federal and state funding of higher education

State funding has decreased continually for the past two decades and most recent federal tax reform and financial aid administrative actions have further diminished overall higher education funding and access. Federal loans grew 376 percent between 1990 and 2013 in real terms, compared with enrollment growth of 60 percent. Just over half of this amount ($24.2 billion) was in the form of private loans guaranteed and subsidized by the federal government; the remaining a… 3 Tax on Endowments Became Law, Chronicle of Higher Ed, March 8, 2018. The federal government also influences education by allocating funding only to those school districts that follow certain federal guidelines. A major shift has occurred in the relative levels of funding provided by states and the federal government  in recent years. FEDERAL FUNDS FOR HIGHER EDUCATION. It also is possible the problem could be addressed in the reauthorization of the Higher Education Act, but it is unlikely that reauthorization will occur as early as March 2018. Federal Tax on Charitable Contributions to Higher Education. For example, North Carolina’s and Wyoming’s constitutions stipulate that public institutions should be as close to free as possible, and schools in both states receive above-average state revenue and below-average net tuition revenue. • Tuition increases have continually shifted cost to students, state revenue shortfalls accelerate this process. Federal student loan provisions have also been recently reviewed by the Department of Education’s Office of Inspector General, which issued its report January 31, 2018. That is, higher education has been provided by independent nonprofit institutions, public institutions, and private proprietary (for-profit) institutions. Other elements, such as the amount of revenue from tuition, also differ. At the Federal level, the two most directly relevant actions are: 1-provisions specific to higher education in the tax reform legislation enacted in December 2017 and 2-US Department of Education administrative considerations on financial aid, particularly related to federal student loan programs. The analysis raised concerns that the amount of federal student loans provided is in excess of the trends in repayment and the difference is increasing substantially. The biggest decline at the state level was in general-purpose appropriations for institutions, which fell by $14.1 billion (21 percent) over the same period. State Direct Appropriations for Higher Education. In all, federal spending on major higher ed programs reached $74.8 billion in 2017 — though that figure excludes student loans and tax deductions — while states spent $87.1 billion. The federal government also supports higher education through the tax code. Between 2001 and 2016, 36 states increased the percentage share of dependence on tuition by more than 50%1. This means having an understanding of the billions of dollars made available through spending programs and the tax code. States with high levels of research support are concentrated in the Northeast. Schools in New York spent $23,091 per pupil, the highest tally of any state, followed by the District of Columbia, Connecticut, New Jersey and Vermont. Because these expenditures allow taxpayers to reduce their income taxes, they reduce federal revenue and are similar to direct government spending. The federal government plays a critical role in providing financial support for higher education. Federal funding variation stems from differences in students’ financial needs and in the types of research conducted in each state, among other factors. Similarly, per-capita federal research funding ranged from $37 in Maine to $476 in the District of Columbia, compared with a national average of $124. Funding for major federal higher education programs grew significantly from the onset of the recession, even as state support fell. 4 Final Tax Bill, Chronicle of Higher Ed, December 15, 2017, 5 Passage of Senate Tax-Reform Bill, Chronicle of Higher Ed, December 1, 2017, 6 Costs of Income Driven Repayment Plans and Loan Forgiveness Programs, US Dept. Included in the brief are policy and practice changes that address meeting college attainment goals and ensuring affordability for low and middle income students. This bill would reverse the tax on endowments and Congressman Byrne commented on his bill: “We should all be looking for ways to increase access to higher education, and endowments play a very important role in funding scholarships, student aid, and important research initiatives.”. Enter your email address to subscribe to this blog and receive notifications of new posts by email. Before reading about federal, state, and local funding, it is important to remember that each state has a different breakdown of funds, based on such factors as how much federal funding it gets. Policymakers across the nation face difficult decisions about higher education funding. See Appendix A, Figure 2 for more information about federal funding categories. In a constrained fiscal environment, policymakers also will need to consider whether there are better means of achieving shared goals, including student access and support for research. Copyright © 1996-2020 The Pew Charitable Trusts. Sorry, your blog cannot share posts by email. Furthermore, US trends in attainment during the past decade have been flat while attainment levels in other developed countries have increased substantially. Change ), You are commenting using your Twitter account. the depiction of current interrelationships in the funding of higher education by reframing the current role of direct federal funding for higher education and concludes with recommendations to improve the interplay of federal funding with other funding partners. Current Congressional leadership members have strongly advocated recently for such federal funding reductions. But this difference narrowed dramatically in