Funding formulas for community colleges and four-year institutions tend to be based primarily on the number of full-time equivalent (FTE) students enrolled at the institution. In most states, institutions receive some form of base funding that is not dependent on FTEs, but additional funding above the base is dependent on FTEs. For example, last year in North Carolina, each community college received base funding of $491,475 for curriculum instruction. Additional funds above that amount were allotted based on FTE enrollment and the course subject matter, with high-demand areas, such as nursing and welding, receiving higher funding per FTE than courses in fields such as economics and political science. In our outreach to community colleges, we frequently hear concerns about relying on FTE enrollment as a dominant factor in funding, especially as community college leaders look toward the future.
State policymakers decide the number of credits that comprise an FTE based on how many credits they expect a full-time student to take in a given year. In most Fifth District states, one FTE represents 30 credit hours of classes taken by a student during an academic year, except for North Carolina, where one FTE represents 32 credit hours. FTE enrollment is then calculated by taking the total number of credit hours at a college in a given year and dividing it by 30, or 32, in the case of North Carolina.
So, let's assume that a Virginia community college student takes two classes each in the spring and fall semesters and one summer course, each worth three credit hours. Over the course of a year, he or she would take a total of 15 credit hours, equaling 0.5 FTEs.
There are two issues with FTE-based formulas that we hear about from Fifth District community colleges. First, the gap between FTE enrollment and headcount enrollment — where you count every single student equally — is much larger at community colleges than at four-year institutions. In 2021, the ratio of FTE enrollment to headcount enrollment was 0.81 at four-year public institutions in the Fifth District and 0.50 at community colleges. This is because many community college students attend part time, while a larger percentage of students at four-year institutions are enrolled full time. When considering this ratio across Fifth District states, a sizable difference exists, with South Carolina and Virginia having the largest gaps.
This gap contributes to the funding disparities observed between institution types within states, which we discussed in this recent District Digest. We've talked to some community college leaders who are worried about this gap increasing over time, as demand has been shifting toward shorter-term programs at community colleges (e.g., a one-year certificate) and away from traditional two-year associate degree and transfer programs. In fact, as more students shift to shorter-term programs, there is the potential for FTE enrollment to fall alongside an increase in headcount enrollment.
The second issue commonly raised is that many community college expenses are based on headcount rather than FTEs. While certain instructional expenses, such as classroom space and faculty salaries are clearly driven by FTE enrollment, many other services provided by the community college are not. For example, noninstructional services like financial aid, admissions, and advising must be provided for all students, regardless of how many credit hours they are taking and how many FTEs they represent. Even still, most noninstructional funds are still calculated using FTE enrollment.
At four-year schools, where FTE and headcount enrollment is similar, funding noninstructional services based on FTEs may not be so problematic. However, the story is quite different for community colleges. Consider two large institutions in Maryland. In 2021, the University of Maryland, College Park had FTE enrollment of 29,684 and headcount enrollment of 33,315, which produces an FTE to headcount ratio of 0.89. In contrast, Montgomery College, the state's largest community college, had FTE enrollment of 13,158 while headcount enrollment was 27,868 — more than twice as high as FTE enrollment. Montgomery College's FTE to headcount ratio is only 0.47. One dollar of noninstructional, FTE-based funding would provide dollars to serve 0.47 people at Montgomery College and 0.89 people at the University of Maryland, College Park — a notable difference when funding headcount-based expenses such as financial aid.
Another issue exists for schools in more rural areas: As our recent article discusses, community colleges are more likely to play a role as anchor institutions by serving not only enrolled students, but also the community at large. These responsibilities are typically never acknowledged by state funding formulas.
Funding formulas could be adjusted to account for expenses that tend to be headcount-driven rather than FTE-driven, which has been done by a limited number of states. In addition, states could address the gap between community college and four-year institution FTE to headcount ratios by adjusting relative funding. It will be important to examine these options as student demand continues to shift toward shorter-term, job-ready programs.
Views expressed are those of the author(s) and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.
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