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Education, Politics & Government

Higher education funding in the US: A broad overview

We explain higher education funding to help journalists cover the impacts of changes President Trump has made and plans to make to the U.S. Department of Education.

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Higher education funding
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If you report on colleges and universities in the U.S., you need at least a basic understanding of where they get their money and how they use it. Higher education funding is complicated, in part because funding mechanisms can vary drastically from state to state — and even from school to school.

This explainer provides a broad overview of higher education funding in the U.S. It offers a starting place for understanding key differences in the revenue sources of various types of institutions and why public university tuition is quite low in Florida and Wyoming but relatively high in New Hampshire and Illinois.

It also will help journalists better understand the impacts of the federal funding cuts President Donald Trump has ordered in recent months and the additional changes he wants to make at the U.S. Department of Education. On Friday, the White House released Trump’s federal budget proposal for fiscal year 2026, which calls for cutting hundreds of millions of dollars in funding for colleges, universities and their students.

The high cost of providing higher education

Substantial amounts of money go into running an institution and providing students with a college education. In many communities, colleges and universities are the biggest employers. The largest campuses often operate like miniature cities, with their own infrastructure, services, recreational facilities, transportation systems and police force.

“As an industry, American higher education directly produces approximately $700 billion in expenditures, enrolls nearly 25 million students, and has approximately 3 million employees,” higher education scholar Robert Kelchen and economists Dubravka Ritter and Douglas Webber write in a working paper the National Bureau of Economic Research released in November.

Paying for higher education has long been a shared responsibility, with students and families paying part of the cost and state, local and federal governments covering much of the rest. While most government funding for higher education goes to public colleges and universities, private institutions receive significant amounts, both directly and indirectly. For example, some state governments help fund private medical schools.

A few other points to keep in mind:

  • Larger institutions typically have more sources of funding, so they do not rely as heavily on student tuition as smaller institutions.
  • The price of tuition represents only a portion of the total cost of providing college courses.
  • Public colleges and universities are primarily funded and operated by government agencies. They often are bigger in size and enrollment than private colleges and universities.
  • Private colleges and universities, which are not run by governments, are largely funded by tuition, endowments and donations from alumni, philanthropists and foundations.
  • There are two types of private institutions: private, nonprofit and private, for-profit. Private, nonprofit schools typically are governed by a board of trustees while private, for-profit schools operate as businesses. For-profit colleges and universities tend to focus more on practical skills and training and have less competitive admissions requirements.

Below, we outline and explain six of the biggest sources of higher education funding. For additional context and insights, we have provided links to academic research and key reports on each revenue type.

As a reminder, the fiscal year for many U.S. colleges and universities and for many state governments starts on July 1 of one calendar year and runs through June 30 of the next. The federal government’s fiscal year runs from Oct. 1 to Sept. 30.

Student tuition and fees

Student tuition and fees are a main source of revenue for all higher education institutions.

In fact, 93% of all revenue collected by private, for-profit colleges and universities came from tuition and fees during the 2020-21 academic year, the most recent year for which data is available from the National Center for Education Statistics.

Tuition and fees make up 16% of public institutions’ total revenue and 19% of all revenue for private, nonprofit institutions, on average.

Public and private nonprofit schools rely less on tuition and fees than private, for-profit schools because they receive more government funding and generate more income through investments and providing student services such as campus housing and meal plans, federal data show.

Students pay tuition to enroll in courses and use an institution’s facilities and resources. They also pay a variety of mandatory fees such as an activity fee, which helps fund student government and student organizations, and an athletic fee, which helps fund intercollegiate athletics.

Tuition and fees vary significantly across schools and states, but private institutions usually charge more than public ones. This is the average published tuition and required fees for full-time undergraduate students during the 2022-23 academic year at different types of U.S. schools, according to the National Center for Education Statistics:

  • Private, nonprofit four-year colleges and universities: $40,713.
  • Private, for-profit four-year colleges and universities: $18,241.
  • Public universities: $9,834.
  • Private, nonprofit two-year institutions: $19,517.
  • Private, for-profit two-year institutions: $16,301.
  • Public community colleges: $4,027.

