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The CARES Act Helped, But Public Higher Education Finances Are in Crisis

The COVID-19 pandemic and resulting economic crisis have placed unprecedented strain on public higher education. State budgets are under increased pressure, enrollment is declining, and institutions themselves are facing significant new costs associated with implementing online learning and virus prevention. In March, Congress supplied $14 billion in direct aid to public and private higher education institutions through the CARES Act. This emergency funding provided critical support to higher education, but it covered less than half of the pandemic’s impact on public higher education revenues—to say nothing of major COVID-related spending increases. As the pandemic continues to rage, however, postsecondary finances remain in dire straits, and schools need additional support to weather the crisis.

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Compounding Challenges for Public Higher Education

As we detailed in a previous blog, states tend to cut funding for higher education during recessions. In response, institutions have historically relied on tuition revenues to fill the gap, buoyed by an increase in enrollment as displaced workers seek new skills. But this is a different type of crisis. Overall enrollment declined by 3% this fall and tuition grew at its lowest rate in three decades, as institutions forwent increases—or opted for more modest ones—in light of the economic situation and the move to online instruction. At the same time, auxiliary revenues from campus housing, dining operations, and other campus facility rentals are estimated to have fallen by 25%. On the other side of the ledger, institutions face ballooning costs, particularly related to virus management. Institutions report incurring COVID-specific costs more than 15% greater than what was anticipated.

This created a perfect storm for public higher education, and without the ability to rely on tuition revenue to fill these gaps, schools turned to federal assistance through the CARES Act to alleviate some of the pressure.

Where Would We Be Without the CARES Act?

The Bipartisan Policy Center estimates that total higher education revenues at public institutions from state appropriations, tuition, and auxiliary services will decline by nearly $7 billion, or 3%, in the 2021 fiscal year. If not for CARES Act funding, this number would be almost twice as large—at $12 billion, or roughly 6%. COVID-related cost increases would make the overall budget gap even wider.

To derive these figures, BPC used a model developed by the National Center for Higher Education Management Systems and the State Higher Education Executive Officers Association. BPC estimated total instruction-related and auxiliary revenues in each state with and without the CARES Act funding for FY2021 (Figure 1). The model relies on a baseline constructed from the most recent data available. As such, these figures should be viewed as a rough estimate, and not as a precise measure, of higher education revenue in any state. They do, however, provide insight into the relative magnitude of the pandemic’s impact across the country.

It should also be noted that the aggregate revenue decline masks large discrepancies among states. For example, revenues at Montana’s public two-year colleges would have fallen by an estimated 12% in the absence of CARES Act funding, whereas revenues for the same group of institutions in Idaho would have remained unchanged. At public four-year schools, total revenues would have fallen by 13% in South Dakota, while increasing by 3% in Arizona.

Figure 1: Estimated Change in Annual Total Instruction-Related and Auxiliary Revenues for FY2021 (millions)

Public Four-Year Institutions
Public Two-Year Institutions
State
With CARES Act
Without CARES Act
With CARES Act
Without CARES Act
Alabama-$121-3%-$209-6%$31%-$48-9%
Alaska-$38-8%-$45-10%$00%$0-2%
Arizona$1795%$1163%-$14-1%-$60-5%
Arkansas-$91-6%-$134-8%$00%-$16-5%
California-$710-3%-$1148-6%-$120%-$335-3%
Colorado-$176-5%-$228-6%-$43-6%-$65-9%
Connecticut-$93-5%-$118-7%-$24-7%-$39-11%
Delaware-$46-6%-$67-8%$00%-$5-4%
Florida-$219-3%-$381-6%-$40-2%-$191-9%
Georgia$421%-$102-2%$344%-$20-2%
Hawaii-$15-2%-$36-5%-$10%-$12-4%
Idaho-$22-3%-$36-4%$63%$10%
Illinois-$150-3%-$223-4%-$106-3%-$175-5%
Indiana-$421-10%-$485-11%-$20-4%-$41-8%
Iowa-$210-9%-$233-10%-$41-6%-$61-8%
Kansas-$101-5%-$132-7%-$29-4%-$45-7%
Kentucky-$46-2%-$86-4%$62%-$14-5%
Louisiana$131%-$71-3%$82%-$21-7%
Maine-$19-3%-$29-5%$22%-$3-3%
Maryland-$212-6%-$302-8%-$21-2%-$50-4%
Massachusetts-$167-5%-$210-7%-$33-4%-$61-8%
Michigan-$614-9%-$711-10%-$70-4%-$121-7%
Minnesota-$208-7%-$244-9%-$24-3%-$58-7%
Mississippi-$28-2%-$93-6%$153%-$38-7%
Missouri-$218-8%-$268-10%-$28-5%-$54-9%
Montana-$14-2%-$27-4%-$3-4%-$9-12%
Nebraska-$70-5%-$88-7%-$4-1%-$13-3%
Nevada-$20-2%-$42-5%$10%-$10-4%
New Hampshire-$71-11%-$80-12%-$10-8%-$13-11%
New Jersey-$206-5%-$285-7%$101%-$40-4%
New Mexico-$52-5%-$72-6%$10%-$21-4%
New York-$113-1%-$300-4%$381%-$67-3%
North Carolina-$270-4%-$429-7%$231%-$42-3%
North Dakota-$32-5%-$42-6%-$9-9%-$11-11%
Ohio-$403-6%-$499-8%-$14-1%-$61-4%
Oklahoma-$122-6%-$167-8%-$5-1%-$25-6%
Oregon-$146-7%-$177-8%-$43-5%-$65-7%
Pennsylvania-$326-5%-$430-7%-$55-6%-$94-10%
Rhode Island-$43-8%-$53-9%-$1-1%-$7-6%
South Carolina-$62-2%-$111-4%$244%-$7-1%
South Dakota-$51-10%-$64-13%$47%$12%
Tennessee-$30%-$75-3%-$28-5%-$56-11%
Texas-$105-1%-$432-3%$321%-$157-3%
Utah$261%-$18-1%$83%$10%
Vermont-$35-6%-$41-7%$00%-$1-2%
Virginia-$234-4%-$327-6%-$19-2%-$57-6%
Washington-$174-5%-$224-6%-$23-2%-$71-5%
West Virginia-$32-3%-$61-5%-$1-1%-$6-5%
Wisconsin-$142-5%-$190-7%-$26-2%-$47-4%
Wyoming-$19-6%-$22-7%-$7-3%-$10-5%

Notes: The 2021 estimates assume a 3% cut to state appropriations, based on the aggregate decline in state appropriations for higher education in the first year of the Great Recession, and a 25% fall in auxiliary revenue. Enrollment changes are applied at the sector level within states, as available data allow, based on reported annual enrollment changes. Finally, the estimates assume that public four-year tuition increased by 1.1% and public two-year tuition by 0.6%, and that out-of-state and out-of-district prices behaved the same as resident and in-district prices, respectively.

Source: BPC calculations based on Modeling the Impact on Public Institutions of COVID-19, State Higher Education Executive Officers Association, National Center for Higher Education Management Systems, July 2020.

Conclusion

CARES Act funding provided public institutions a vital cushion, but schools are facing dramatic increases in costs. Even a 3% projected decline in revenues would force schools to make hard choices, with educational quality likely suffering as a result. The history of recessions suggest that budget cuts will continue in the years ahead. While enrollment may pick back up as the virus eventually abates, students will likely face higher out-of-pocket costs as institutions raise tuition to fill the gap. In order to promote college affordability and preserve quality, it is imperative that Congress provide further support for higher education in a forthcoming COVID relief package.

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