Generous federal stimulus funding protected state revenues and directly supported higher education, reducing states’ need to cut funding during the pandemic and short economic recession.
However, a new report says sharp declines in student enrollment and net tuition and fee revenue signal continued upheaval for public higher education revenues.
Amid this uncertainty, the State Higher Education Executive Officers Association’s State Higher Education Finance (SHEF) report provides a comprehensive look at trends in higher education revenues in the fiscal year 2021, according to a news release.
In the fiscal year 2021, a 4.5% increase in per-student state and local education appropriations for public institutions marked the reversal of decades-long trends in higher education revenues. In the past, enrollment increased rapidly during and following economic downturns (such as the recession caused by COVID-19), while state funding decreased and tuition revenue rose. The latest SHEF report found that 2021 defied many post-recession trends:
- Unlike past recessions which corresponded to rising student enrollment, the COVID-19 pandemic led to a 3.0% drop in student full-time equivalent (FTE) enrollment from 2020 to 2021. This loss of 323,952 students marks the tenth straight year of enrollment decline and is the largest decline in net FTE enrollment since the start of the SHEF dataset in 1980.
- State funding typically fluctuates with the economic cycle. In the year after each previous recession since 1980, education appropriations per FTE enrollment declined. For the first time, in 2021, this trend did not continue: Inflation-adjusted education appropriations increased by $400 per FTE student in the last year, reaching $9,327 per student.
- In response to previous state funding declines, net tuition revenue increased for many years. Net tuition and fee revenue per FTE has grown 56.6% over the last 25 years but has declined for the last three years following recent increases in state funding. After a 3.2% decline in the last year, in 2021, public institutions received $6,723 per FTE in net tuition and fee revenue. This year marks the second-largest ever decrease in inflation-adjusted net tuition revenue per FTE.
In large part, the increase in education appropriations was made possible due to federal stimulus funding that flowed to states in response to the COVID-19 pandemic. All but five states allocated federal stimulus to higher education. Without these funds, education appropriations per FTE would have increased just 2.0% from 2020 to 2021. Had FTE enrollment also held constant, appropriations would have declined 1.0%, according to the news release.
- Enrollment declines were concentrated in the two-year sector.
- Federal stimulus funding was a key aspect of the strong growth in education appropriations.
- The gap has closed between two-year and four-year public education appropriations.
- Financial aid continued to rise at a faster rate than institutional funding.
- Public institutions in more than half of the states collected less tuition revenue than they did five years ago.
- Total revenue rose slightly, thanks entirely to federal stimulus funding.
- Continued increases in education appropriations and declines in net tuition revenue have reduced the proportion of total revenue financed by students.
As these findings show, the fiscal year 2021 defied several long-term trends in higher education finance and showed positive growth in education appropriations. However, net tuition and fee revenue did not increase enough to keep up with inflation for the third straight year. This continued decline in tuition revenue puts greater pressure on states not to cut funding to public higher education in the coming years. When federal stimulus funds run out, states will face difficult budgetary decisions, and higher education may face cuts in some states.
Source: State Higher Education Executive Officers Association