The Role of State Higher Education Policy in Student Success and Equity

Amount of Funding

In Fiscal Year 2022, state governments provided approximately $105 billion to fund public higher education—the highest amount on record and substantially above funding levels before the Great Recession. Yet per-student funding remains below Great Recession levels in approximately half of all states, suggesting notable differences in how states have prioritized higher education funding in recent years (Kunkle & Laderman, 2023). Although most research finds that states with Democratic control or liberal ideologies tend to fund public higher education at higher levels (e.g., Ortega, 2020; Tandberg, 2013), there is no clear pattern present in more recent funding changes.

Research has shown a clear relationship between higher levels of educational resources, particularly those used to provide more robust student services, and college completion rates (Chen, 2012; Pike & Robbins, 2020; Webber & Ehrenberg, 2010). This results in a positive relationship between state funding and enrollment and completion outcomes (Deming & Walters, 2017; Monarrez et al., 2021). There is a stronger association between state funding and graduation rates for Black and Hispanic students than White students (Horn et al., 2023). Chakrabarti et al. (2020) found differential effects of additional state funding between four-year and two-year institutions. They found that increased funding among four-year universities reduced tuition and helped students earn degrees more quickly, while increased funding among community colleges increased overall educational attainment without affecting tuition. Finally, Bound et al. (2019) studied the effects of state funding cuts at public universities and showed that tuition increased and completion rates decreased.

In addition to funding colleges through appropriations, states also provide financial aid to students attending public higher education. States gave out $10.2 billion in grants in Fiscal Year 2022, and this number has been rising more quickly than overall appropriations for years (Kunkle & Laderman, 2023). Grant aid can be classified into three categories: need-based aid (where financial need is the primary eligibility criterion), merit-based aid (where prior academic performance is the primary criterion), and combination aid (with both need-based and merit-based components).1 While all of these types of state aid programs have the stated goal of increasing educational attainment, arguments for need-based aid are often focused more on equity while merit-based aid programs are typically framed around economic development and retaining top students in state.

The vast majority of state financial aid used to be primarily need-based prior to the introduction of the merit-based Georgia HOPE scholarship in 1993.2 Since the mid-2000s, the share of state funds awarded solely based on financial need fell from nearly 60% to just over 40% as states have shifted to merit or combination aid programs. The trend toward pure merit aid has been primarily driven by Southern states, but states such as California, Maryland, and Massachusetts have invested heavily in programs with need-based and merit-based components (Baker et al., 2023). Additionally, tuition-free community college programs have been adopted in states such as Tennessee and Oregon and have increased enrollment (Gurantz, 2020; Nguyen, 2020), but it is still too early to observe effects on completions.

The effectiveness of state grant aid programs on improving student outcomes varies based on program characteristics. In general, programs with need-based components are more effective than solely merit-based programs in increasing overall completion rates (e.g., Nguyen et al., 2021). Traditional need-based programs such as the Florida Student Access Grant (Castleman & Long, 2016) and combination aid programs like California’s Cal Grant program (Bettinger et al., 2019) have generated increases in college completions. My team’s research has shown that combination aid programs increase the number of associate and bachelor’s degree completions, especially for Hispanic students (Baker et al., 2023). Bettinger et al. (2019) also found increases in long-term earnings, similar to a study examining the effects of the federal Pell Grant on Texas public college students (Denning et al., 2019).

Pure merit aid programs in states have generally been effective in keeping top students in state and increasing overall enrollment (Cornwell et al., 2006; Zhang & Ness, 2010), but effects on overall degree completions are much more modest for broader-based merit aid programs (Fitzpatrick & Jones, 2016; Gurantz & Odle, 2022; Zhang et al., 2013). These programs tend to have even smaller effects on the retention of graduates (Fitzpatrick & Jones, 2016; Sjoquist & Winters, 2013). However, there are some important nuances to emphasize. Merit aid programs with fairly modest academic criteria like the early years of the West Virginia PROMISE program and highly targeted programs such as Missouri’s Bright Flight scholarship both generated long-term effects, suggesting that design characteristics may matter (Harrington et al., 2016).

Funding Allocation Mechanisms

Additional money provided to colleges or students generally improves student outcomes and can reduce completion gaps across student groups. However, there are two important items to keep in mind. The first is that given higher education’s traditional role as a balancing wheel of state budgets, particularly in more conservative states (Delaney & Doyle, 2018; Taylor et al., 2023), the prospects of more funding are generally limited to good economic times. The second is that even in states with unified Democratic control, there is still a strong desire to place conditions on appropriations in order to better meet policy objectives.

The lion’s share of research on state funding models has focused on performance-based funding (PBF) systems, which tie funding to outcome metrics such as student progression, credential completions, and research productivity (Ortagus et al., 2020). Yet only about 10% of state funds are tied to performance metrics, even though approximately 30 states use PBF (Rosinger et al., 2022). Using the first-ever longitudinal dataset on the share of funds tied to performance and making distinctions between funded and unfunded PBF systems, my team found that PBF generally had null or modest effects on enrollment, institutional selectivity, completions, research productivity, and post-college student debt and earnings (Hu et al., 2022; Kelchen et al., 2022; Kelchen et al., 2023c; Ortagus et al., 2023b; Rosinger et al., 2023). Additionally, PBF also widens gaps in institutional resources between higher-resourced and lower-resourced institutions, hindering equity (Ortagus et al., 2023a). This is driven in part by states such as Florida that reward research excellence and research funding in their systems (Cornelius & Cavanaugh, 2016).

The relative ineffectiveness of PBF in improving student outcomes and the small share of funds at stake in most states led us to explore a more comprehensive typology of state funding models. In recent work (Kelchen et al., 2023a), we divided funding models into three types. The first model was traditional funding mechanisms, in which colleges have no ability to influence their funding. This included states with no clear funding mechanism or base-adjusted models that give all institutions the same percentage increase or decrease in a given year. The second model was incentive funding, in which colleges compete against each other for funds. This included enrollment-based and performance-based funding models. The third model was hybrid funding, which included an incentive funding component along with at least some funding protected by a base-adjusted model. Equity components are then layered on top of these funding models and can consist of components based on student characteristics (such as the number of minority or low-income students) or institutional characteristics (such as additional funds for small colleges or rural institutions).

In the two-year sector, hybrid funding models have been the most common model since the mid-2000s, although traditional funding models gained popularity immediately following the Great Recession. Traditional models were the most common model in the four-year sector in every year of our panel except for 2020, when hybrid models finally caught up. A growing number of states and systems adopted equity components in their funding mechanisms, although there was a decrease immediately following the Great Recession (Kelchen et al., 2023a). Similar to our work on the effects of PBF models, we found muted effects of funding model characteristics on student outcomes. While there was an increase in community college enrollment under hybrid models, this does not correspond to an increase in completions (Kelchen et al., 2023b).

Looking ahead, numerous states are considering overhauls of their higher education funding formulas in the aftermath of the pandemic. There are strong pressures from advocacy groups to continue tying more funding to student outcomes, while also recognizing the need to provide sufficient funding for colleges to successfully educate more students (e.g., Complete College America, 2023). At the same time, institutions that are currently advantaged in funding models (especially flagship universities) are trying to shape funding mechanisms in ways that protect the status quo. As a result, models that may look transformational on paper may not do much due to the implementation of stop-loss and hold-harmless provisions that prevent funds from changing hands.

There is a long history of funding adequacy lawsuits in K-12 education that required states to provide additional funding to underresourced districts, often requiring states to redistribute resources from advantaged districts (Dishman & Redish, 2010). The subsequent reforms sharply increased spending and student achievement (Lafortune et al., 2018). While higher education is not typically viewed as a constitutional right as K-12 education is, a growing number of scholars are focusing on the issue of funding adequacy in community colleges (e.g., Kolbe & Baker, 2019; Melguizo et al., 2017) and there have been a number of successful lawsuits by historically Black colleges and universities (HBCUs) over underfunding compared to the predominately White land-grant universities (Douglas-Gabriel, 2023). This is an area where more legal action is possible.