recent years, particularly since the Great Recession, as state spending declined and federal investments grew sharply, largely driven by increases in the Pell Grant program, a need-based financial aid program that is the biggest component of federal higher education spending. Although their funding streams for higher education are now comparable in size and have some overlapping policy goals, such as increasing access for students and supporting research, federal and state governments channel resources into the system in different ways. Federal and State Funding of Higher Education by Sabrina I. Pacifici on Jun 11, 2015 Pew, A changing landscape – “States and the federal government have long provided substantial funding for higher education, but changes in recent years have resulted in their contributions being more equal than at any time in at least the previous two decades. A Lumina Foundation report compared US attainment trends to international trends among developed countries. Total federal higher education funding varies widely across states, and the major types of funding have very different geographic distributions. The founders and its advisory members have assisted higher education institutions on a variety of projects, and many have held senior positions in higher education in the United States and internationally. The levels of state support roughly correlate with the population of the state. However, higher education is unlike these other areas, where there are generally federal-state funding matches or states are required to maintain a certain funding level to receive federal dollars. Understanding the funder's goals and requirements will help you not only plan the proposal but ensure that it includes all of the information needed for review and serious consideration. The Journal addresses current topics and issues facing higher education worldwide. The impact of reduced charitable donations to public colleges and universities most significantly affects student financial aid. Public colleges and universities educate 68 percent of the nation’s postsecondary students. For example, with a population nearly 40 million, the state of California allocates more than $15 billion on higher education. Roughly three percent of the federal budget is spent on education as of 2017 - a small proportion, of course, but in many years this amounts to billions of dollars. In higher education, states can, for the most part, cut spending without a loss of federal support. A report by the Congressional Joint Committee on Taxation estimates the 2017 tax reform legislation will result in a $95-billion drop in total charitable giving nationwide amounting to a 40% reduction overall. Per-student funding rose in nine states: Alaska, California, Hawaii, Illinois, Montana, New York, North Dakota, Wisconsin, and Wyoming. State governments spent $87 billion on higher education in 2017. State contributions can vary significantly. States and the federal government have long provided substantial funding for higher education, but changes in recent years have resulted in their contributions being more equal than at any time in at least the previous two decades. The doubled standard deduction in the new tax reform law clearly affects charitable giving well beyond higher education as well. Figure 1 provides an overview of the components of this fund. The Inspector General’s report noted that the problem is due to the increased income-driven repayment (IDR) loans, which allow students to repay their loans over an extended time period in correlation to their actual income. The federal spending areas that experienced the most significant growth were the Pell Grant program and veterans’ educational benefits, which surged by $13.2 billion (72 percent) and $8.4 billion (225 percent), respectively, in real terms from 2008 to 2013. Change ). Ninety-eight percent of state and 73 percent of federal higher education funding flows to these institutions. ( Log Out /  First, the federal government supports and directs two types of activities within higher education where it believes there is a primary federal responsibility: assuring access to postsecondary education and sustaining basic and applied research that is in the national interest. Such approaches could entail more coordination, other funding mechanisms, or policy reforms. In 2013, federal spending on major higher education programs totaled $75.6 billion, state spending amounted to $72.7 billion, and local spending was considerably lower at $9.2 billion. For more information, see Appendix A. Federal leaders, for example, are debating the future of the Pell Grant program. In 2016 tuition revenues accounted for more than 50% of public college and university budgets in 22 states. of Education Office of the Inspector General, January 31, 2018, 7 Closing the Gaps in College Attainment, Lumina Foundation, April 2014, 8 Higher Education State Policy Issues for 2018, AASCU, January 2018. State policymakers, meanwhile, are deciding whether to restore funding after years of recession-driven cuts. The Obama administration has proposed increasing the maximum Pell Grant award to keep pace with inflation in the coming years, while members of Congress have recommended freezing it at its current level. The major source of funding for public institutions of higher education is direct support from the state. The National Association of State Budget Officers (NASBO) December 2017 report noted that state budget expenditures grew only 2.3 percent in fiscal year 2017 compared to the previous year which is the lowest increase since the 2008 recession and was a key factor leading to Moody’s Investor Service downgrading higher education’s financial outlook from stable to negative in December 2017.8, Federal Higher Education Specific Budget and Policy Issues. Pandemic-Driven Economic Slowdown Puts Renters at Risk, Broadband Connectivity Affects Educational Attainment. State Funding Cycles • Higher education funding is cyclical. During the past two decades, state and federal funding trends have significantly reduced student access to higher education programs. The reduction in higher education contributions has been estimated at $13 billion reduction.4, Federal Tax on College and University Endowments. These plans have increased 625 percent between 2011 fiscal year and 2015 fiscal year. These figures represent the volume, rather than the cost, of those loans. In addition to the impact on student financial aid resources from higher education charitable contributions and endowments, other federal proposed tax and administrative actions have further potential major impact. Higher education funding also comes from other federal agencies such as the U.S.Departments of Veterans Affairs and Health and Human Services, and the National Science Foundation. Zemsky believes a…. Since 2001, in 49 out of 50 states, higher education appropriations have decreased and tuition revenues have increased substantially as share of funding for public colleges and universities. The federal government invests in higher education for two reasons. Their actions on these and other critical issues will help determine whether the shift in spending that resulted in parity is temporary or a lasting reconfiguration. Federal-state partnerships, which incentivize states to maintain or raise their current level of higher education support in order to receive additional federal funding, are not new. But this difference narrowed dramatically in recent years, particularly since the Great Recession, as state spending declined and federal investments grew sharply, largely driven by increases in the Pell Grant program, a need-based financial aid program that is the biggest component of federal higher education spending. Between 1990 and 2013, the number of FTE students grew by 60 percent. These data have been updated. Endowment funding is key to productive research across all disciplines and student support at both the undergraduate and graduate level. The critical result is decreased access to higher education opportunity. 98% of state support for higher education goes to public institutions. Although the federal and state funding streams are comparable in size and have overlapping policy goals, such as increasing access for students and fostering research, they support the higher education system in different ways: The federal government mostly provides financial assistance to individual students and funds specific research projects, while states typically fund the general operations of public institutions, with smaller amounts appropriated for research and financial aid. These figures exclude student loans and higher education-related tax expenditures. Eighteen states cut funding per student by more than 20 percent, and in eight of those states the cut exceeded 30 percent. In light of these proposals, one of which would increase federal aid funding by $100 billion over 10 years, we review the current state of affairs in higher education, the impact that increased federal aid has had so far, and whether more federal aid is the correct treatment for … The Obama administration has proposed increasing the maximum Pell Grant award to keep pace with inflation in the coming years, while members of Congress have recommended freezing it at its current level. In fiscal year 2000 the federal government provided $47.7 billion in financial aid to college students at both the undergraduate and graduate levels, a sum that represented 70 percent of all aid available that year. The response to this report has the potential for major impact on several million students who depend upon these loans for their access to higher education opportunities. Without adjusting for enrollment growth, total federal revenue grew by 92 percent from $43.3 billion to $83.2 billion in real terms, while state revenue fell by 9 percent from $77.8 billion to $70.8 billion after adjusting for inflation. Find Grant Funding for Higher Education Once you have an idea for your proposal, matching your objectives to those of a funding organization is the next step. The income-driven repayment loan amount has increased from $7.1 billion in FY 2011 to $51.5 billion in FY 2015 resulting in a federal subsidy cost increase of 748 percent (from $1.4 billion to $11.5 billion).6. Change ), You are commenting using your Google account. A January 2018 report by the Association of State Colleges and Universities stated: “Beyond uncertainty emanating from Washington, lawmakers in many states will have challenging sessions due to stagnant state revenue growth. States, by contrast, provided only $840 million in loans that year, less than 1 percent of the federal amount. Dr. Jay Noren M.D. Their actions on these and oth… The debate on this issue continues. including Federal laboratories, and at institutions of higher education to remove or reduce cultural and institutional barriers limiting the recruitment, retention, and success of women and underrepresented minorities in academic and Government STEM research careers. Historically, states have provided a far greater amount of assistance to postsecondary institutions and students; 65 percent more than the federal government on average from 1987 to 2012. In this Lumina analysis attainment is described as “…high-quality postsecondary credential… leading to further education and employment.”7   An analysis of higher education attainment by the Organization for Economic Cooperation and Development (OECD) found that the United States rank has fallen in the past decade to 11th among 15 economically advanced countries. A new study points out that state funding cuts for colleges over the past 30 years may be a result of increased welfare spending and changing public perceptions of higher education. The remaining funds went towards research funding and grants. Additionally the House bill would have eliminated the deductions for several