Institutions typically charge more for graduate programs than undergraduate programs. For example, tuition for Columbia Journalism School’s nine-month master’s of science degree program is $72,450.

Researchers point out that most states explicitly restrict tuition increases at public colleges and universities. Because of this, many schools try to raise revenue by recruiting more of the students who pay the highest tuition rates — namely, out-of-state students and international students, Kelchen, Ritter and Webber write in their National Bureau of Economic Research paper.

Public institutions typically charge higher tuition rates for students whose permanent residence is not in the state where the school is located. U.S. students who live in other states pay the out-of-state tuition rate, which can be double or triple the amount that in-state students pay.

“At selective public universities, these efforts to recruit out-of-state students have crowded out in-state students — particularly underrepresented minority students,” write Kelchen, Ritter and Webber.

International students generally pay more for tuition than U.S. residents at public universities and some private institutions. They often pay additional fees, too. For example, the University of Iowa, a public institution, charges an international student fee of $250 per academic year. At New York University, a private institution, the international student fee is $90 each term.

“Schools like New York University, the University of Southern California, and Northeastern University have built robust international recruitment strategies, with international students making up a significant portion of their student bodies,” Forbes reported in March.

For more details on tuition and fees, check out these resources:

Federal government funding

A significant portion of both public and private institutions’ revenue comes from the federal government. Many federal agencies provide these monies. Here are some of the higher education programs and projects the federal government funds:

  • Research and development. In fiscal year 2023, federal funding for research and development at U.S. universities totaled $59.7 billion, according to the most recent Higher Education Research and Development Survey, sponsored by the National Center for Science and Engineering Statistics. Top funders included the Department of Health and Human Services, Department of Defense, National Science Foundation, Department of Energy and National Aeronautics and Space Administration. The university with the most research funding: Johns Hopkins University, a private university in Maryland, received $3.8 billion.
  • Minority-serving institutions. Public and private institutions that serve high percentages of students who are racial or ethnic minorities qualify for funding through the federal Minority Serving Institutions Program. In fiscal year 2023, Congress appropriated about $1.3 billion for minority-serving institutions under the Higher Education Act of 1965, according to a 2023 report from the Congressional Research Service. A recent report from the State Higher Education Executive Officers Association indicates these schools get an estimated 18% to 25% of their total funding from the federal government.
  • Graduate medical education. University-run hospitals are among the health care facilities that provide medical school graduates with the residency training they need to become licensed physicians. Medicare and Medicaid are the largest sources of funding for this training, although the Department of Veterans Affairs, Department of Defense and Health Resources and Services Administration also help pay for it, according to the Accreditation Council for Graduate Medical Education. Medicare alone paid an estimated $17.8 billion for graduate medical education in fiscal year 2021, the Congressional Research Service reported last year.
  • Veterans’ Educational Assistance Program. The Department of Veterans Affairs administers several programs that fund education and training for military veterans, servicemembers and their family members.The department spent $8.6 billion in fiscal year 2023 on education and training for individuals covered by the newest type of GI Bill, the Post-9/11 GI Bill. The most popular university among GI Bill recipients in 2020 was American Military University, a for-profit school headquartered in West Virginia, the Military Times reports.
  • Workforce training and career pipeline development. Various federal agencies fund programs aimed at providing specialized training and increasing the number of people entering certain career fields. For example, late last year, the Department of Labor announced it had awarded $65 million in grants to help 18 colleges provide workforce training in areas such as advanced manufacturing, clean energy and biotechnology. Meanwhile, the National Institute of Food and Agriculture has spent $262.5 million on 33 ongoing projects that are part of its NextGen Program, the goal of which is to help higher education institutions “build the next generation of food, agriculture, natural resources, and human sciences professionals.”

