Higher Education Funding Inequality in America

On January 3, 2012, a team of civil rights lawyers arrived at the federal courthouse in downtown Baltimore, Maryland. The day was a long time coming—arguably, more than a century. That’s how long the federal government had been trying, in fits and starts, to help Black students in Maryland get equal access to higher education. And that’s how long Maryland lawmakers had been doing everything in their power to say no.

Maryland is not usually featured in the iconography of American resistance to civil rights. The beatings, bombings, and schoolhouse standoffs that are often remembered happened farther south, or west. But on that winter morning, the attorneys for the plaintiffs—four historically Black colleges and universities—presented a raft of historical documents that all reached the same conclusion: for as long as Black people have been allowed to attend public colleges and universities in Maryland, the state has been giving those institutions less money than those that educate white people.[1]

The 1937 Report of the Commission on Higher Education of Negroes found that “the contrast between the amounts of money received by the two racial groups would show, if possible of compution, an enormous differential in favor of the white race.” Decades passed and generations of lawmakers changed, but the results did not. In 1947: “The state has consistently pursued a policy of providing higher education facilities for Negroes which are inferior to those provided for whites.” In 1950: “The continuous uphill struggle on the part of the Negro colleges to secure facilities on a par with white institutions…cannot be overlooked.”

In 1954, the Supreme Court ruled in Brown v. Board of Education that separate and unequal public education systems are unconstitutional. Maryland all but ignored the ruling. In 1974: “Inequities and disadvantages which can be attributed to insufficient State fiscal support…have been faced particularly by Black colleges since their beginnings.” In 1981: “Notable deficiencies” that “stand out among the Black Institutions” include “the deplorable condition of science laboratories.” And so on.

Funding discrimination against Black students is not unique to Maryland. It is commonplace in the United States. So is the practice of providing fewer higher education resources to Hispanic, low-income, first-generation, and other students who struggle to gain the skills and credentials necessary to lead a fulfilling, productive life.

Recent years have seen a surge in public interest around fundamentally changing the way America finances higher education. This high-profile debate, which has spilled into presidential campaigns, the halls of Congress, and the Supreme Court, has focused almost entirely on the cost of college: how much students pay in tuition and take out in college loans. These are crucial, still-unresolved issues. But relatively little attention has been paid to funding for colleges themselves. The quality of higher education is often assumed—the only question is how to pay for it.

In reality, many vulnerable students face double discrimination: first, in how much they are required to borrow and pay for college, and second, in how little money the colleges they attend receive. Even a free tuition bill isn’t good enough if it can only pay for an impoverished college experience of deplorable conditions.

The federal government has an opportunity to right this historical wrong and improve learning for millions of vulnerable students. To do so, it needs to understand how and why many public colleges and universities are being shortchanged. And it needs to learn from the history of other federal programs that have tried to focus resources on schools that suffer from structural discrimination while simultaneously serving students most in need.

There are, depending on how you count, about 1,500 public colleges and universities in America.[2] They received roughly $430 billion in revenue during the 2019–20 academic year. The money comes from many different sources because colleges—particularly universities—do many different things. Many of those activities involve teaching, but some, like conducting research and running hospitals, do not. The two biggest sources of college revenue are student tuition and direct financial support from state and local governments.

Every year, colleges send financial information to the U.S. Department of Education’s National Center for Education Statistics detailing where their money comes from and how they spend it. They also report how many students they enroll, along with demographic information about students’ race and ethnicity. Using that data, we can calculate how much combined tuition and state and local revenue each college receives per student.[3] Demographic information allows us to compare how much money underrepresented minority (URM) students[4] receive, on average, in a state, compared to other students. Those results are shown in Table 1 below.

In Maryland, URM students received $700 less per student in 2019-2020 than other students. The historical inequities that the plaintiffs’ lawyers described in 2012 were still present nearly a decade later. The same pattern is present almost everywhere—40 out of 48 states[5] provide less money to URM students. Nationwide, URM students receive an average of $1,752 less per student than other students.

