Government Funding for Universities

The federal and state government allocates funding for postsecondary education and public schools. Federal contributions comprise mostly of grants bestowed on universities to be used for specific research. The remaining chunk, about 13.0%, comes from local governments, of which they use about half for various grants and about half as funding for community colleges.

State and local funding experienced solid growth pre-recessionary, while federal funding grew slower. The robust college enrollment growth during this time forced the state and local governments to expand their budget allocations for their public and community colleges. Meanwhile, total federal grants felt different from the same force to expand because they usually target research done by professors and graduate students. Therefore, the swell in undergraduate enrollment had little effect.

The recession caused many people across the nation to lose their jobs, dramatically hurting tax income for all levels of government. In turn, many states experienced budget crises, forcing cuts. During most budget crises, education spending comes under intense scrutiny and is often reduced. Many states followed this in 2009;, and state postsecondary education funding fell by 6.2%, the first dip in over three decades. Meanwhile, the federal government increased education grants as a part of the stimulus plans passed to battle the recession, increasing total federal contributions by 7.4%. However, the lessening in state spending had a heavy toll, as total government funding for universities declined by 0.2% in 2009.

This driver saw moderate growth in 2010 and 2011 in response to increased federal funding for economic recovery. However, in 2012 and 2013, state governments once again trimmed funding to higher education, leading to 5.3% and 2.2% drops in university funding, respectively. Since then, growth has moderated slightly as state budgets have improved. Despite the COVID-19 (coronavirus) pandemic and the resulting short recession in 2020, government funding for universities has continued to expand, mainly as the government aims to support schools during the pandemic. The decision to pass the CARES Act of 2020 allocated additional funding for universities to better provide their student bodies with additional student aid and funds to help cover costs incurred by universities impacted by the immediate impact of the pandemic on their operations.

While many campuses reopened with the distribution of the vaccine in 2021, concerns relating to the continued financial hardships faced by many sectors and individuals by the pandemic resulted in Congress passing the American Rescue Plan Act of 2021, which allocated $36.0 billion to universities with the expectation that they will dedicate nearly 50.0% of these funds to be allocated among their student populations in the form of financial aid. Even as the economy has reopened since 2020, the need for additional support to help keep institutions operating in the years that followed the pandemic has boosted how much support these institutions received as the high amount of campuses that exist in the country remains a factor that has pushed the need for more support from the government to support these schools whether in the form of grants or contracts while their endeavors that remain subjectively valuable depending on what types of projects that are overseeing has also remained a factor that had escalated support in the period. While these factors remained afloat, funding is set to scale up in 2024 and 2025 as the government's lack of movement to cut funding, especially as doing so represents a political liability, will keep funding elevated.