The federal government also funds higher education institutions indirectly by providing financial aid to students. The office of Federal Student Aid provides about $121 billion each year to students in the form of grants, loans and work-study agreements, according to the agency’s website.

Federal student aid faces major cuts, however, under President Trump. His new budget proposal slashes $980 million from the Federal Work-Study program, which provides part-time jobs for college students who have demonstrated they need more financial assistance.

Congress, meanwhile, is considering other changes to the student aid program. Last month, a committee of the U.S. House of Representatives advanced a bill called the Student Success and Taxpayer Savings Plan.

Inside Higher Ed reporter Jessica Blake explains what that measure would do:

“The legislation would cap the amount of federal loans a student can take out, cut off the Pell Grant for students who attend less than half time, consolidate income-driven repayment plans and introduce a risk-sharing program where colleges are partially responsible for unpaid student loans,” Blake reported on April 30.

Check out these resources on federal funding for higher education:

State government funding

State governments typically are the largest or second-largest source of funding for public colleges and universities in the U.S. State funding for both public and private institutions reached an estimated $129 billion nationwide for the 2025 fiscal year, about 4% more than in 2024, finds a recent analysis from the State Higher Education Executive Officers Association. Its calculations are preliminary, however. They are based on initial allocations and estimates that individual states reported from October 2024 through early January 2025.

Most of that $129 billion goes to public colleges and universities. However, states spend billions of dollars a year helping private institutions, either by giving their students money to pay for tuition and other college costs or by giving private institutions money to help pay their day-to-day operating costs.

A report the State Higher Education Executive Officers Association released last year demonstrates how state funding for public colleges and universities varies across states. In fiscal year 2023, higher education appropriations ranged from $3,990 per full-time student in New Hampshire to $22,590 per full-time student in Illinois and $25,834 in the District of Columbia. The national average: $11,040 per full-time student, the association reports.

Here’s how state funding nationwide is being allocated in fiscal year 2025, according to the State Higher Education Executive Officers Association‘s estimates:

  • $27.6 billion for operating expenses at public community colleges.
  • $62.5 billion for operating expenses at public universities.
  • $16.1 billion in state financial aid for students at public and private institutions.
  • $14.4 billion to fund research, medical schools, hospitals and other projects associated with public and private institutions.
  • $8.5 billion for other expenses, including helping private colleges and universities with operating expenses.

The organization notes that federal stimulus funding provided to state governments during the COVID-19 pandemic allowed many states to boost funding for higher education.

However, half of all states still gave their public colleges and universities less funding in 2023 than they did before the Great Recession in 2008.

Key resources on state funding for higher education:

Local government funding

Local governments — typically, county governments and public school districts — play a big role in funding public community colleges and a much smaller role in funding public universities. In fiscal year 2022, local governments in 29 states provided funding for public two-year colleges, Rachel Burns, a senior policy analyst for the State Higher Education Executive Officers Association, writes in an issue brief released last year.

In seven states, local governments helped fund public universities, Burns adds. 

Historically, local governments used local property tax revenue to help fund public institutions. While that remains a common revenue source, local governments now collect money for higher education from a variety of sources, including sales taxes and taxes on fuel, gambling, utilities and hotel stays, according to a 2024 report from InformEd States, a clearinghouse for research and analysis on higher education funding.

As with state government funding, local government funding varies substantially across states. Local appropriations for community colleges ranged from $20 per full-time student in Alabama to $11,032 per full-time student in Arizona, Burns writes. Community colleges in eight states — Arizona, Maryland, New Mexico, New York, Michigan, Kansas, Nebraska and Texas — got more than half their funding from local governments.

Burns writes that although local property taxes have been a crucial revenue source, they are an imperfect one.