Why is it like this? The answer is a case study in structural racism. In the 19th century, states mostly provided higher education by allowing nonprofit groups, often churches, to establish and run private colleges. As journalist Adam Harris describes in his book, The State Must Provide, attempts to build colleges to serve Black students were often met with deadly violence backed by law and police power.[6]

By 1890, many of those practices had formally subsided. But much of the underlying racism remained. When Congress passed the second Morrill Land Grant Act that year, it added a provision requiring states that accepted federal funding to serve Black students. They could do this by opening the doors of existing public universities, or by establishing separate, segregated Black colleges. Maryland, along with more than a dozen southern and midwestern states, chose the latter.

Lawmakers in those states had no intention of providing Black colleges with equal funding, and never did. Their motives are not a secret. Many spoke publicly and proudly of their white supremacist ideals.

Over time, the prevalence of those ideas gradually diminished. By the early 21st century, state legislatures were no longer populated by people who spoke like their predecessors in the late 19th century. But the decades in between had consequences. Institutions and interests took root.

The most powerful force in state budgeting is incrementalism. Every state operates a series of institutions—colleges, hospitals, parks, prisons—that change little from year to year. The tax revenues available to fund them rise and fall with the economy, usually by no more than a few percentage points annually. Practically speaking, nearly every dollar in a given state budget is allocated through the system of “What you got last year, plus a little more.” Deviation is generally small and at the margin.

This means that a state’s budget process can consist of higher education leaders who are genuinely committed to racial justice, making good-faith appeals on behalf of their institutions to state lawmakers with similarly virtuous intentions, and the result is the continuation in perpetuity of a deeply racist design.

Many states have tried to make the process more fair by adopting formulas to impartially dispense dollars to colleges and universities. Each state’s formula is unique and there are a number of different formula types, based on factors including enrollment, prior funding, research mission, and performance.[7] These formulas matter, and they’re the reason that some states have more equitable funding systems than others. But pure formula results are often draped on top of underlying historical structures, or manipulated to mimic their contours, keeping century-old injustices intact.

State higher education funding is also explicitly designed to discriminate, not by race, but by class.

Until the 20th century, college was an experience reserved for the fortunate few. By 1960, as baby boomers surged through the education system, the percentage of recent high school graduates who enrolled in college had risen to 45 percent. It is now close to 70 percent.[8]

Many of the new undergraduates were from economic classes that had little prior college attendance, because in past decades good jobs were available without college degrees. States needed to expand their public higher education systems to accommodate millions of additional students. The challenge was greatest in Sunbelt states that were experiencing huge population growth. They often looked for inexpensive solutions.

The classic architecture of state higher education was devised in California. Students there are sorted into a three-layer ziggurat with a narrow top and wide base. Those with the best academic credentials are allowed to attend one of nine University of California campuses, which serve 280,000 students. The middle layer of California State Universities serves 486,000 students. Open-access community colleges enroll the remaining 1.8 million.

Per-student funding levels in California work the same way—in reverse.

• At UCLA, 25 percent of students are from underrepresented minority groups. The university receives over $31,000 in revenue per student.
• At Cal State LA, 74 percent of students are from underrepresented minority groups. It receives about $17,500 per student.
• At East Los Angeles College, a two-year institution, 71 percent of students are from underrepresented minority groups. It receives just over $5,800 per student.

There is a strong correlation between the wealth and education of students’ parents and their likelihood of meeting the admissions standards for selective public universities. Because structural racism is not confined to higher education—it exists in housing, K–12 schools, employment, banking, environmental protection, and more—class-based discrimination has the effect of mimicking the effects of de jure racial discrimination, even in higher education systems that were mostly built in the 20th century. It also hurts many students who are not members of underrepresented minority groups, but who have little income or wealth.

Some might argue that these funding differences are a function of mission differentiation, not class discrimination. Universities need expensive facilities, employ people with PhDs who command higher salaries in the labor market, and give faculty time to conduct scholarship and research, the thinking goes. But universities also insist that all of those things contribute to the quality of education students receive. So mission differentiation is just another way of saying that the most privileged students have more access to the best opportunities for learning. In K–12 education, this is generally considered a problem to be solved. In higher education, it’s “meritocracy.”

Crucially, the revenue amounts shown in Table 1 include student tuition. This might seem counterintuitive, treating money that students pay to the university as revenue that is provided on their behalf. But ignoring tuition only makes sense if we consider higher education to be purely a private market good. The whole point of public higher education is to see college otherwise.

