Impact of State Higher Education Finance on Attainment

Research Report

Impact of State Higher Education Finance on Attainment


Public college cannot be an avenue for socioeconomic equity until it is accessible and affordable to students from all backgrounds. A large share of financing for public colleges comes from state governments, whose budgets are closely tied to state economic conditions, which means that public colleges often take the brunt of unexpected revenue shortfalls.

To understand how state financial decisions affect public colleges, we use longitudinal data on college enrollment and degree awards to assess the impact of state spending on higher education for Black, Hispanic, Asian, and white students. This report examines the two main types of state spending on higher education: state programs for financial aid and state appropriations for public colleges. For financial aid programs, we leverage changes in the aid portfolios of 15 states between 2003 and 2017 to identify whether increases in aid spending raise enrollment and degree awards and whether outcomes suffer when aid funding decreases. For state appropriations—which fund public colleges’ operation costs—we study the impact of the secular decrease in appropriations dollars around the country and draw comparisons across colleges with varying historical dependence on this type of state funding.

Key Findings

  • State spending for higher education leads to increases in college enrollment and degree awards. Across the board, the evidence indicates that more state dollars for public colleges cause higher levels of enrollment and degree awards across racial and ethnic groups. Our estimates suggest that both student financial aid and state appropriations dollars have sizable impacts on enrollment and degree awards. Moreover, the evidence indicates that state appropriations spending is particularly important for public colleges that historically have depended more on state funds.
  • Recent changes to state financial aid programs had their largest impact on community colleges, depending on state spending decisions. Community colleges in states that cut spending for student aid saw immediate and massive loses to state grants, on the order of 75 to 85 percent. In contrast, colleges in states that increased their aid spending saw large immediate increases in state grants, on average almost 50 percent.
  • Recent changes to state financial aid programs have led to divergent trends in outcomes for public community colleges. Colleges in states that increased aid spending saw increases in enrollment and degree awards, across all racial and ethnic groups. At the same time, colleges in states that cut spending for student aid saw declines in enrollment and degree awards, and these loses were concentrated among Black students. For Black students, estimates suggest that recent aid spending increases have led to an average 15 percent increase in community college degree awards. For Hispanic and Asian students, these figures are about 10 percent and 8 percent, respectively. White students see gains in degree awards of about 13 percent. In contrast, in states that decreased aid spending, Black enrollment dropped by 10 percent and degree awards dropped by 14 percent. For other groups, these impacts were about half as large.
  • The effect of state higher education spending is larger for students of color than for white students. The data suggest that increases in state aid spending have led to an 8 percent increase in Black student enrollment in two-year colleges. We do not find meaningful impacts from these recent reforms on state grants for public universities. If states cut their funding for public colleges, enrollment and degree awards are likely to decline and will likely have a disproportionate impact on Black and Hispanic students, especially at community colleges.

This report was corrected on August 30, 2021. In a previous version, the top panel of figure 2 was incorrectly labeled to refer to public two-year colleges, and the bottom panel was incorrectly labeled to refer to public four-year colleges. These labels have been switched.

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