States Search for Higher Education Funding Solutions

WASHINGTON — Education funding has become a major topic in the presidential race, with both sides promising to preserve or even increase the resources dedicated to the cause, while budgeting to address the federal deficit. Despite this apparent consensus, most states are moving ahead with their own plans to find more stable funding streams and somehow lower the cost of attending college.

The recession is suddenly pushing states to consider more drastic, creative, or unusual tactics in an attempt to keep funding for higher education from reaching historically low levels, when adjusted for inflation. This has led states to consider everything from raising taxes to changing rules about who can attend their schools.

The problems with education funding seems even more glaring this year, as President Barack Obama’s American Recovery and Reinvestment Act helped many states backfill their education funding gaps, inserting the one-time funding in the place where tax revenues used to be. States were able to use these funds to varying degrees over the three-year period from 2009 to 2011, but the amount of funding was already being outpaced by rising costs in the time between 2010 and 2011. During that period, stimulus funding went down while general costs went up, as is always the case, due to inflation. Now that the stimulus funding is mostly spent, colleges are faced with the full brunt of their economic troubles.

Though the economic downturn has clearly exasperated the problem, the hole in education funding is linked to a much more basic economic truth. The demand for higher education has gone up and the federal government has not increased the supply of funding at a rate that in any way comes close to matching the increased number of prospective customers. In a nutshell, this means education is becoming more expensive. If demand goes up and supply stays relatively the same it drives the price of education up. While more people want a service, there is about the same amount of supply available, and this means people begin outbidding each other to get at the limited resources, leading to a massive increase in price in this case. This has led to a dual effect, where state and local governments must contribute more to education costs, while simultaneously charging students more, because federal funding is functionally decreasing.

One tactic many states and colleges are currently turning to is a greater emphasis on attracting students from other states to attend their universities. This is because attending a college in a state other than the state considered to be the student’s permanent address is far more expensive. Students who go to a school in their own state get an in-state discount for tuition and neighboring states often offer discounts to each other’s residents as well. Some states embraced this strategy a while ago, with the University of California drastically increasing the amount of out-of-state and international students admitted into its system over the last three years.

The debate on this strategy has not ended however, as state Senator Michael Rubio (D-Shafter) is currently trying to build support for his California Students First Act, which would cap the amount of non-resident undergrads enrolled each year at 10 percent of that year’s total admissions. The University of Colorado has taken the opposite approach, as its cap currently sits at 33 percent of admissions. North Dakota has taken the concept even further, with more than 50 percent of students at two of its major universities coming from outside the state. The University of North Dakota at Grand Forks and North Dakota State University have both exceeded that rate, at 55 percent.

The average out-of-state enrollment rate for all higher education institutions in the country stood at 19 percent in 2010. There is also currently a debate on the topic in Michigan, where Business Leaders for Michigan, a nonprofit made up of business executives and education officials, is arguing for increased enrollment of students from other states. Michigan currently lags far behind the national average, with 9 percent of its students coming from other states.

While trying to attract students who must pay more than their peers is becoming a more popular solution, it is not solving the problems with higher education funding on its own. The largest change in most universities is still a general increase in the cost for all students to attend college. The price of attending college is going up, the expectation that jobs require a degree from a higher education entity is not slowing down, but the average paycheck is not keeping up with the increased cost of receiving an education. This lack of balance has led the total amount of student debt in the nation to exceed $1 trillion.

Students are also taking more time to complete college, with many finding it difficult or near impossible to get into all their required classes within four years, which increases the cost of higher education and extends the period of time students are in school, instead of focusing solely on their careers and paying down their debt.

The issue has come to the forefront in Nevada, where only 36 percent of students earn their four-year degrees within six years, the worst rate in the contiguous United States, with only Alaska ranking worse in that statistic overall. The problem extends even further, as less than 11 percent of full-time community college students in the state graduate with a two-year degree within three years of enrolling. Not only is Nevada failing to get its students through the higher education experience, it is also struggling to keep students living in the state after they graduate. Economic problems in the region have led to an exodus of college graduates. The state ranks last in the nation in terms of the proportion of people between ages 25 and 34 who have a college degree.

The Nevada System of Higher Education, the organization that oversees state-supported universities and colleges, has proposed a unique solution to this problem. The organization has called upon political leaders to reform the state’s higher education system by refocusing funding metrics. The proposal calls for rewarding schools based upon how many credits students complete, compared to the current system, which funds colleges based on how many students they enroll. This plan would also include financial incentives, which would encourage higher education institutions to concentrate on specific fields like natural resources, engineering, biological and biomedical sciences, architecture and nursing.

Ohio Governor John Kasich has proposed a similar approach, asking officials at two- and four-year institutions to work together to identify a better system for divvying up higher education funding. Like leaders in Nevada, Kasich emphasized that any new system for determining funding levels should put a premium on graduating students, instead of enrolling them.

Stimulus Funding Impact on Higher Education Budgeting
Combined Budget for All States in 2010: $138.5 Billion
Total Amount of Stimulus Funds Spent in 2010: $4.5 Billion
Combined Budget for All States in 2011: $143.8 Billion
Total Amount of Stimulus Funds Spent in 2011: $2.8 Billion
Source: State Higher Education Executive Officers

Amount of Funding from State and Local Governments Per Year
1986: $31.4 Billion
1996: $47.8 Billion
2006: $77.0 Billion
2008: $88.8 Billion
Source: State Higher Education Executive Officers