Two public institutions in Maryland provide an instructive example. Coppin State, an historically Black university, and St. Mary’s, a liberal arts college, are about the same size. But St. Mary’s gets almost $14,000 more per student. The difference is tuition. Coppin State charges $6,900 per year for in-state students. Fifty-five percent of them have income low enough to qualify for a federal Pell grant. St. Mary’s charges $15,180. Only 21 percent of its students are eligible for Pell.

From the student-cost-only perspective, Coppin State is doing a great job keeping tuition low for students of limited means. But the tuition it doesn’t charge is also money it doesn’t have. Money matters in higher education, just like everywhere else. People who can afford to purchase an expensive, high-quality college experience generally do. And low-income students often have more educational needs—not least because they tend to come from K–12 school districts that are also under-funded. The much higher tuition charged by St. Mary’s is used to provide its students with a supportive liberal arts experience that many colleges can’t afford.

The same pattern holds at the system level. In 2021, President Biden proposed a plan to make community college free nationwide. Most California community college students pay no tuition right now. They are also mostly taught by low-paid part-time professors.[9] The facilities community college students learn in are not the same as those afforded to elite university students. And the process of transferring credits to bachelor’s granting universities can be frustrating and opaque.

The bargain states have made with the economic classes that have only recently begun attending college is cheap for cheap—we won’t charge you much, but you won’t get much in exchange.

At the federal level, policymakers continue to wrestle with the student loan crisis. The Supreme Court may soon declare the Biden loan forgiveness plan null and void, and comprehensive reforms like the Biden community college plan and the College for All Act promoted by Senator Bernie Sanders are unlikely to move forward in a divided Congress.

But even success on all affordability fronts will leave the problem of funding for colleges unresolved. That, too, will require federal action. A new federal program designed to improve funding for colleges should have two main aims.

1. Create strong incentives for states to fund their public colleges and universities equitably, in ways that undo the legacies of structural racism and end discrimination based on economic class.
2. Provide additional funds to colleges that serve the most economically and educationally vulnerable students, with an emphasis on world-class general education and programs that lead to high-paying careers.

To design such a program, policymakers should learn from the successes and failures of existing federal education programs that provide funding to schools that both educate low-income students and are low-income themselves.

Most of the biggest federal education programs were created in the 1960s and 1970s. Lawmakers then took very different approaches to the two main school systems. For higher education, they funded students, by giving them grants and loans. For K–12 education, they funded schools, primarily through Title I of the Elementary and Secondary Education Act (ESEA).

The Title I program provides grants to school districts to help low-income students. Through a complex set of formulas, both overall funding and the amount per student increase as poverty levels rise. The program has been studied and modified multiple times over the decades. Here are three lessons for creating something similar, a “Title I for higher education.”

1) Bureaucratic rules mandating which students are served in what way usually don’t work.

Title I was born out of the Great Society suite of anti-poverty programs. At first, the Department of Education ruled that the money had to be spent specifically to serve low-income students. But a 1992 commission found that this created a bureaucratic, compliance-oriented system with perverse outcomes. Poor children were often pulled out of regular classrooms for Title I services, creating stigma without improving learning. “Replace accounting for dollars with accountability for results,” the commission recommended.[10] The rules were changed, allowing schools with a sufficient number of low-income students to spend Title I resources to improve the whole school.

Two years later, Congress passed a new version of ESEA that made good on many of the commission’s recommendations, including requirements that states establish academic standards and hold schools accountable for results. That set the stage for the No Child Left Behind Act of 2001. NCLB is most known for its controversial testing and accountability mandates. But it also included a list of remedial actions that low-performing districts were required to choose from. There is no evidence to suggest that this approach was effective; districts mostly took advantage of a loophole allowing them to try something else.

The federal government is very good at sending people and organizations money. It is also good at collecting information from across a vast and disparate nation. With care, it can use that information to set minimum standards for performance that act as an effective foundation for consumer protection. But the U.S. Department of Education has no capacity to effectively write instructions telling complex educational organizations how to do their jobs well. Nor does the U.S. Congress.

2) Money is fungible, which makes things complicated.

