costs continue to rise, student enrollment levels continue to rise, placing additional pressure on higher education budgets and making the issue of increasing costs more pertinent to a greater segment of the population.

This article traces trends in public higher education revenues, paying specific attention to how tuition and state appropriation funding, both as absolute figures and as shares of total revenues, has changed from 2003 to 2012. Since 2003, tuition’s share of college revenues has risen by 31%, after adjusting for inflation. At the same time, funds from state appropriations fell from 24% of total revenue to 18%, a 26% drop.  Recognizing most states have a wide range of higher education funding models, which change over time due to politics, economics, and other factors, we describe how these changes have varied across states.

Overview: Sources of Revenue for Public Higher Education

Public postsecondary educational institutions are funded through a variety of means. Below, we provide a breakdown of these revenue sources and their average share of state revenues in 2012.

U.S. Public Higher Education Revenue Sources (2012)

Source: National Center for Education Statistics. “Revenues of public degree-granting postsecondary institutions, by source of revenue and state or jurisdiction.” Digest of Education Statistics.

  • Tuition and fees (21%): The largest source of revenue for public postsecondary institutions in 2012-13.
  • State appropriations (18%): Includes all amounts granted to an institution through the state’s legislature (excluding grants and contracts) for current operating expenses.
  • Other non-operating revenue sources (16%): Includes investment incomes, federal appropriations (such as federal land-grant appropriations), and specified non-operating federal, state, and local grants. This category also encompasses revenues received through the 2009 American Recovery and Reinvestment Act (ARRA).
  • The sales and services of hospitals (11%): A source for higher education revenue in 24 states, which includes all revenues generated by a university-operated hospital.
  • Federal grants and contracts (9%): Revenues marked for training programs, research projects, or other public service purposes.
  • Other sources of revenue (26%): A category that includes sales and services of auxiliary enterprises (8%), independent operations and other (6%), state, local, and private grants (5%) , local appropriations (3%), and other revenues and additions (4%). Complete definitions of the other category are available in the Appendix.

 

Tuition and Fees as a Share of All Higher Education Revenues Have Increased in Recent Years

A review of financial data (adjusted for inflation) from 2003 onward suggests a change in how higher education is financed is underway.

Declining State Appropriations, Increasing Tuition and Fees: Average Across U.S. States (2003-2012)

Source: National Center for Education Statistics. “Revenues of public degree-granting postsecondary institutions, by source of revenue and state or jurisdiction.” Digest of Education Statistics.

From 2003 to 2007, state appropriations increased by 13%, but began declining thereafter, coinciding with the onset of the Great Recession. A similar pattern emerges for state appropriations as a share of total public college revenues: from 2003 state appropriation shares increased by 3%, peaked in 2007, and subsequently decreased by 29%. Overall, in the decade spanning fiscal years 2003 to 2012, state appropriations provided to public colleges decreased in absolute terms by 13% and as a share of total revenues by 26%.

In contrast, growth in tuition revenues outpaced that of all other of revenue sources in the past decade, increasing from $45 billion in 2003 to $70 billion in 2012, a 55% increase. Tuition as a percent of total revenue also increased over this period—from 16% to 21%.  As a result, by 2012, tuition became the leading single source of revenue for public colleges in the United States.

Although national trend data indicates that tuition and fee revenues have increased since 2003 as funding from state appropriations have declined, individual state contexts vary widely. From 2003 to 2012, two states—North Dakota and Alaska—saw increases in state appropriation shares for higher education. These states are exceptions. In absolute terms, state appropriations increased in the remaining states by a large range—from 0.9% (North Carolina) to 96% (Colorado). A similar narrative holds for tuition’s share of college revenues. At one extreme is Wyoming, the only state to have experienced a decrease (11%) in tuition shares over the past decade. At the other end of the spectrum is New Jersey, with a 68% increase. All other states have increased tuition shares from 0.6% (New York) to 67% (Nevada) in the same time period.

Growth in Hospital Revenue

Public Higher Education Revenue Changes (2003-2012)

From 2003 to 2012, total revenues from the sales and services of hospitals, adjusted for inflation, increased by $11 billion, or 43%. This expansion accounts for the third largest relative change among all revenue sources, ranking behind tuition and fees and other non-operating revenues. Funding from the sales and services of hospitals, as a percent of total revenues, also increased—from 9% to 11%—establishing it as the fourth largest single source of public education revenue in 2012. This rank is particularly surprising given only 24 states reported receiving revenue from the sales and services of hospitals in the past decade.

Summary

  • Revenues from state appropriations, both as a share of total revenues and in absolute terms, have decreased on average, over the past decade.
  • From 2003 to 2012, in all states but Wyoming, tuition constituted a rising share of overall public postsecondary education revenues.
  • Funding shares and sources for higher education vary widely from state to state.
  • In the past decade, revenues from the sales and services of hospitals have grown, and in 2012 this category was the fourth largest single source of revenue for higher education.

 

 

Works Cited [+ Expand]

Sanders, B. “Make college free for all.” The Washington Post. October 22, 2015. https://www.washingtonpost.com/opinions/bernie-sanders-america-needs-free-college-now/2015/10/22/a3d05512-7685-11e5-bc80-9091021aeb69_story.html

Campos, P. “The Real Reason College Tuition Costs So Much.” The New York Times. April 4, 2015. http://www.nytimes.com/2015/04/05/opinion/sunday/the-real-reason-college-tuition-costs-so-much.html?_r=0

Watanabe, T. “With money tight, chancellor says UC Berkey must ‘reimagine’ its future.” Los Angelos Times. February 10, 2016. http://www.latimes.com/local/lanow/la-me-ln-uc-berkeley-deficit-20160210-story.html

College Board. “Tuition and Fees by Sector and State over Time.” http://trends.collegeboard.org/college-pricing/figures-tables/tuition-fees-sector-state-over-time

U.S. Department of Education, National Center for Education Statistics. “Fall Enrollment Survey.” Integrated Postsecondary Education Data System. October 2013. http://nces.ed.gov/programs/digest/d13/tables/dt13_303.20.asp

U.S. Department of Education, National Center for Education Statistics. “Glossary.” Integrated Postsecondary Education Data System.  https://nces.ed.gov/ipeds/glossary/index.asp?searchtype=term&keyword=appropriations&Search=Search

U.S. Department of Education, National Center for Education Statistics. “Finance Public (using GASB 34/35).” IPEDS 2015-2016 Data Collection System. https://surveys.nces.ed.gov/ipeds/VisInstructions.aspx?survey=5&id=480&show=all

The White House. “The Recovery Act.” https://www.whitehouse.gov/recovery/about

U.S. Department of Education, National Center for Education Statistics. “Glossary.” Integrated Postsecondary Education Data System. https://nces.ed.gov/ipeds/glossary/index.asp?searchtype=term&keyword=sales+and+services+of+hospitals&Search=Search

U.S. Department of Education, National Center for Education Statistics. “2013-13 Survey Materials: Glossary.” Integrated Postsecondary Educaiton Data System 2012-13.  http://nces.ed.gov/ipeds/surveys/2012/pdf/IPEDSGlossary2012_13.pdf

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