The Adverse Effect of Decreasing State Support for Higher Education on Student Diversity

Abstract This paper examines how changes in state funding for higher education impact the share of minority students at public postsecondary institutions in the United States. To isolate a causal relationship between state funding and minority student representation, I use a shift-share instrumental variable approach that combines variations in state-level funding with an institution’s reliance on state appropriations at baseline. The results suggest that state appropriation cuts decrease the diversity of incoming students; Hispanic student enrollment is particularly sensitive to funding levels. I provide evidence of potential mechanisms driving this relationship: Lower appropriations are associated with increases in posted tuition and fees, the cost of attendance net of grant aid, and student borrowing rates.