State Disinvestment in Higher Education is a Myth

State Disinvestment in Higher Education is a Myth

When Governor of Alaska tried to cut funding for the University of Alaska by 41 percent, observers were quick to connect it to what they saw as a larger long-term trend — states relentlessly cutting funding for higher education. But there’s a small problem with portraying Alaska as an extreme example of a story playing out all over the country. A closer look shows that state disinvestment in higher education is a myth.

As a new analysis from the Texas Public Policy Foundation demonstrates, between 1980 and 2018, there has been no detectable upward or downward trend in state funding. The typical annual change in state funding for the educational portion of university spending (excluding campus construction, research, agriculture and medical school spending) is likely to be somewhere between a decrease of $21 to an increase of $19 per student per year, as shown in the nearby chart. In other words, there is no convincing evidence of a long-term trend of state disinvestment.


Why then is everyone so convinced there’s a been a long-running trend of state disinvestment?

One factor could be non-representative (potentially cherry-picked) data.

Here’s an example. Between 2001 and 2018, state funding per student fell by almost $1,300. That certainly seems to support the claim that states are disinvesting in higher education. But that’s driven entirely by the choice of 2001 as the starting year. Comparing 2004 to 2018 would show essentially no change in funding per student, and comparing 1980 to 2018 would show an increase in state funding of more than $700 per student.

Another factor that has contributed to the impression of state disinvestment relates to how the data is normally adjusted. The data I’m using come from the annual State Higher Education Finance (SHEF) report. Their publications use the Higher Education Cost Adjustment (HECA) to adjust for costs over time, rather than a price index (such as the CPI) to adjust for inflation. And because the HECA increases faster than the CPI, this has the effect of overstating past state funding levels, making it seem that funding has gone down, even when funding as actually increased.

For example, state funding per student in 1980 was $8,483 when adjusted by the HECA but $7,146 when adjusted by the CPI. When compared to the 2018 value (under both methods) of $7,853, the inflation adjustment using the CPI shows that state funding has increased by over $700 per student, while the HECA adjustment gives the false impression that state funding fell by over $600 per student. Fortunately, SHEF is a model of transparency and they provide the CPI adjusted figures online. (While the CPI is still the most commonly used price index, it is rapidly being overtaken by the more accurate PCE, which tends to show even lower inflation, which would create an even bigger differences when contrasted with HECA).

Meanwhile, the data shows steady increases in tuition revenue, at a rate of between $116 and $133 per student per year.

Clearly, this calls into question the common argument that tuition rises to make up for cuts in state funding. The relationship between changes in tuition and changes in state funding is real, but it is also much weaker than commonly recognized, with tuition rising by about $0.20 for every $1 cut in state funding (see here for more details). But even this weak relationship can’t be detected in the SHEF data shown in the nearby figure, which shows a wide range of changes to state funding over the years, whereas tuition revenue tends to increase at a pretty consistent pace regardless of changes in state funding. This undermines the common story that tuition is increasing to make up for cuts to state funding.

In sum, the data clearly show that there is no long-term trend of state disinvestment, and that changes in state funding are not a primary cause of rising tuition.

To see the full study on which this piece is based, see here.

Andrew Gillen is a Senior Policy Analyst at the Texas Public Policy Foundation.

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