Tuition Policies

Public colleges and universities are frequently pilloried for high tuition charges, and tuition and fees quadrupled in inflation-adjusted dollars at four-year universities and tripled at two-year colleges between the early 1980s and the mid-2010s (author’s calculations using data from Ma & Pender, 2023). Even though some of the increase in tuition is due to per-student state funding not keeping up with inflation (Webber, 2017), there is a strong perception among the general public that public higher education is rapidly becoming unaffordable. Additionally, there is evidence that tuition increases reduce enrollment more generally (Hemelt & Marcotte, 2011) and particularly among minority students at less-selective four-year universities and community colleges (Allen & Wolniak, 2019), highlighting the need for policymakers to attempt to moderate tuition increases.

States have responded by placing limits on how much colleges can increase tuition. In Fiscal Year 2023, 19 states froze tuition at public universities and nine other states implemented caps. In the decade prior to 2013, the largest number of states with freezes was seven, showing considerable concerns about affordability in recent years (author’s data collection from state policy documents). These formal tuition controls along with threats from legislators to withhold funding from colleges that increase tuition have contributed to inflation-adjusted tuition and fees returning to 2011–12 levels during the 2023–24 academic year (Ma & Pender, 2023).

Tuition control policies have indeed been effective in reducing tuition in the short term, but colleges responded by increasing tuition quickly after the cap was lifted (Deming & Walters, 2017; Miller & Park, 2022). There is evidence that colleges, particularly those with limited resources, responded to tuition controls by reducing financial aid (Miller & Park, 2022). My research concluded that colleges increased fees more quickly during a tuition cap to try to obtain additional revenue (Kelchen, 2016). I also found evidence that tuition freezes in particular resulted in increased enrollment at less-selective institutions that were willing to expand their capacity (Kelchen & Pingel, 2023) and that those same institutions saw a decline in student debt burdens of their former students (Kelchen, 2024). There are legitimate concerns about colleges being unable to obtain resources needed to provide a quality education under a tuition freeze, but there are also clear short-term benefits to students.

A number of states and systems have attempted to reduce student charges by implementing guaranteed tuition policies that lock in a fixed tuition rate for a full-time student’s typical time in college. This provides financial certainty to students and their families by preventing tuition increases, but it also limits colleges’ ability to respond to financial challenges that may come up during that period. Research on a guaranteed tuition plan that existed in Illinois for more than a decade showed that the state’s public universities increased tuition for first-year students far above other states and that the state also significantly cut appropriations following the passage of a guarantee (Delaney & Kearney, 2015a; Delaney & Kearney, 2015b). Analyses on plans in both Illinois and North Carolina concluded that out-of-state tuition also increased more quickly as colleges sought additional revenue sources (Delaney & Kearney, 2016; Worsham, 2023).

Finally, it is important to note that tuition charges frequently vary by year in school and/or field of study. Differential tuition policies have existed at public universities for decades, and they began spreading to community colleges following the Great Recession (Cornell Higher Education Research Institute, 2012; Friedel & Thomas, 2013; Nelson et al., 2017). They have become much more prevalent since the early 2000s at public universities as institutions seek to help recoup the costs of offering expensive majors such as engineering or nursing or look to generate additional revenue in in-demand majors such as business. My analysis of institutional websites found that between one third and one half of public universities currently have differential tuition in these three popular fields of study, roughly triple the prevalence in the early 2000s (Kelchen, 2023).

