Does State Funding Affect Graduation Rates at Public Four-Year Colleges and Universities?

Abstract

This study uses panel data to examine the direct link between state funding and graduation rates at 4-year public institutions. We find some evidence for a positive association between state funding and college graduation rates. When other factors are held constant, a 10% increase in state appropriations per full-time equivalent (FTE) student at 4-year public institutions is associated with approximately a 0.64 percentage point increase in graduation rates. This positive link appears to hold for both institutions that have enjoyed an increase in state funding and those that have experienced a reduction. In addition, the positive association seems to hold for all research/doctoral, master’s, and baccalaureate institutions. These estimated effects are smaller and, in general, statistically insignificant when both institution and time-fixed effects are controlled.