How States Fund Public Colleges and Universities

This blog was created in partnership with Education Commission of the States. We appreciate their collaboration on this resource and blog post.  

Public colleges and universities rely heavily on state funding to operate and serve students. How that funding gets allocated to institutions varies widely across the country. A new 50-State Comparison completed by Education Commission of the States and the National Center for Higher Education Management Systems (NCHEMS) documents the key factors included in mechanisms for allocating state funds to two- and four-year institutions.

The comparison highlights the complexity and diversity of state funding strategies, as well as the increasing emphasis on performance and equity. For policymakers, educators, and advocates, understanding these mechanisms provides essential context for decisions aimed at shaping a more effective and inclusive higher education system.

For example, the analysis shows that more than half of the states in the U.S. now include a performance measure, such as student completion, credential attainment, or job placement, in the funding allocation. Performance-based funding models are designed to incentivize institutions to prioritize student success over enrollment numbers through increased retention and completion efforts. The comparison identified that performance-based funding was a popular approach in states for both two-year institutions (31 states) and four-year institutions (29 states).

States also factor in student enrollment and may place a heightened emphasis on increasing enrollment for specific populations. Most states include a measure of student enrollment, such as full-time equivalence, in the funding allocation to two-year institutions (37 states) and four-year institutions (29 states). States also factor in counts of specific student populations, such as students who are eligible to receive a Pell Grant, adult learners, first-generation students, or veterans.

This landscape analysis offers leaders and advocates a critical resource for understanding the design and implications of state funding mechanisms. By cataloguing the inclusion of performance and equity measures alongside enrollment factors in state funding mechanisms, the 50-State Comparison provides a foundation for considering reforms that may support improved outcomes for all students.