State budget squeeze pushes college students deeper in debt

Students on the campus of UCLA
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Students on the campus of UCLA

While many state economies have bounced back from the global financial crisis, public funding for higher education has yet to recover from deep budget cuts since 2008, according to a report Wednesday from the Center on Budget and Policy Priorities.

The result, say the authors, is that students and public colleges and universities continued shoulder a bigger share of the financial burden for their higher education in the latest academic year.

"Once you factor in other expenses like room and board, the net cost of attendance increased even for those who are receiving the largest amounts of financial aid," said Michael Mitchell, a CBPP policy analyst and co-author. "As costs have gone up, students are taking on higher levels of debt "

As of the 2013 school year, the latest data available, some 59 percent of students graduating from a public 4 year institution had student loans, up from 55 percent in 2008. The average loan amount rose by 16 percent – or about $3,600, Mitchell said in a briefing with reporters.

Overall state spending for higher education was up just 1 percent in 2013 and estimated 3.7 percent in 2014, according to a separate report from the National Association of State Budget Officers. That report found that much of the recent growth has been paid with higher tuition and other fees—not from general revenues.

As states continue to rebuild their funding for public higher education, many were able to hold off on tuition hikes this year, the CBPP found. But 13 states made further funding cuts in the past year.

And after adjusting for inflation, all but three states—Alaska, North Dakota, and Wyoming—spent less money per student in the latest academic year than they did before the recession. The spending per student was 20 percent, or $1,805, less than in 2008. In Alabama, Arizona, Louisiana, Pennsylvania, and South Carolina, spending is down by more than 35 percent. In Arizona and Louisiana, spending is down by more than 40 percent, according to the CBPP.

The budget squeeze comes as states struggling to hold the line on taxes and discretionary spending are seeing big increases in spending on mandatory programs, according to a report last month from Moody's Analytics.

"Over the past several decades, the growth in state funding for discretionary spending categories has declined at an alarming rate," the Moody's researchers found. "Mandatory spending programs, specifically Medicaid, are requiring more and more state funds, which in the zero-sum world of state spending, has left fewer and fewer dollars for other programs."

Some 30 years ago, Medicaid spending accounted for less than 10 percent of state spending. Today, based on total funding, the health care program consumers more than a quarter of total state spending, according to the report.

As increased Medicaid spending has crowded out funding for other programs, higher education has been hit the hardest, falling from around 14 percent of state spending in the late 1980s to just over 12 percent today, the Moody's report found.

By CNBC's John Schoen. Follow him on Twitter @johnwschoen or email him.