Federal COVID-19 Funds Helped States Increase Higher Ed Spending

In fiscal year 2021, state funding for public institutions increased by 4.5% above inflation, even as the COVID-19 pandemic continued to hurt the economy and college enrollment.

The increase in education appropriations after a brief pandemic-related recession marks a departure from past economic tumults, according to the latest State Higher Education Finance report from the State Higher Education Executive Officers (SHEEO) Association.

“In all previous recessions since 1980, education appropriations per FTE (full-time equivalent) declined in the year following an economic recession,” the report said. “For the first time in 2021, this trend did not continue: Inflation-adjusted education appropriations per FTE increased 4.5% in the last year ($400 per FTE), reaching $9,327.”

The report attributes the break from previous higher education finance trends to “generous federal stimulus and relief funding, which supported total state revenues, reducing budget strain while also directly supporting higher education during the COVID-19 pandemic.”

Education appropriations increased even as enrollment declined by 3%, or by about 323,952 students, between 2020 and 2021, according to the report.

It marks the 10th straight year of declines following an enrollment boost that corresponds with the Great Recession, which began in late 2007. The vast majority of states — 47 and Washington, D.C. — saw full-time equivalent declines, which the report states is “more than any previous year.”

The decline was largely at two-year public institutions, which saw a 6.1% decline between 2020 and 2021 compared to a 0.9% decline at four-year institutions. Forty-three states saw a larger decline in enrollment at two-year institutions than at four-year institutions.

While the report credits federal stimulus funding with helping higher education weather the pandemic and enrollment declines, it also notes that federal relief funds “cannot be a replacement for long-term state investments,” since the federal funding is generally time-limited and comes with usage restrictions.

“Now is a crucial time to make long-term, sustained investments to promote educational quality and student affordability and to reduce inequality in educational attainment,” the report said.

State and local funding for higher education in fiscal year 2021 totaled $113.2 billion. Roughly $3.7 billion of that funding, or 3.2%, came from federal stimulus funding. And all but five states used some portion of federal stimulus funding for higher education, according to the report.

The five states that didn’t use federal funding provided to state governments for higher education were Alabama, Nevada, New York, Oklahoma, and West Virginia.

In 45 states and Washington, D.C., however, federal funding accounted for a significant portion of higher education expenditures. And Colorado, Minnesota, New Hampshire, Vermont, Wyoming, and D.C. used stimulus funding for more than 20% of higher education support.

Federal stimulus money accounted for 3.6% of all education funding for public institutions in 2021. The report notes that if enrollment had been steady and states didn’t use federal funding for higher education, overall education funding would have declined by 1%.

“When excluding federal stimulus funding, 10 states had declines in inflation-adjusted education appropriations per FTE in the two-year sector and 27 states had declines in the four-year sector,” the report reads.

The report notes that two-year institutions received significantly more local funding than four-year institutions across the country.

“The trends presented here are not reflective of the story in every state,” Sophia Laderman, associate vice president of SHEEO and main author of the report, said in a release. “While only 10 states saw funding declines this year, 29 states have yet to reach funding levels seen prior to the Great Recession. In those states, the national narrative of continued increases may not represent their reality.”

Laderman also warned of “inequities in the total revenue public institutions have to educate their students.”

“We know that state funding and institutional revenue impact student outcomes, and the negative impacts of low and disparate institutional revenues disproportionately affect students of color and low-income students,” Laderman said.

State public financial aid per full-time student equivalent reached an all time high of $921 after an 8.8% increase last year, making up 9.9% of all education appropriations.

The report notes that the 9.9% figure is “the largest proportion since these data were first collected in 2001.”

Financial aid funding per full-time student varied between two-year and four-year institutions, according to the report. Four-year institutions averaged $1,138 compared to two-year institutions’ $510.

Thirty-one states gave more financial aid per full-time student equivalent to those attending four-year institutions than those attending two-year institutions.

The increase in public financial aid comes as revenue from students’ tuition decreased.

Public institutions received an average of $6,723 in net tuition revenue from both in-state and out-of-state students in fiscal year 2021, according to the report — a 3.2% decrease from 2020.

That represents the second-largest decline in net tuition revenue since 1980, according to the report, which attributes the revenue fall to “a combination of increases in state public financial aid, minimal tuition rate growth, and any changes in the proportion of students paying higher tuition rates.”

Net tuition revenue per FTE declines weren’t uniform across higher education. Two-year institutions saw a 1.7% decline compared to a 4.8% decline at four-year institutions.

Florida had the lowest net tuition revenue per full-time student equivalent at $2,301, but was also the only state that had a higher net tuition revenue per full-time student equivalent in the two-year sector than in the four-year sector.