State Disinvestment in Higher Education Is a Myth

According to data from the Bureau of Labor Statistics (BLS), college tuition has increased four times the rate of inflation for the consumer price index since 1978. Prices have doubled since 2004.

The cause of college tuition’s hefty price hikes is regularly ascribed to the states—the largest funders of the state university system—who lowered their subsidies. Without that funding, schools need to make up the difference in tuition hikes.

But the idea that states have disinvested from subsidizing universities is a myth. State and local funding for schools has only increased year over year over the last few decades according to data from the State Higher Education Officers Association (SHEOA). Even when adjusted for inflation and on a per-student basis, the conclusion is the same: states continue to throw more and more money at colleges while tuition keeps going up.

In 2000, average state and local funding was $4,471 per full-time equivalent student in 2022 dollars, and it’s now almost three times that: $11,719 per student. Tuition data before 2000 is not available in the data.

Annual Report Data

With increased state and local subsidies and rapidly rising tuitions, the university system is flush with cash. For example, in 2022 the University of Washington brought in $6.571 billion in operating revenues based on their annual report. Twelve years prior in 2010 it was half that at $3.124 billion. Their net assets increased from $5.193 billion to $8.353 billion over that time frame.

State appropriations went from $303 million to $485 million. As a percentage of total revenues, state appropriations has gone down, but that’s not because of declining investment from the states. It’s because the school is bringing in much more income from a completely different source: patient services related to the school’s adjoining medical center. Net patient service revenues over that time frame went from $1 billion to $2.4 billion.

Prior Research

The myth of state disinvestment in universities was originally highlighted in a report by Andrew Gillen for the Texas Public Policy Foundation that found that state funding continues to increase each year. Some states have seen short-term downturns in subsidies—like in Iowa, Pennsylvania, and Rhode Island—but the long-term trend is more and more spending across the nation.

Combining gross revenue from sharply rising tuition and state/local funding, the universities now get four times what they did in 2000 (inflation adjusted). What was once around $100 billion a year is now $457 billion in total adjusted revenue.

This isn’t even including the federal funding for postsecondary education through the Department of Education—like Pell grants, loans, and fellowships—which was almost $46 billion in appropriations in 2021.

On top of that is the massive amount of federal research and other grants that flows through the university system, which in 2023 hit $450 billion in obligations according to USASpending contract data. Between state and federal appropriations and tuition, the university system is now handling close to a trillion dollars a year.