State Disinvestment in Higher Education Is a Myth

One of the most persistent myths in higher education is that states have been cutting funding for colleges and universities for decades.

In a new report for the Cato Institute, I examine the past 46 years of data on state funding, tuition revenue, and total revenue at public colleges and universities. The data could not be clearer: states have been increasing funding over time, not decreasing it. I reproduce one of the figures from the report below, which shows per student funding per student from 1980–2025 in inflation-adjusted dollars. There are some declines, typically during and after recessions, but the long-term trend is unmistakably up. Over the past four and a half decades, states have increased funding by $63 per student per year.

One of the main reasons that the myth of state disinvestment persists is a failure to correctly adjust for inflation. Inflation adjustments are made using a price index, and any conventional price index tells the same story: rising, not falling, state funding. But advocates tend to rely on a cost adjustment that does not accurately account for inflation, called the Higher Education Cost Adjustment (HECA). But HECA is heavily biased:

As the figure below shows, only by using the HECA, rather than a real price index, can advocates claim that disinvestment is happening.

The myth of state disinvestment is often paired with the notion that it explains the rise in tuition revenue. The theory is that colleges are forced to raise tuition to offset declines in state funding. This is wrong for several reasons.

To begin with, we’ve already seen that state funding has been increasing over time, not decreasing, which means that under this theory, tuition should have been falling over the past 40 years.

Another problem with this theory is that it implies constant total revenue, with students paying more when states pay less and vice versa. But this is not true. Total revenue has roughly doubled since the early 1980s, as shown in the figure below.

A third problem with the theory that tuition rises to offset cuts in state funding is that the statistical relationship between the two is very weak. Under the theory, tuition revenue should rise by $1 for every $1 cut in state funding. But as shown in the figure below, for every $1 cut in state funding, tuition revenue only increases by $0.02 to $0.29.

The relationship between changes in state funding and changes in tuition revenue is even weaker at the state level. States that experienced very different changes in state funding often saw very similar increases in tuition revenue. For example, Oklahoma, Virginia, Maryland, Massachusetts, and Illinois all increased state funding per student by vastly different amounts from 1980 to 2025, ranging from $1,400 to $14,700. Yet tuition revenue rose by roughly the same amount in each state (around $7,500).

The bottom line is that state disinvestment in higher education is a myth. The related notion that state disinvestment explains rising tuition is also wrong. For state policymakers, this means that trying to reduce tuition by increasing state funding will not work. State taxpayers will pay $1 to save students $0.02 to $0.29.