Public higher ed: still in the Great Recession’s shadow

Part of my work on higher education’s future concerns the economics of colleges and universities.  This topic is often underappreciated, I find, as we can get distracted by the thousand other aspects of higher ed.  Or, worse, we just discuss campus finance in weirdly bad ways.  So it’s important to share good research on the topic.

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Today’s important research looks into changes in how states fund public higher ed.  It comes from SHEEO, the State Higher Education Executive Officers Organization, and examines several factors of public education over the past five years: changing levels of state support and campus finance.

SHEEO logoThe key point: one decade after the 2008 financial crash, American public higher ed has not yet fully recovered.   At a macro level, “[t]en years out from the start of the Great Recession, per-student higher education appropriations in the U.S. have only halfway recovered.”  State governments remain in their defunding mode, at a per student metric.

After more than $2,000 in per-student funding reductions during the Great Recession, per-student educational appropriations in 2018 were $7,853, roughly $1,000 below their pre-recession level.

Which means that public higher ed continues to rely on students and families paying for it. “T]he growing reliance on net tuition as a revenue source—the student share—remains at a near high…”  And hence one reason for ballooning student loan debt.

There are a lot of subordinate points and nuance in the whole report, which I commend to your attention.  Let me identify a few:

Under the macro picture, individual states are all over the place with funding.

state spending_public higher ed_2013-2018_SHEEO

[T]here was considerable variation across the states. Twenty-two states saw declines in per-student appropriations in FY 2018.

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States have also differed greatly in their recovery since the height of the Great Recession. Only nine states have met pre-recession funding levels, and another 11 have seen no recovery at all (their current funding is below the low point of the Great Recession).

One particular outlier is Illinois:

The significant increase in SHEF educational appropriations over the last decade is driven entirely by the state’s efforts to address its historically underfunded state retirement pension system. The proportion of total funding spent on the state pension system has increased from 13.6 percent in 2008 to 46.4 percent in 2018.

Despite some rising funding recently, that small but welcome upward trend stopped last year.  “[T]here was nearly no national change in state and local per-student support for higher education after adjusting for inflation between FY 2017 and FY 2018…”

Financial aid is rising, which is good:

Alongside these declines, state financial aid for students at public institutions—which many states protected during the economic downturn—has increased for four straight years. FY 2018 saw an 8.7 percent increase in state aid, the largest since the Great Recession, as per-FTE state aid reached an all-time high of $752 and now represents 9.6 percent of all appropriations.

I suspect this means states are increasingly turning to the high tuition, high discount rate strategy led by private colleges and universities.

However, tuition increases stalled out last year.  Check out the reasons SHEEO suggests:

Tuition revenue, which has risen in all but two of the last 25 years, also remained flat in 2018. For the first time since the Great Recession, net tuition revenue per-FTE increases did not significantly exceed the rate of inflation. This may be due, in part, to factors such as lower international FTE enrollment, smaller tuition rate increases, and increases in state public financial aid.

Let’s see if this is a blip or a trend.

Enrollment: it continues to fall:

Full-Time Equivalent Enrollment (FTE)… declined in 35 states and Washington, D.C., between 2017 and 2018. Due largely to the recovering economy, FY 2018 enrollment is 6 percent below the Great Recession enrollment high in 2011.

Check out the geographic variations:

enrollment_public higher ed_2013-2018_SHEEEO

More data: “In 2018, there were 10.9 million full-time equivalent (FTE) enrolled students…. FTE increased from 10.2 million in 2008 to an all-time high of 11.6 million in 2011.”

…but that decline might be coming to an end:

However, the annual rate of enrollment decline in most states has slowed in each year since 2015. Nationally, 2018 saw just a 0.3 percent decrease in FTE enrollment from 2017. Enrollment remains 7.1 percent above what it was before the Great Recession in 2008.

So maybe, just maybe, peak higher education will cease.

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Quick note for scale: here’s the current size of all state and local funding to public higher ed: $96.1 billion.

Overall?  We seem to be in the midst of a long-term down ratchet of public support for higher ed.  Across the nation we continue to run public colleges and universities as close to private entities as they ever have been in modern history.

Enrollment changes continue to follow my dark forecasts.  Maybe they’ll reverse course in a few years, but I suspect many factors will block that from happening.

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One Response to Public higher ed: still in the Great Recession’s shadow

  1. Bryan,

    It’s only going to get worse as austerity kicks in and the rich refuse to pay their fair share. The number of states facing financial crises is mounting. It’s not just Illinois and Alaska. It’s much more widespread.

    By the way, congratulations on being mentioned in John Thelin’s latest (and greatest) edition of A History of Higher Education in the US.

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