State funding for higher education increased by 4.3 percent this fiscal year, according to a new report from the State Higher Education Executive Officers Association, amounting to a total of $129.7 billion in state higher ed funding nationwide.
It’s a “modest increase,” said SHEEO senior policy analyst Kelsey Kunkle, a little less than what researchers expected—about one percentage point below the average year-over-year change in state funding going back to 1980. The organization’s annual winter report is a preliminary one, based on projections that have yet to be adjusted for inflation, so the ultimate increase could be a bit lower.
The bump reflects widespread state budget surpluses in 2024 and the continued use of what is likely the last of federal pandemic stimulus money; on average, states allocated 2.2 percent more of their federal funding to higher education this year. In all, two-year public colleges received $26.7 billion in state funding and four-year institutions received $62.5 billion, while $16.7 billion was allocated for state financial aid.
Next year could be different. Converging difficulties loom over the future of state higher ed funding, including projected budget deficits for fiscal 2026 and mounting financial challenges for tuition-dependent public colleges. Cuts could be devastating for enrollment and affordability: A College Board report last year found that state funding was the main factor keeping tuition prices from rising as much as inflation.
“State leaders are going to have to make tough choices in the coming years,” Kunkle told Inside Higher Ed. “At the same time, states will need to be contributing to higher education in order to help students and families and attempt to keep tuition rates, and the student share of college cost, low.”
Federal stimulus funding from the COVID-19 pandemic is also washing out of state budgets; after three years of cushioning, that could portend an overall backward slide in state support. And as higher education spending has become increasingly scrutinized in statehouses around the country, support for public institutions is increasingly unstable.
Lawmakers in Utah have already voted to slash higher ed funding by 10 percent for the next fiscal year, despite record enrollment growth at the state’s public colleges. Connecticut leaders have called for “belt-tightening” at the state’s institutions despite a $1.6 billion budget surplus. Louisiana public colleges—already some of the most underfunded in the country—could lose hundreds of millions in state support, including major reductions in scholarship funding, thanks to new tax cuts.
Kunkle said that while the impact of these headwinds is unpredictable, they could exacerbate funding gaps that already exist between the states.
“We are entering a time when we should be expecting volatility in the coming years,” Kunkle said. “Heterogeneity may be the new normal.”
For this fiscal year at least, only 11 states reported an overall decline in higher ed funding, while six states reported increases greater than 10 percent.
Some of the declines, like Arizona’s 7 percent dip, are due to major budget shortfalls; others, like Alabama’s, reflect the absence of one-time supplemental funding state universities received in 2024. Vermont saw the biggest year-over-year decline in state funding, at 7.5 percent, though Kunkle said that was largely due to adjustments for the recent consolidation of its public colleges.
The states with the most significant funding growth include California, Colorado, New Mexico, Virginia and Washington. In Kansas, major investments in state financial aid programs contributed to a 19 percent funding boost from 2024—though higher ed officials in the state worry they may be rolled back in the next budget cycle.
Those worries are commonplace across public higher education systems right now, Kunkle said, because state legislatures are re-evaluating their reliance on the variables that usually determine higher ed funding—program success, enrollment growth, tuition revenue and the like.
But there are few tea leaves to read in SHEEO’s data. For now, Kunkle said, public universities are “waiting for indicators of what’s coming next.”
