As the late South African freedom fighter and president Nelson Mandela once said, “No country can really develop unless its citizens are educated.” A nation’s education system is critical to its overall economic development and success, as well as social harmony and political stability.

K-12 schooling forms the vital foundation of a person’s education, and post-secondary studies at a college or university allow a person to gain specialized knowledge. Most students in the U.S. attend public education institutions.

How and to what extent these places are funded directly affects the quality of education, educational outcomes, facilities, extracurricular activities, and other programs. Private schools, colleges, and universities also somewhat rely on funding outside of fees.

This article will explore education funding sources, how funds are spent, how school funding and spending have changed, and the challenges created by the current funding structures.

What Is Funding in Education and Why Is It Important?

Funding in education refers to the money schools and higher education institutions receive to provide education to learners. Funding sources are varied and often differ depending on whether an educational institution is private or public.

Public K-12 schools (and some colleges and universities) receive funding from the three tiers of government: local, state, and federal. Funding from local governments pertains to the county or municipality where the institution is located, and state and federal funding are self-explanatory.

Together, local and state funding accounts for 86% of public K-12 education funding, according to the Peter G. Peterson Foundation. These two types of funding are based on formulas, with state calculations dictating how funds are spent across school districts. These formulas vary by state, which can explain many of the nationwide inequalities in school resources.

State funds largely account for local funding differences due to lower capacity to raise local funds, which is particularly helpful in states with high concentrations of students from low-income families. Local government funds come mainly from property taxes, whereas sales and income tax generate state funds.

Federal money is taken from various tax sources and allocated in the form of specific grants. For instance, the national Title 1 program was authorized under the Elementary and Secondary Education Act (ESEA) of 1965 to assist low-income students. Another example is the Individuals with Disabilities Education Act (IDEA) of 1975, which aims to help disabled learners.

The federal government also contributes further funding during economic downturns, such as the one experienced during the COVID-19 pandemic. Like local and state funding, these funds are distributed according to specific formulas. And state governments can refuse federal funding if they don’t wish to support the programs to which those funds are allocated.

Do Private Schools Receive Federal Funding?

Private schools don’t receive direct federal funding to support their operations. Instead, they rely on tuition, donations, endowments, and fundraising to meet their financial needs. While they aren’t funded like public schools, they may receive limited government support for specific programs, such as special education grants or certain federal education initiatives.

How Education Funds Are Spent

All schools, colleges, and universities require funding to perform vital functions such as:

• Paying salaries: This goes beyond just teachers and teaching assistants to janitors, cleaning staff, administrative officials, and sometimes board members.
• Maintaining school facilities: Classrooms, science labs, drama theaters, sports fields, and offices must be serviced regularly. Lighting, plumbing, and public announcement systems also need upkeep.
• Providing educational supplies and services: Although many students have to buy their own textbooks, stationery, and other educational products, government funding is designed to contribute to procuring these materials. Funding is also necessary to source additional resources like specialized coaches and tutors.
• Feeding learners: Many schools provide lunch to their students. Funding goes toward purchasing food and paying the cooking staff who prepare meals.
• Funding research: Government funding contributes in no small part to research programs at both public and private colleges and universities.

According to the National Center for Education Statistics (NCES), 79% of public K-12 school expenditures go toward paying educator salaries and benefits. The remainder of the school budget is allocated toward purchased services such as food and janitorial services (11%), supplies like textbooks (8%), and tuition and other expenditures (2%).

How Has Education Funding Changed Over Time?

The shifts in the K-12 public school government funding ratio show the most significant historical change in funding. In the past, local funds contributed far more to a school district’s funding. Now, state funding does most of the heavy lifting.

All in all, the government spends more on funding education than it has since the 1990s. Specifically, funding has risen steadily since 2012, per NCES. Again, most of this increase has come from local and state sources.

By contrast, federal spending has declined over the same period. It’s argued that this decline is partly due to the American Recovery and Reinvestment Act of 2009, which followed the great Wall Street Crash of 2008 that ushered in a devastating recession. This coincides with lowered federal aid in other sectors as the economy struggled to recover from the economic downturn. Such cuts have led to the significant increase in state and local education funding seen today.

What Funding Challenges Does the Education Sector Face?

This fall in federal funding, coupled with soaring local and state funding in some regions, has led to some underserved school districts, while others have a funding surplus. Consequently, progressivity (how much money is spent on low-income students) has stayed mostly unchanged despite the state government’s attempts to create equity through funding.

As The Century Foundation explains, overall, public schools are underfunded by about $150 billion annually. As one might expect, this disproportionately affects public schools when compared to private schools, as the former don’t have the same access to non-government funds (namely, private donors and school fees) as private institutions.

This lack of access is of particular significance because public schools serve so many more students than private ones. According to NCES, 49.6 million learners were enrolled in public schools in 2022, compared to just 4.7 million private school students during the same period.

Per the Economic Policy Institute, underfunding becomes particularly noticeable when we examine racial and economic class differences. In general, less publicly available funds are spent on low-income students and learners belonging to racial minorities (although these two groups often overlap), which can contribute to the cycle of poverty.

This disparity isn’t intentional, but it’s a significant problem. What contributes to this phenomenon? The most salient factor is how local funds are sourced. As previously mentioned, local funding is derived from local property taxes. These are higher in more affluent areas where property is more expensive, leading to more well-funded schools.

By contrast, properties in more impoverished regions generate less tax, resulting in less well-equipped and resourced schools. Another facet is how state governments choose to spend funds. Earlier, we noted that states can elect not to use federal funds for programs designed to cater to disadvantaged learners.

Such refusal results are most noticeable in cities and counties with disproportionately high numbers of learners of color and poor students. Even if states do accept federal funding, state funds are often at the mercy of the economy and can fluctuate along with economic conditions.

These problems aren’t unique to public K-12 schools—public colleges and universities are also affected by funding issues. According to IBIS World, these institutions receive approximately $247 billion from state and federal governments, with local funding contributing around 13%.

How Education Vendors Can Weather Funding Storms

Clearly, how well-resourced public education institutions are directly depends on government funding. It can be challenging for educators to navigate the myriad issues created by underfunding or economic volatility. Some need additional products or services to help them teach effectively.

Fortunately, educational material and service providers are there to fill the gaps. Independent providers contribute significantly to the American education system by helping to offset many of the differences created by public funding structures. And, these businesses need appropriate data to serve their customers.

Agile Education Marketing provides the best in marketing data products and services to enable education organizations to maximize their marketing efforts. Contact us to discuss how we can best help you!