In fairness to rule-writers of days gone by, the general idea of requiring schools to use federal dollars for their intended purposes is sound. By definition, federal programs are created to fill needs that state and local governments aren’t filling on their own. Sometimes that absence is a function of limited resources. As we’ve seen in Maryland and elsewhere, it is sometimes a matter of hostility and neglect. It’s reasonable to assume that, left to their own devices, states will spend their next dollar based on the same prejudices and priorities they applied to the last one.

Many federal programs use highly defined federal/state cost-sharing arrangements to control this dynamic. Health care and transportation are two examples. But programs like Medicaid are also co-managed by state and federal agencies, with Uncle Sam providing the lion’s share of funding. American schools, colleges, and universities don’t work that way. They are mostly funded and almost entirely governed by state and local governments.

That has left federal policymakers with weaker, simpler alternatives like “supplement, not supplant” provisions, which prohibit states from playing a shell game with new federal money by reducing state funding to federally subsidized enterprises, effectively diverting the federal resources elsewhere.

Supplement-not-supplant policies can work—they are credited with buttressing state support for higher education during the Great Recession.[11] But they are also vulnerable to political pressure and manipulation. ESEA Title I applies a supplement-not-supplant rule to the distribution of money to schools within districts. (A large and economically diverse district might have some schools with many low-income students and others with few; only the former receive funds.) The Obama administration tried to close a loophole that allowed districts to pretend that all their teachers are paid the same amount of money, when in reality high-poverty schools often have a greater number of inexperienced, lower-paid teachers. The effort was defeated by an alliance of teachers’ unions, their Democratic supporters, and states’-rights Republicans.

It is inherently difficult for the federal government to tell locally governed schools and colleges what to do with their money, particularly when the two parties disagree. But federal funds can buy other things.

3) Policy is cheap; money is expensive.

NCLB had a lasting impact on K–12 education. Even in diminished form, it continues to guide state standard-setting and accountability policy today. But it was not a mandate—merely a condition of receiving Title I funds, which provide only 2 percent of all public-school revenues. The Obama administration’s “Race to the Top” program leveraged $4.35 billion in one-time stimulus funding into significant changes in state policy for teachers and academic standards for a system that currently spends nearly $800 billion per year. A little federal money can buy a lot of state policy change.

Colleges and universities are far more independent in tradition, market power, and formal governance than K–12 schools. But they also need and want money. While NCLB-level change is probably too ambitious, strings should be attached to any new programs that provide colleges with direct financial support. “Replace accounting for dollars with accountability for results” remains a good guiding principle. The federal government shouldn’t tell colleges how to succeed. But it should define what success means for the students it is trying to help. It could, for example, only fund programs where graduates earn more in their careers than the typical student who has only a high school diploma.

It’s also important to decide which colleges would be eligible for funding, and how much. Title I maintains durable political support by spreading its funding widely to include any district with at least a 2 percent poverty rate (i.e., almost all of them). Districts with higher poverty rates get more money per low-income student, but a lot of money is still wasted by giving everyone a taste. A Title I for higher education should be concentrated on colleges that are doing the challenging and vital work of enrolling large numbers of students eligible for Pell grants.

That still leaves the enormous problem of how states fund higher education in the first place. ESEA Title I does little to address unfair funding in K–12 schools. One of the formulas that determines Title I allocations includes a mechanism that rewards states for distributing their own money equitably. But it is hamstrung by limitations on how much money states can gain or lose on the margin, in much the same way that the formulas states use to fund colleges are limited by the imperative to preserve historical allocations. A lot of Title I money is effectively supplanted at the structural level—the program funds poor students in states and districts that don’t have enough money because they are poor.

Title I also adjusts how much districts receive using a “cost adjustment” that assumes costs and spending are the same thing. This long-standing and extremely unwise policy has the effect of giving 50 percent more money per student to poor children in rich states than to poor children in poor states, when common sense (and many other federal/state partnerships, within education and without) would advise the opposite. Most K–12 funding disparities are between states, not within them. This is less of an issue in higher education due to market dynamics, the availability of debt financing, and less reliance on local property taxes. But it’s not a mystery why college students of all kinds get more money in Connecticut than Louisiana. Connecticut has a lot more to give.

It’s one thing to give colleges money and impose conditions on how they spend it, or to make funding contingent on passing a law or regulation. It’s something else to buy redistribution—to create incentives strong enough to overcome whatever combination of hard-fought political bargaining and long-standing consensus produced the existing distribution of state and tuition resources. Money is expensive, in the sense that it takes a lot of it to convince a state to move its own resources from one place to another—taxpayer to college, college to college, other part of the state budget to college, or some combination thereof—without the enthusiastic consent of all parties involved.

