Matthew M. Chingos and Sandy Baum May 2017 State funding of public higher education is central to college access and affordability and to postsecondary educational attainment. State support translates into resources colleges and universities can spend on instruction and other activities or to charge lower tuition prices, especially to in-state students. Each state develops its own higher education systems and determines funding for public institutions and for financial aid for its students. Differences in institutional structures and funding models combine with economic and demographic differences to create sharp variation in the educational opportunities available to students across the nation. In recent years, as state funding has failed to keep pace with growing enrollments, state appropriations cover a declining share of expenditures at public institutions. The federal government has increased its spending on student aid to pick up some of the slack. This changing balance between federal and state contributions increases the importance of the relationship between federal and state goals, policies, and strategies for higher education. This brief describes differences across states in per student funding levels, distribution of funding across postsecondary sectors, systems for determining these funding patterns, and state grant aid offered to students who enroll in these institutions. It examines how these policies interact with federal subsidies for college students and how they further or counteract the goals underlying federal policies. State Funding for Public Higher Education Total state funding for higher education increased 4 percent in inflation-adjusted dollars between fiscal year (FY) 1990 and FY 2015 and 1 percent between FY 2005 and FY 2015. Local funding, which E D U C A T I O N P O L I C Y P R OG R A M The Federal-State Higher Education Partnership How States Manage Their Roles 2 T H E S T A T E-F E D E R A L H IG H E R E D U C A T I O N P A R T NERSHIP: STATES’ ROLES supports community colleges in some states, rose by 63 percent between FY 1990 and FY 2015, increasing from 7 percent to 10 percent of total appropriations. Because full-time equivalent (FTE) enrollment in public colleges and universities increased 43 percent over this 25-year period—and 13 percent between 2005 and 2015—combined state and local funding per student declined 20 percent in real terms between FY 1990 and FY 2015 and 7 percent between FY 2005 and FY 2015 (Carlson and Laderman 2016, table 2). States vary widely in the resources they provide their public colleges and universities, from less than $4,000 a student in Colorado, New Hampshire, Pennsylvania, and Vermont in FY 2015 to more than $14,000 in Alaska and Wyoming (Carlson and Laderman 2016, table 5). Although other factors affect tuition and fees, states where public colleges receive more financial support tend to have lower prices. For example, four-year public colleges in New Hampshire charge the country’s highest tuition prices ($15,650 in 2016–17). States and localities provide less funding per student ($2,591 in FY 2015) than any other state. Wyoming has the lowest tuition and fees ($5,055 in 2016–17) and the highest per student state and local funding (Carlson and Laderman 2016, table 5; Ma et al. 2016). More public funding also provides more resources for instructional and student support spending. State Funding across Institutions The variation across states in public higher education financing is well known, but differences among institutions within states receive little attention. These differences result from decisions made by state policymakers regarding how to fund categories of institutions, such as two- versus four-year or research- versus teaching-focused colleges and universities. Even within these categories, funding patterns may depend on the characteristics of individual institutions. Funding can be divided among institutions in myriad ways based on enrollment, perceived need, performance metrics, or other legislative priorities or preferences. The within-state higher education funding policy that has received the most attention is performance-based funding, through which at least 33 states allocate as much as 90 percent (but often less) of state appropriations to institutions based on often-rudimentary performance metrics (e.g., degrees completed). Evidence suggests performance funding has had little or no impact on outcomes such as degree attainment (Dougherty et al. 2016). But policymakers and analysts are optimistic that new and more sophisticated approaches to performance-based funding may improve student outcomes.1 Evidence more clearly suggests that state funding decisions can have important downstream effects on student outcomes through their influence on institutions’ spending. A recent study found that spending increases led to higher degree completion rates at nonselective public institutions. In contrast, across