“Some concerns with local appropriations include inequitable distribution of tax revenues based on the affluence of communities in which two-year institutions are located,” Burns warns. “Since local appropriations are directed to community colleges within the tax district, appropriations are higher in more affluent areas. States must be aware of the intersection of state and local appropriations and ensure that funding allocations are equitable and appropriate for supporting all students in the state.”

These academic papers and reports offer additional insights:

Endowments and donations

Many of the nation’s oldest and largest higher education institutions have an endowment, a collection of financial assets and investments that often includes donations from alumni, philanthropists and foundations. Many schools withdraw funds from their endowments to help pay their bills and provide financial aid to students.

There are limits on how school officials can use endowment dollars, however. Endowments usually are made up of numerous individual accounts, most of which have restrictions imposed by donors.

The 658 unnamed colleges, universities and affiliated foundations that participated in the latest “Study of Endowments” survey reported a combined $873.7 billion in endowment assets. They also reported that their endowments funded 14% of their annual operating budgets in fiscal year 2024, on average, according to a recent presentation on the annual survey, a joint project of the National Association of College and University Business Officers and the Commonfund Institute, the research and education arm of the Commonfund asset management firm.

Schools with the largest endowments relied on them most. For example, those with endowments between $1 billion and $5 billion used endowment proceeds to cover almost 19% of their operating budgets in 2024, on average. In all, the participating organizations reported withdrawing $30 billion from their endowments in 2024.

Harvard University, the nation’s oldest higher education institution, has the largest endowment, made up of more than 14,000 funds. Its $53.2 billion endowment “remains the largest source of revenue supporting the University budget,” Harvard’s Financial Administration notes on its website. “In fiscal year 2024, endowment distributions for operations represented 37 percent of the University’s revenue — ranging from 85 percent of Radcliffe Institute for Advanced Study revenue down to 20 percent for Harvard Business School and Harvard T.H. Chan School of Public Health.”

The University of Texas System, comprising nine public universities, had the largest public university endowment in 2024. It was valued at $46.9 billion.

Economists at the Federal Reserve Bank of Atlanta point out that many tribal colleges and universities and historically Black colleges and universities — two types of institutions known for serving large numbers of lower-income students — either lack endowments or have very small ones.

Just 11 of 99 historically Black colleges and universities, known as HBCUs, have endowments, they write in their 2024 report.

Howard University in Washington, D.C., is the first HBCU to have an endowment exceeding $1 billion, HBCU Money reported in February.

Additional resources on higher education endowments:

Auxiliary enterprises

Auxiliary enterprises are activities and operations that are not academic but meet college students’ needs for such things as housing, food and class supplies. Income generated from auxiliary services such as student housing, student parking, printing services and campus stores and restaurants help colleges and universities balance their budgets.

Not much research exists on auxiliary services and their impact on higher education finances. However, the National Center for Education Statistics reports that auxiliary enterprises brought in 4% of public college and universities’ total revenue during the 2020-21 academic year, on average.

In 2021-22, public universities nationwide brought in a total of $28 billion via auxiliary enterprises, 26% more than they had a decade prior, federal data show. Meanwhile, public community colleges collected $910 million, less than half of what they received in 2011-12.        

Private, nonprofit colleges and universities relied on auxiliary enterprises for 3% of their total revenue in 2020-21, and private for-profit institutions relied on them for 1%, according to the National Center for Education Statistics.

In a 2020 interview, Peggy Valentine, the interim chancellor at Fayetteville State University in North Carolina, an HBCU, said auxiliary service funds accounted for 17% of her school’s revenue.

“HBCUs receive a very limited amount of funding from their endowment account, so we rely very heavily on auxiliary services — the fees that students pay for athletics, dining, housing, healthcare, security, and so forth,” Valentine told The EvoLLLution, an online publication focusing on higher education. “These fees help us stretch our budget while allowing students to have an HBCU experience.”

To learn more about auxiliary enterprises, check out these resources: