A Looming Crisis for Public Colleges

In the next month, lawmakers in Washington are poised to use the budget-reconciliation process to dismantle student-loan programs and slash funding for higher education. But there’s another little-noticed aspect of reconciliation that will crush college students and public-college finances: cuts to Medicaid and SNAP, the Supplemental Nutrition Assistance Program. The House Republicans’ plan for reconciliation includes a cut of about $880 billion over the next decade in health-care and energy spending and $230 billion from agriculture. A budget reduction of this magnitude will require significant reductions to Medicaid and SNAP. 

That would directly harm low- and moderate-income Americans across the country, but these costs will also be passed on to states, putting pressure on already-tight budgets. And, as history has shown us time and time again, a state-budget squeeze almost always leads to skyrocketing college costs and lower-quality public education. The proposed shifting of these budgetary burdens from the federal government to states may seem like a trivial detail. It isn’t: We’re now facing the greatest threat to public higher education since the Great Recession.

Most states are required to pass balanced budgets each year. But some programs, like Medicaid, are directly tied to formulas and federal matching dollars. When revenue is tight, especially in tough economic times, states reduce the portion of their total budgets that remain “discretionary” — the portion that is not dictated by formula-derived expenses.  In almost every state, higher education is the largest discretionary-spending category. As a result, higher ed finds itself on the chopping block.

The cycle is lamentable but also predictable: In budget cycles over the past three decades, and particularly in the lead-up to the Great Recession, increased health-care costs and changes to Medicaid-program eligibility exerted pressure on state budgets. And in nearly every instance, funding for higher education was slashed. For just one example, look to Pennsylvania, where I previously served as deputy secretary and commissioner for postsecondary and higher education. For the 30-year period from financial year 1991 to financial year 2021, Pennsylvania increased Medicaid spending by 227 percent and decreased higher-education spending by 28 percent.

These cuts have a lasting impact. It took years for states to reinvest in public higher education after the Great Recession. While state appropriations per student increased over all in FY2023, at least half the states have never returned to their 2008 financial-year funding levels for higher education, including Pennsylvania. 

When colleges don’t have enough funding, students suffer. During the Great Recession, colleges had to scale back on instructional spending — which means fewer courses, larger class sizes, and cuts in student services. And colleges often had to raise more money through tuition — increasing prices and pushing to enroll more higher income, out-of-state students. State support for Pennsylvania’s State System of Higher Education has enabled it to keep tuition flat since 2018, but other states have not been as fortunate.

The long-term consequences of the Trump administration’s proposed cuts would be disastrous. As college becomes less affordable for students and their families, student-loan debt will surge. Meanwhile, public colleges won’t be able to provide sufficient resources to students, increasing the chances that students will stop out or not return at all. And the more expensive going to college becomes, the fewer students enroll, which in turn drives work-force shortages in professions like teaching and nursing several years later.

When state funding for higher education drops, it affects open-access, less-selective colleges the most, since they are more dependent on state appropriations and less able to raise their prices than their peers at elite public and flagship institutions. This is a crucial distinction, as 86 percent of all undergraduate students pursuing a degree in the United States do not attend selective flagships or research universities. 

As reconciliation takes shape, states are bracing for a mind-boggling round of funding cuts. States will be left with nothing but bad options. They could maintain Medicaid and SNAP coverage for all eligible populations, meaning funding reductions elsewhere. Or they could scale back coverage, leaving many, including college students from low-income families, without affordable health care or food. Or they could raise taxes.

If states take the first option, public higher education could be devastated. Currently, the federal government fully funds SNAP. Meanwhile, Medicaid funding is based on a federal-state match that varies based on each state’s average per capita income. Again, consider the example of Pennsylvania: Current Medicaid proposals to reduce the federal match rate of 90 percent (for those participating in Medicaid expansion) to Pennsylvania’s regular state match rate of 55 percent would mean that the state would need to secure about $2.56 billion — a figure that represents a staggering 116 percent of its budget for higher education for the 2023 financial year. If Pennsylvania was required to spend 10 percent on SNAP (instead of zero percent), it would need an additional $424 million — just over 19 percent of its higher-education 2023 budget.

Make no mistake: Such massive federal funding cuts would unleash mayhem on state budgets and public colleges starved for resources. Almost 40 states will have finalized their budgets by June 30 of this year. Will we have a raft of states calling special legislative sessions to revise their budgets when all is said and done in the nation’s capital? We still have time to avoid this.