In March, students in California and across the country grabbed headlines in their protests of impending cuts to higher education funding. The country is facing the worst economic downturn since the Great Depression; meaning states are being pressed to address significant budget shortfalls, which is historically bad news for state allocations to higher education. What’s more, the recent passage of healthcare legislation has drawn grumbling from numerous state capitols over how changes to Medicaid will impact their budgets and further exacerbate Medicaid’s increasing share of state dollars at the expense of other priorities. The negative trends in state support for public colleges and universities has left institutions across the country looking to students and their families to make up the difference through increases in tuition and fees. This paper suggests that with Medicaid’s share of state budgets scheduled to grow in coming years, greater consideration is needed as to how this could impact public investments in higher education and in turn, the cost of higher education for American students and their families.

Nationwide, public support (as a percentage) for higher education has been receding in
recent decades, while simultaneously state expenditures going towards Medicaid have been
increasing. State budget adjustments stemming from the recent recession and the changes
to Medicaid eligibility as a consequence of healthcare reform have recently made this
phenomenon more visible, but only underscore an ongoing trend. The cost of healthcare
and higher education are both rising and states are devoting a growing percentage of their
budgets to cover these cost increases – for Medicaid that is.

Conversely, it appears states are increasingly turning to students and their families, in the
form of tuition and fee increases (Table 1)1, to fill the growing gap between state allocations
and the actual cost of running public higher education institutions. Recently, the State
Higher Education Executive Officers Association’s report showed that in 2008, 37.3 percent
of public higher education total educational revenue came from tuition alone. That is up
from 24.5 percent in 1984, meaning states reliance on students and their families to
supplement higher education revenue increased by 52.2 percent since 1984.

The increasing reliance of states on students and their families to share in the cost of public
higher education helps explain steady increases in tuition and fees in recent decades. The
2008 Measuring Up report stated that between the years 1982 and 2007, college tuition and
fees increased 439 percent while median family income rose 147 percent (not adjusted for
inflation). In the most recent fiscal years, this trend has continued to increase, especially in
light of the economic downturn. From 2002-2009, the average annual student
undergraduate costs at public 4-year institutions increased by 45.6 percent to nearly
$14,256.

Parents and students are already helping to make up for state’s inability to keep up with
cost increases in higher education, but with Medicaid costs predicted to grow in coming
years, they will likely only be asked to do more. In 2006, Medicaid accounted for nearly half
of all national expenditures on nursing homes.3 Impending demographic pressures with the
aging of the baby boom mean that Medicaid expenditures will grow steadily in the near