Growth in State Higher Ed Funding Is Slowing Down

New data from the State Higher Education Executive Officers Association (SHEEO) show that state appropriations for public colleges are “softening,” but policy experts are trying to remain hopeful and say it’s still too early to sound the alarm of funding declines.

In fact, SHEEO’s annual Grapevine report, published Wednesday, shows that taxpayer funding for higher ed saw a 1 percent increase in fiscal year 2026, totaling $133.1 billion across all 50 states and Washington D.C. But it’s the smallest year-over-year growth the sector has seen since the peak of the COVID-19 pandemic in fiscal year 2021 (0.6 percent). Between fiscal years 2022 and 2025, year-over-year changes averaged 7.8 percent.

Still, Rachel Burns, a senior policy analyst at SHEEO, said that while the slow growth is concerning, the steady financial growth higher ed has experienced over the last five years should help universities weather a potential decline in state funding.

“Pre-pandemic, it might have been harder to absorb this kind of slower growth, but because we have so many good years, we feel less panicked about what this could mean,” she said.

But state systems aren’t entirely in the clear.

The 1 percent increase that SHEEO found is not adjusted for this year’s 2.7 percent inflation rate, which means that many state institutions will essentially see flat funding. And on top of that, many of the state appropriations for fiscal year 2026 were made before Congress passed the One, Big Beautiful Bill, which is expected to cut state Medicaid subsidies by $840 billion over the next 10 years.

These cuts will likely force states to either come up with new revenue to keep health care programs open or pull existing funds from other parts of the budget. And when states chose the latter option, higher ed funding is often one of the first buckets to face cuts.

“We’re starting to see higher ed serving once again as the balancing wheel that it has been in the past when there are economic downturns,” Burns explained. “It’s not something to panic about, but definitely something that we’ll be watching and hesitant about going forward.”

The report also shows that support for higher ed has not kept pace with the national rise in personal income and therefore tax revenue. SHEEO uses this per capita spending metric as a way to judge to what degree a state is prioritizing its colleges and universities.

Over all, state funding for colleges rose in 33 states while it dropped in 17 and in the District of Columbia. However, the amount of change varied wildly. For example, while Montana saw a 12.1 percent growth rate this past year, Florida’s funding only increased 0.1 percent. And while Arizona’s funding decreased 13.6 percent, aid in North Carolina only dropped by 1.6 percent.

Burns cautioned that while some of these variations could be tied to a state’s overall financial health or the political priorities of its lawmakers, any conclusions drawn should be taken with a grain of salt. Major budgetary shifts year-to-year that are driven by special projects or the lack thereof, she said.

“For instance, you can see that West Virginia has a relatively large decrease of 7.1 percent. That’s because last year they got some extra appropriations for increases in employee health insurance premiums and they had some funding to help with completion efforts on the Free Application for Federal Student Aid. This year, they didn’t have that,” she said. “So it’s hard to make any sort of judgments about one particular state, but when you look at them all together, I think these are very normal fluctuations from year to year.”

All in all, Burns said that as a national association, it’s hard for SHEEO to know what the effect of this year’s drag in growth will mean for individual colleges or universities. But if anything, she expects institutions will have to get creative and work to strengthen other streams of revenue, such as tuition from nontraditional learners.

“We do anticipate, yes, tougher times moving forward, but we feel good about how things have gone the past five years,” she said. “So, yeah, things are not totally negative.”