Differential tuition policies have the potential to either increase or decrease the number of students majoring in covered fields. If the additional tuition revenue is used to expand program capacity and/or provide need-based financial aid, then differential tuition could increase racial and socioeconomic diversity. On the other hand, if programs are not expanded and financial aid is not provided, price-sensitive students are likely to choose other fields of study. Analyses of Texas’s tuition deregulation policy, which allowed for differential tuition but required a portion of funds to be dedicated for financial aid, found a mix of positive and negative effects (Andrews & Stange, 2019; Flores & Shepherd, 2014; Kim & Stange, 2016). A national analysis by Stange (2015) found that early adopters of differential tuition (prior to the Great Recession) saw an increase in the share of nursing degrees and a decrease in the share of engineering degrees, particularly for Black students. However, my analysis using more recent data found null effects (Kelchen, 2023).

Admission and Enrollment Policies

The final broad set of state policies that can affect student success is in the area of admission and enrollment. With declining enrollment in many states, state legislatures, higher education agencies, and individual colleges have taken steps to try to broaden the pool of students who are considering college attendance. Several states, such as Idaho, have adopted direct admissions policies that automatically admit all students to open-access colleges and admit students who meet certain benchmarks to selective institutions. These policies help to reduce the burden of applying to college and send the message to students that higher education is an option. Idaho’s policy has been shown to increase enrollment in community colleges in particular (Odle & Delaney, 2022), but this did not scale across other adopting states (Odle & Delaney, 2023). At this point, it is too early to observe any effects on completions.

A growing number of states are implementing guaranteed admissions plans for their most selective public universities, in which students who graduate within a certain percentile of their high school class automatically gain admission. Texas is the most prominent example, adopting a plan in 1997 that admitted the top 10% of high school graduates into the public university of their choice. This plan, which was adopted following a court decision banning affirmative action, led students from underresourced urban and rural schools alike to attend flagships and increased racial and socioeconomic diversity (e.g., Andrews et al., 2010; Long et al., 2010). However, the popularity of the program has led to the threshold being raised to the top 6% at UT-Austin (University of Texas at Austin, 2021), and there is some evidence that students switched high schools in order to have a better chance of admission (Cullen et al., 2013). South Carolina and Tennessee adopted top 10% plans for their flagship universities in fall 2023 following the 2023 Supreme Court decision banning race-conscious admissions (Thomas, 2023), and there is interest in other conservative-leaning states.

States and systems also frequently influence out-of-state enrollment levels or set enrollment caps at public universities, particularly as the share of out-of-state students has grown at nearly every flagship university over the last two decades (Klein, 2022). Public universities have frequently turned to out-of-state students in an effort to fill budget gaps following cuts in state funding or simply to garner additional revenue (Bound et al., 2020; Jaquette & Curs, 2015), although this often comes at the expense of enrolling underrepresented minority in-state students (Jaquette et al., 2016). This can be an effective revenue generation strategy at some of the most prestigious flagship institutions (Orlova et al., 2023), even though my research published in this journal suggests this is less successful across public higher education (Kelchen, 2021).

While there is no national database of nonresident enrollment caps, examples include 10% at UT-Austin (University of Texas at Austin, 2021), between 18% and 50% in North Carolina (Perez Uribe Guinassi, 2023), and 18% in California (Burke, 2021). North Carolina notably fines universities an amount equivalent to the out-of-state tuition premium for exceeding the cap; UNC-Wilmington was levied a $4 million penalty in 2023 for exceeding the cap in two consecutive years even though in-state enrollment increased substantially (Atkinson, 2023).

Institutional enrollment practices and policy goals often pit flagship universities against regional comprehensives and community colleges against four-year institutions. These battles often focus on approving new programs, which is generally within the purview of state higher education agencies (Venters, 2021). There have been prominent disputes in states such as Maryland over the state approving new programs at predominantly White institutions while not supporting existing programs at HBCUs (Hogan, 2023). Additionally, four-year institutions in states such as California and Idaho are pushing back over community colleges offering baccalaureate degrees (Echelman, 2023; Palmer, 2024) in spite of evidence suggesting that community colleges do not reduce enrollment at public universities (Kramer II et al., 2020).