Higher Education and State Budgets: First Lessons from the Pandemic

When COVID-19 hit, colleges and university leaders had to shut down their campuses and shift to virtual learning almost overnight. Meanwhile, state and national experts initially projected that the disruption caused by the emergency would lead to catastrophic declines in state revenue — a major funding source for financial aid and public colleges. Colleges braced for substantial budget cuts.

Between March 2020 and May 2021, the federal government enacted three massive emergency relief bills that injected a total of $75 billion into higher education. That funding, combined with better-than-expected state tax revenues — and, in some states, the use of rainy-day funds — staved off the financial devastation first predicted. Still, the unpredictable nature of the funding led many states to take a feast-or-famine approach to budgeting.

The pandemic’s impact on students has been devastating. Enrollment levels at community colleges, which serve a high proportion of Black, Indigenous, People of Color (BIPOC) students and students from low-income backgrounds, fell by 20 percent across the country and remain significantly below pre-pandemic levels. FAFSA completion rates are also down for the second year, especially among schools that enroll a high proportion of BIPOC students and students from low-income backgrounds. These alarming trends threaten to widen longstanding racial and economic equity gaps in college completion rates.

And while the COVID recession was unique in many ways — for example, college enrollment declined, unlike what typically happens during economic downturns — it once again illustrated the precariousness of state funding for public higher education. While it is too early to know the pandemic’s long-term impact on state finances and enrollment patterns, one thing is clear: the lack of funding coordination between the states and the federal government continues to undermine the promise of public higher education. If policymakers fail to build a more permanent funding partnership for public higher education, states, students, and colleges will continue to be at the mercy of budget economic swings and federal politics. This prevents states and colleges from making longer-term investments.

To get an early understanding of the experiences of higher education stakeholders working in states and at colleges when the COVID-19 pandemic hit, we interviewed stakeholders across five states — California, Colorado, Michigan, North Carolina, and Texas — to help inform lessons for advocates and policymakers going forward.

The following key themes emerged:

• The pandemic intensified existing inequities in higher education, and federal relief bills were not targeted enough to adequately address those disparities.
• Federal relief funds were effective at addressing most budgetary shortfalls, but colleges at times found grant requirements to be inflexible and unclear.
• Had colleges not been required to send a set amount of funding directly to students, some or all of those funds likely would have been used for institutional priorities.
• Unlike previous recessions, colleges who normally received significant auxiliary revenues experienced disproportionate budget shortfalls that were less likely to be fully covered by relief funds.
• There is ongoing concern about the precariousness of state higher education budgets, and a clear need for a new federal-state funding partnership to help stabilize public higher education systems.