States Disinvesting in Higher Ed: Fact or Myth?

When the American economy plummeted in 2008, higher education found itself an easy target for state lawmakers who had to slash budgets. Headlines like “A Bad Budget” and “Dwindling Funding” became commonplace even as enrollment numbers skyrocketed and entire buckets of state funding vanished.

Now, more than 15 years later, state funding nationally, on average, has finally bounced back and in some cases begun to surpass pre-recession levels. The positive trends have sparked discussion about whether it’s time to end a long-running debate over state disinvestment—or lack thereof—in higher education.

A recent report from the Cato Institute, a libertarian think tank, that documented state funding and tuition revenue at public colleges over the past four decades has prompted the latest installment of disagreements over the issue. The author, Andrew Gillen, argues that data shows state disinvestment is a myth.

“I have no idea why this is an ongoing debate, because this isn’t a particularly hard thing. You plot the numbers over time and look for a trend line,” said Gillen, a research fellow at the Cato Institute’s Center for Educational Freedom. “This is not rocket science. So it’s surprising and frustrating to me that this has been a debate for such a long time.”

But conversations with other policy analysts, higher education lobbyists and academic researchers show that much of the disagreement comes down to how to define disinvestment and how to measure state funding changes. 

Gillen argues in the report that when adjusted for inflation, the long-term trend of educational revenue is positive, meaning there’s no current disinvestment. Meanwhile, university advocates acknowledge the recent rise in revenue but say disinvestment is as much about states not providing the funds needed to address the long-standing aftereffects of previous volatility as it is about active loss of funds.

And now, the trend of increasing state funding may soon end. As the public perception of higher education declines and COVID relief funds dry up, administrators in Connecticut and lawmakers  in Utah warn that cuts in funding are coming once again.

“I’m not totally convinced that states are suddenly investing in higher education,” said Kelly Rosinger, an associate professor of education and public policy at Pennsylvania State University. “I don’t think that matches what state policymakers are saying with their words.”

A Persistent Debate

For years, think tank analysts, researchers, advocates and institutions have debated whether states have disinvested from higher ed, with opposing sides each digging their heels in deeper over time. Both sides use the same data and reach different conclusions—even as it becomes harder to deny states have increased their financial support of colleges since about 2013. 

Right-leaning policy analysts tend to argue that disinvestment is exactly what the word says it is—an active decline in investment. Since that hasn’t occurred since 2013, they argue the real problem is universities’ inefficient and unnecessary spending habits.

“If I were to speculate why a lot of folks think that state disinvestment is real,” Gillen said, “my No. 1 explanation would be that states do cut funding when we do have a recession and then people don’t update [their arguments] after that.”

Likewise, Jason Delisle, a nonresident senior fellow in the Center on Education Data and Policy at the Urban Institute, said that advocates who drive policy conversations have a vested interest in beating the disinvestment drum.

“If your agenda is always to increase funding for higher education, then it’s not helpful for you to point out that the trends have been towards big increases in funding,” he said.

But university lobbyists, advocacy groups and left-leaning think tanks counter that while the recent increases in funding are something to celebrate, those earlier cuts were so steep that institutions are still making up for projects and responsibilities they had to put on the back burner.

“State funding is coming back, but at the same time, costs are still going up because you’ve had to make reductions during the recession and now you’re just getting back up to where you were,” said Dustin Weeden, associate vice president of the State Higher Education Executive Officers Association.

In many cases, discussions about state funding for higher ed have been tied to debates over why tuition prices have skyrocketed and how to bring them back down. Some say recession cuts justified price increases, but now that funds are increasing again institutions should be able to cap the cost.

Craig Lindwarm, senior vice president for governmental affairs at the Association of Public and Land-grant Universities, added that it’s “overly simplistic” to view the sole function of state funding as keeping tuition prices low. 

“State appropriations support the full scope of the mission of public universities,” he said. “It includes investing in world-class research facilities, ensuring investment in a competitive university workforce, partnerships with industry and community engagement. So $1 invested by the State Legislature isn’t always intended to result in a $1 reduction in tuition.”

Addressing the Nuances

One thing the two sides do agree on is the need for more nuance when discussing state disinvestment. 

“The data are complicated, and there’s many different ways to cut it and frame it,” said Wesley Whistle, a project director for student success and affordability at New America, a left-leaning think tank. “There’s always different spins you can put on this debate, and I think that’s part of what keeps the debate going. Lots of people have different motives when they’re coming to this conversation.”

