Quantifying the Impacts of State Public Investment in Higher Education

Written by Jason Lee, Sophia Laderman, Kristen Cummings, Dustin Weeden, and David Tandberg

Each year, states invest tens of billions of dollars in general operating support for postsecondary institutions and financial aid for students. These investments are intended to achieve ambitious attainment goals that will, in turn, provide residents with an improved quality of life across a number of social and economic dimensions while simultaneously providing states with an educated citizenry prepared for the myriad challenges of the twenty-first century. Until recently, research quantifying the effects of these state investments was lacking. Fortunately, researchers have made significant strides in overcoming the challenges that limited earlier studies. So much excellent work has been published that we thought it was time to document and synthesize the most impactful studies in a report.

Most research has independently examined the impacts of state operating support or student financial aid; rarely are the two primary forms of state support considered together. Therefore, over the past year, SHEEO systematically reviewed and summarized over 100 academic articles that rigorously measured the impact of general operating appropriations (online appropriations database) or financial aid dollars (online financial aid database) to address the following questions:

· What happens to student outcomes if a state increases (or decreases) public funding for higher education?

· What portion of state higher education funding should be allocated (to general operating support for institutions) that may mitigate tuition rate increases for all students, and what portion should be allocated to financial aid programs that target specific students?

· To what extent do each of these state finance strategies impact enrollment, graduation rates, credential completion, and other important outcomes such as taking out and repaying student loans, employment, and earnings?

Our answers to these questions span 85 pages and over 35,000 words but can be summarized most simply by stating: money matters, regardless of the appropriation mechanism. When states decrease general operating funds to institutions to balance their budgets during an economic recession or otherwise tight fiscal year, these decisions have real, detrimental effects on students. Many readers probably expected such a conclusion but overcoming the data and methodological challenges to convincingly quantify the impacts of state appropriations on student outcomes is a recent development and worthy of policymakers’ attention.

We now have empirical evidence showing that cuts to general operating funds lead students to be less likely to enroll in public institutions (and, consequently, more likely to enroll in the for-profit sector), complete college, graduate on time, purchase a home, or live in a high-income neighborhood later in life. Similarly, the financial aid dollars awarded directly to students often have positive impacts on persistence, degree completion, and post-collegiate outcomes like homeownership and wages. Importantly, researchers have shown that these investments can pay for themselves over the long-term, primarily through increased income tax revenue.

Of course, just knowing that we should invest more in our public postsecondary institutions is not enough. As such, we’ve put together a list of recommendations for SHEEO agencies and systems to make the most of the findings from the report:

· Use the research findings to tell the story of why public higher education funding matters. State investments are likely to pay significant dividends through increased enrollment, persistence, and completions. The overall increase in educational attainment that comes with up-front investment in their institutions will help states meet the dynamic workforce needs of the post-pandemic economy, provide many additional societal benefits, and increase state tax revenue. The research presented in the report should be in the hands of policymakers and other higher education constituencies. While research findings may not be readily accessible to policymakers, SHEEO agencies can translate these findings into a story that fits the unique context of their state.

· Advocate for funding to promote equity, completions, and attainment. States that are serious about reducing equity gaps must grapple with the perpetual underfunding of institutions that serve the most students from racial or ethnic minoritized populations and low-income backgrounds. It’s important to advocate for the institutions that serve a disproportionate share of historically underserved students to ensure they are funded adequately. One tangible first step might be to conduct a state funding equity audit.

· Place a greater emphasis on alternative revenue streams in funding conversations. Decreases in state appropriations lead to cuts in institutional spending on services essential for student success. Since public four-year institutions, particularly research universities, have a wider range of alternative revenue sources, community colleges and regional institutions experience the most detrimental cuts to institutional expenditures as a result of declining state appropriations. States should consider all institutional revenue sources and make strategic decisions regarding state appropriations in concert with decisions about tuition rates and out-of-state tuition caps.

· Invest in financial aid messaging. Financial aid programs, especially need-based programs, while efficiently allocated in theory, are often targeted in name only. Research suggests that states should invest resources in targeting financial aid not only through the design of the program (e.g., eligibility requirements) but also in how that program is advertised, especially to those student populations least likely to be aware of such programs. In fact, marketing existing financial aid programs to the students that states want to target may be a relatively cheap first step to increasing attainment.

· Invest financial aid dollars in student supports. Though many financial aid programs are underfunded, state governments would more wisely invest dollars into these programs by pairing them with programmatic support, such as tutoring and advising, either at the campus level or even system-wide. Research suggests that these types of investments can be the difference between success and failure and may potentially protect larger investments in student financial aid.

We hope these recommendations suggest practical steps for SHEEOs and their staffs as they advocate for change in their respective states. Please do not hesitate to reach out to SHEEO staff if we can be of any help as you consider and implement the findings from this report. Those looking for more information can find it on the website devoted to this project that includes:

Executive Summary

Full Report

General Operating Studies

Financial Aid Studies

Webinar Series

The Joyce Foundation funded this project. We thank the Foundation for its support of our work. The contents, including all opinions, conclusions, and any errors, are the responsibility of the authors alone.

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Helping states develop and sustain excellent systems of higher education.