A Title I for higher education could significantly improve the quality of education historically underserved students receive, if enough money is carefully targeted to high-need colleges, with the right combination of flexibility in use and accountability for results. But it won’t be able to fix the underlying problem of how states allocate resources without federal funding on a scale that has thus far been reserved for various free college plans.

Lawmakers could also combine “Title I for higher education” and “Free college” into a single comprehensive reform. The Biden free community college plan effectively moved in that direction by providing every state with roughly $5,000 per student in exchange for setting two-year college tuition to zero. States like California, already waiving tuition for many students, would have been able to use the money to make college better in addition to cheaper. Higher education funding inequality is a solvable problem in the technical sense—it’s mostly about providing finite and definable amounts of money to institutions that obviously need the help. The complicated part is navigating the seas of fiscal policy in which the needs of college students jostle with all the other problems in the world.

Maryland’s HBCUs presented a powerful case that the state had failed to properly desegregate its higher education system in accordance with Brown v. Board and the Supreme Court’s 1992 United States v. Fordice decision, which found unequal college funding in Mississippi to be unconstitutional. The judge ruled in their favor in 2013. Years of mediation followed, with no resolution. Another trial ensued. In 2017, the judge ruled against the state once again.[12]

The coalition began negotiating with Larry Hogan, then Maryland’s popular two-term governor. He offered $100 million. They said no. Hogan made a “final offer” of $200 million. The coalition declined once again. Finally, with the end of his tenure looming, Hogan settled for $577 million over the next 10 years. He signed the legislation on March 24, 2021, 66 years after the Supreme Court ruled that Brown must be implemented with “all deliberate speed.”

It was progress—of the slowest kind, but progress, nonetheless. But it also depended on a specific set of legal circumstances that are unavailable in most states that continue to provide less money to colleges serving underrepresented minority students. Only the federal government can provide them with the justice they deserve.

[1] Lawyers’ Committee for Civil Rights Under Law, Maryland’s Failure to Desegregate Its Historically Black Institutions: Policies and Practices Rooted in the De Jure Era, January 3, 2021, slides, https://lawyerscommittee.org/wp-content/uploads/2015/06/Coalition-v.-MHEC-2012-01-03-Ptfs-Opening-Argument-Presentation.pdf.

[2] In addition to the familiar community colleges and public universities, some states have specialty institutions, administrative districts, and other classifications that make the exact number subject to methodological choices that are detailed in the technical appendix.

[3] See the technical appendix for the exact definition of revenue.

[4] Defined as students who are American Indian or Alaska Native, Black or African American, Hispanic, or Native Hawaiian or Other Pacific Islander.

[5] The District of Columbia is excluded because it only has one public higher education institution. Delaware is excluded because of missing data for the University of Delaware. Pennsylvania is excluded because of missing data for Temple University, the University of Pittsburgh, and Pennsylvania State University, likely a function of the state’s practice of legally classifying these institutions as ambiguously quasi-public for the purposes of avoiding public information requests.

[6] Adam Harris, The State Must Provide: Why America’s Colleges Have Always Been Unequal—And How to Set Them Right (New York: Ecco, 2021).

[7] Mitchell Lingo, Robert Kelchen, Dominique Baker, Kelly Rosinger, Justin Ortagus, and Jiayao Wu, The Landscape of State Funding Formulas for Public Colleges and Universities (InformEd States, December 2021).

[8] U.S. Department of Education, National Center for Education Statistics, Digest of Education Statistics, Table 302.10.

[9] Many of whom provide top-rate instruction, but could presumably do an even better job if they were fairly paid, had health insurance, etc.

[10] Commission on Chapter I, Making Schools Work for Children in Poverty: A New Framework (Washington, DC: American Association for Higher Education, December 1992).

[11] Thomas L. Harnisch, Update on the Federal Maintenance of Effort Provision: Reinforcing the State Role in Public Higher Education Financing (Washington, DC: AASCU, July 2012).

[12] The ruling required the state to both provide additional funding and make good on promises to locate unique, high-demand programs at Maryland HBCUs.