Some of the most direct variables that influence the disinvestment analysis are the time frame of data included and how raw funds are adjusted for inflation. For example, if you only look at data from 2008 to 2013, it’s easier to argue states disinvest in higher ed than if you look at 2008 to 2024. And if you use an inflation index targeted specifically at higher ed, the results may vary from other inflation calculations conducted with the standard consumer price index.

Beyond just the time frame and raw numbers, student enrollment and pandemic relief funds further complicate the discussion. That’s in part because the recent decline in the number of students affects how far state dollars can be stretched. For example, some argue that overall funding levels for higher education haven’t actually increased by much because if you have $10,000 to spend on 10 students, it goes twice as far as if you were spending it on 20 students.

Furthermore, experts who believe disinvestment is ongoing say it’s not enough to just look at year-over-year funding for higher education alone, suggesting that higher ed dollars make up a smaller percentage of overall state budgets than they used to.

Rosinger from Penn State added that even as overall funding levels rise, she struggles to get behind the argument that disinvestment is a myth because the data isn’t disaggregated by institution type. 

Even if states are increasing funding at large, she said, there has long been a gap in funding between predominantly white, four-year, flagship institutions and minority-serving, regional or two-year colleges—and that gap is only getting bigger.

“There’s evidence that performance-based models [which tie funding increases to student outcomes and other metrics] widen inequities,” she said. “When we think about disparities by institutions and how they’re funded … it starts to look a little more like disinvestment is still something we should be talking about and still very relevant.”

Regardless of how you slice it, the conversation is complicated. Whistle said perhaps the best way to get out of this debate is not to ask whether states have been increasing investments but whether they’ve reached adequate funding levels.

“Everyone thinks of that in different ways,” he said. But “it just feels like that [discussion about defining adequacy] is missing in this report. Instead, it’s just focused on whether disinvestment is true, which waters down the substance of what we’re talking about in terms of finance.”

Ties to Tuition 

With the outlook for state funding improving, Weeden from SHEEO said it may be time to reframe the debate from being about disinvestment to being about volatility and a lack of consistent investment. 

“What we see is like Ping-Pong, up and down,” he said. “[Funding] goes up really well during good times and down really fast during bad times. What we’re trying to figure out is, like, how it rebalances after each recession. Public support will need to outpace inflation during economic recoveries to return to prior service and affordability levels.”

The years of cuts have taken their own toll, from staffing reductions to deferred maintenance costs, which colleges are still recovering from, Weeden and other experts noted. Historically, colleges made up for the difference by raising tuition—a move that some attribute to accelerating the student debt crisis. But recent data from the pandemic shows that while the economy took a downturn, tuition never spiked. 

In fact, a recent report from the College Board shows that when adjusted for inflation, the cost of college has actually decreased. Some say this was only possible because of federal relief funds, but others point to the fact that state funding increased at the same time.

Data from the Cato Institute report also shows that tuition revenue for colleges has dropped in four of the past five years, something that hasn’t happened in decades. 

Some, including Gillen, say it is too early to know what’s causing the drop and predict it may be due to the declines in enrollment. But others suggest it may be strongly correlated with the increase in state funding that’s allowed institutions to cap tuition, offer more financial aid and not depend on tuition revenue so highly. 

“What many in the advocacy community and even in the research community told us was that the key to lower tuition was increased funding,” Delisle from Urban Institute said. “Now there has been a big increase in funding, and tuition isn’t rising.”

Even if that were the case, Gillen argues that if it were up to institutions, they would always increase tuition no matter how much money they get from the state and that the stagnation of net tuition is only possible because of state regulations that cap costs. But even if it takes negotiation, Delisle argues that decline in net cost should be seen as a win for both sides of the disinvestment debate.

“It’d be nice to see the whole community take a victory lap,” he said.

Although many are concerned cuts are to come again, Delisle wonders if policymakers learned a lesson from the Great Recession and see the connection between increased funds and decreased student costs. 

“Ironically, this is happening at a time of growing skepticism of the value and payoff of higher ed. But we also see a really strong budget environment for state funding for higher ed,” he said. “It’s possible that policymakers like to complain about higher ed and question value, but it doesn’t look like that has translated into funding cuts for higher ed.”