New Analysis Finds That You Get What You Pay For: State Higher Education Funding Directly Impacts Student Success

Over time, states have both decreased overall support for higher education and shifted their funding from institutional operating support to student financial aid. A review of over 100 research studies shows that these trends have important implications for student enrollment, retention, graduation, and post-college outcomes. By not adequately funding public institutions, states sacrifice their attainment agendas and disproportionately harm underrepresented students.

BOULDER, Colorado —

In 2020, states invested almost $100 billion in higher education institutions and student financial aid. These investments are intended to ensure equal and affordable access to quality higher education, meet state attainment goals, promote the state’s economy, and provide residents with a better life. However, until a recent increase in the quality and production of research on the topic, it was not clear how state dollars contributed to outcomes in higher education. For instance, what happens to student outcomes if a state increases (or decreases) funding for public higher education? In an attempt to answer this question, and with generous support from the Joyce Foundation, the research team at the State Higher Education Executive Officer Association (SHEEO) recently completed a systematic review of more than 100 empirical research studies that rigorously measured the impacts of state appropriations to institutions and student financial aid programs on institutional and student outcomes.

The findings from SHEEO’s comprehensive new paper, “Investigating the Impacts of State Higher Education Appropriations and Financial Aid,” are clear: State funding to both institutions and student financial aid has clear and direct impacts on student enrollment patterns, retention and completion rates, and post-college success.

Key findings on the impact of state appropriations to institutions include:

  • State appropriations directly impact the total revenue available for education at public institutions. In response to state funding cuts, doctoral institutions raise alternative revenue sources like tuition, while other four-year and two-year institutions are more likely to respond by cutting expenditures on instruction, academic support, and student services.
  • Student enrollment is negatively impacted by cuts in state appropriations, as in-state undergraduate enrollment declines and students move from the public to the for-profit sector.
  • A decrease in state funding leads to declining graduation rates at four-year colleges. Fewer degrees and certificates are awarded at all undergraduate levels due to declining enrollment and graduation rates. Consequently, there are measurable decreases in statewide bachelor’s degree attainment.

The measurable benefits of financial aid include:

  • Student enrollment patterns shift as low-income students become increasingly able to afford more expensive institutions. Students also become less likely to leave the state for college.
  • Students receiving aid are more likely to persist and graduate from their institutions and are more likely to graduate on time. These effects are particularly impactful for low-income students.
  • Well-marketed financial aid programs with built-in student support services have the biggest positive impact.

David Tandberg, SHEEO senior vice president and a coauthor of the report, shared, “For the first time in one place, we present concrete evidence that state funding for institutions is a crucial investment that is absolutely necessary for improving student outcomes. If states continue deprioritizing institutional funding, we will see measurable negative impacts on student enrollment, student completions, and graduation rates. At the same time, we present continued evidence that student financial aid can influence where students enroll and help them graduate on time. Overall, we found that public investment matters for students.”

These findings have important implications for state attainment rates. “Many states have set ambitious attainment goals, and meeting these goals is necessary for ensuring that states have an educated workforce. Ultimately, states won’t be able to meet their attainment goals and workforce needs without additional investment in public higher education institutions,” said SHEEO President Robert E. Anderson. “Money matters, regardless of the appropriation mechanism, but we can’t sacrifice one area of funding for another.” 

The publication of this research represents a new direction for SHEEO. The organization has recently been expanding its role in empirical research with the aim of connecting research findings to its members and the broader field of higher education policy to drive evidence-based decision-making.

Carlos E. Santiago, commissioner of the Massachusetts Department of Higher Education and a reviewer of the report, shared, “This report is timely, comprehensive, and provides an essential playbook for state higher education policymakers. The questions that are raised in this report are fundamental to the work we do on a daily basis. The answers that are provided reflect an important consensus among policy researchers, while providing the important caveat that these answers may vary as the subjects of our focus, timeline of action, and intensity of effort change.”

Nicholas Hillman, an associate professor at the University of Wisconsin-Madison and a reviewer of the report, said, “Money matters in higher education and this report summarizes the data behind that fact. It draws on the best research evidence and makes a compelling case that equity and fairness must be front and center in state higher education funding conversations. The report offers important background context and practical recommendations to help SHEEO agencies advocate for much-needed change.”

Based on the findings of the analysis and an understanding of state higher education systems, the authors provide key recommendations for policymakers, including:

  • Increase funding to higher education whenever possible. Higher education funding is disproportionately cut during economic recessions, making increases crucially important for maintaining a base level of funding. Additional investments are a primary way states can see significant gains in their postsecondary attainment rates.
  • Adjust funding allocation strategies to promote equity and completion. Consider a state funding equity audit to understand gaps in funding across institution types, and examine how these funding patterns intersect with underrepresented student enrollment.
  • Examine the alternative revenues available to public institutions, and consider those revenues when allocating funding for higher education. Institutions with an access mission are unlikely to raise tuition rates and increase out-of-state enrollment in response to revenue pressures.
  • Ensure that student aid programs are effective by increasing messaging for programs and investing in student support services to complement dollars awarded to students.

Additional recommendations for policymakers are included in the full report. The complete report, along with a webinar presentation of the study, and databases of summarized research on state appropriations and financial aid can be found on the SHEEO website. This work would not have been possible without the fantastic and rigorous research produced by the many higher education finance and financial aid researchers.


About the State Higher Education Executive Officers Association (SHEEO)

The State Higher Education Executive Officers Association serves the chief executives of statewide governing, policy, and coordinating boards of postsecondary education and their staffs. Founded in 1954, SHEEO promotes an environment that values higher education and its role in ensuring the equitable education of all Americans, regardless of race/ethnicity, gender, or socioeconomic factors. Together with its members, SHEEO aims to achieve this vision by equipping state higher education executive officers and their staffs with the tools to effectively advance the value of higher education, promoting public policies and academic practices that enable all Americans to achieve success in the 21st century, and serving as an advocate for state higher education leadership.