Higher Education Finance in the United States: Sources of Funding and Impacts of State Investments

Abstract

Higher education funding in the U.S. is complex and distributed through multiple funding sources that change over time with important differences across states, public and private institutions, and institution types. This chapter provides an overview of the major sources of funding for U.S. higher education and how they have ebbed and flowed over time. We investigate the potential ramifications of changes in state funding, which has long been the primary source of revenue for public institutions. We find evidence that state appropriations to institutions and student financial aid are directly tied to student outcomes in higher education, with both funding strategies essential to increasing student access and success. We also discuss inequalities in state funding between states, institutions, and student demographics, which contribute to an already highly unequal U.S. economy and educational system. The chapter concludes by discussing the successes and implications of the U.S. approach to funding higher education and the importance of continued public investment in institutions and students.