forms of financial aid including deductions for up to $2,500 of interest paid on student loans; the Hope Scholarship Tax Credit, worth up to $2,500; the Lifetime Learning Credit up to $2,000; and the $5,250 corporate deduction for employee education-assistance plans.5 Fortunately for students, these provisions were eliminated in the Senate bill and the final legislation. An important observation that is relevant to funding impact on higher education access is the trend in level of higher education attainment experienced in the United State in recent years. This fund is for higher education institutions, elementary and secondary schools, and states to cover costs related to the COVID-19 outbreak. To maximize the impact of higher education investments and achieve desired policy goals, policymaker should have knowledge of the full range of assistance provided to institutions and students. Local funding of $9.2 billion largely supports the general operating expenses of community colleges. $66 billion went towards general operations. ( Log Out /  The report noted that the Federal Student Aid Office Strategic Plan for fiscal years 2015–2019 stated that as more students select income-driven repayment (IDR) plans that allow for student loan forgiveness, the cost could be a major issue for the Federal government. Per-FTE-student revenue flowing to public institutions from federal sources ranges from $3,465 in New Jersey to $10,084 in Hawaii, and from state sources spans between $3,160 in New Hampshire and $19,575 in Alaska. From 2000 to 2012, revenue per FTE student from federal sources going to public, nonprofit, and for-profit institutions grew by 32 percent in real terms, while state revenue fell by 37 percent. We are driven by the power of knowledge to solve today's most challenging problems. Although the final tax legislation limits the tax to very large endowments defined as institutions with levels greater than $500,000 per student enrollment, it nonetheless raises great concern that the precedent could expand in the future to taxing endowments in a much larger proportion of colleges and universities3. For higher education, one of the major concerns is how the tax bill and other federal policies will impact state funding models and charitable giving. When a revenue problem develops due to recession, state support declines. Four areas are of most significance: The impact of these state and federal actions are separate from the impact that will result from the legislative reauthorization of the Higher Education Act which could occur in the current Congressional session but will more likely occur in the next Congress following the 2018 elections. With the temporary increase in funding for the federal highway trust fund set to run out by May 2015, states and localities are again facing the prospect that shortfalls in the fund could delay or reduce the federal money they rely on for transportation projects. States have collectively scaled back their annual higher education funding by $9 billion during that time, when adjusted for inflation, the Center on Budget and Policy Priorities, or CBPP, reports. During those years, the number of full-time equivalent (FTE) students grew by 1.2 million (8 percent). is the Founding Director and Professor-Clinician Executive Master of Healthcare Administration Program, University of Illinois-Chicago College of Medicine and School of Public Health. Pew applies a rigorous, analytical approach to improve public policy, inform the public, and invigorate civic life. In the context of these higher education attainment trends, the past and current state and federal policy directions related to higher education funding do not provide optimism for increased United States competitiveness internationally in higher education attainment and related economic development. Nationwide, 2018-19 state appropriations for higher education are $280.24 per person and $5.26 per every $1,000 in personal income. The number of FTE students at the nation’s colleges and universities grew by 45 percent during the same period. The value of federal tax expenditures for higher education is $29 billion larger than it was in 1990 in real terms. In 2013 the federal government spent nearly $76 billion on higher education, while states spent about $3 billion less, according to the "Federal and State Funding of Higher Education" study. States provided, on average, $299 per capita in higher education funding in 2017, which remains below levels of support prior to the Great Recession. 40-year career includes President of Wayne State University, Founding Provost of Khalifa University in Abu Dhabi, the founding Dean College of Public Health The University of Nebraska Medical Center, as well as the Executive Vice President and Provost for the University of Nebraska. There’s another unexamined aspect to state funding of higher education at work as well, one of unintended consequences. Public College Revenue from State Sources and Tuition, Fiscal Years 2003 through 2012. This chartbook is intended to provide a starting point for answering such questions by illustrating the existing federal- state relationship in higher education funding, the way that relationship has evolved, and how it differs across states. The final tax reform legislation in December 2017 created a new tax on college and university endowments that creates an unprecedented approach departing from the long-established tax policy that exempts non-profit higher education institutions from taxation on these funds. Accompanying data tables and methodology are available. Federal Education Funding Sources . Don't miss our latest facts, findings, and survey results in The Rundown, Federal and State Funding of Higher Education, In Oregon, Removing River Barriers Helps Fish Thrive, European Fisheries Need Transparent Management, Pacific Fisheries Must Improve Sustainability, Science and Flexibility Improves Ocean Conservation in East Africa.