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Medicaid squeezing higher education funding

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With last week’s White House action bringing new attention to the student debt crisis, a Wonkblog reader passes along a helpful 2003 Tax Policy Center study that sheds light on why students are struggling with the cost of college. The authors, Thomas Kane, Peter Orszag and David Gunter, found that growing Medicaid budgets have edged out state funding for higher education, leaving students with higher tuition bills.

The study finds that during economic downturns higher education spending goes down while Medicaid spending increases. But as a state recovers, higher education funding doesn’t go back up: “During the boom of the 1990s, appropriations for higher education rose only slightly and never reached their pre-recession levels,” the study says.

If this interplay between state funding for Medicaid and higher education proves true during this recession, the coming year could prove disastrous for state universities and colleges. A Kaiser Family Foundation survey last week found that state spending on Medicaid spiked by 29 percent this past year, as enhanced federal stimulus funds for the entitlement program dried up.

Why Medicaid funding gets prioritized over higher education likely has to do with the entitlement program’s financing. For Medicaid, every dollar that a state puts into the program draws down federal matching funds. “As a result, if a state were to reduce state spending on Medicaid, it loses federal funds,” the study’s authors write. But education funding doesn’t bring in federal dollars, which could make it an easier budget target in lean times.

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