Funding Issues Currently Facing Community Colleges

A number of recent developments currently threaten the country’s 1,100 two-year community colleges (CC’s). CC’s educate about 6.4 million undergraduates earning associate degrees and students completing work certification programs. This is 40% of the national total of post-secondary students, more than twice as many as are enrolled in every highly selective college in the country combined.

The New York Times recently quoted J.B. Buxton, president of Durham Tech CC, as saying, “The fundamental difference between community colleges and the elite private institutions that everyone seems focused on is that they go out and identify talent. Our job is talent development.” In this way, CC’s help build the new American workforce.

In 2025, CC’s face issues such as:

• The termination of Diversity, Equity, and Inclusion (DEI) initiatives,
• Declining funds from government,
• Rising operating costs,
• Rising student non-tuition costs,
• Difficulty in adopting new technology,
• A decline in the number of traditional enrollees,
• Need to improve support for students with non-academic problems, and
• Reductions in Medicaid, which will cause states to divert funding for health care that in the past was spent on CC’s.

Funding Challenges:

Diverse factors impact funding for CC’s in 2025. These include a complicated funding and policy environment, difficulties with student enrollment and retention, and the financial insecurity of many CC students.

1. Performance-based state funding:

The predominant financing model, performance-based funding, links the budgets of CC’s to student outcomes like retention and graduation rates, adding pressure to produce immediately measurable results.

2. Federal policy changes:

Shifting Federal mandates create uncertainty for CC’s. These include alterations to student loan forgiveness programs, the status of DEI initiatives, and protections under Title IX of the of the Education Amendments of 1972, which prohibits sex discrimination in any educational program or activity receiving Federal financial assistance. The assault on DEI jeopardizes one of the main benefits of CC’s in their communities — the ability to mold the local work force to suit local employers.

3. Rising operating costs, collective bargaining, and tenure:

CC operating costs generally rise in line with increases in inflation in the economy. However, a cost in which CC’s are outpacing inflation at unionized colleges is compensation for employees due to collective bargaining. Collective bargaining can increase costs for a CC by raising salaries, securing better benefits for employees, and improving their working conditions.

Collective bargaining increases CC’s costs via higher salaries and improved job security for full-time, part-time, and adjunct faculty members. Union contracts can also secure better and more expensive benefits, such as enhanced health insurance and retirement contributions.  Beyond these forms of direct compensation, union contracts can also affect operating costs by restricting the ratio of full-time to part-time faculty or requiring new investments in facilities.

The role of faculty tenure in CC operating costs is complex and controversial. Anecdotal evidence shows that tenure contributes to higher operating costs. However, there is research that demonstrates that CC’s have significantly reduced tenure-track faculty in favor of low-cost contingent instructors. Studies have found that the reduction in tenure-track faculty has not brought about significant operating cost savings overall for CC’s because expenses for student services, technology, and administration have risen.

4. Declining state and local funding:

 Two-year public CC’s, many of which operate on a state-funded, tuition-free basis, saw a 3% drop in inflation-adjusted state and local appropriations for full-time equivalent students from 2023 to 2024, down to $10,899.

In some states, CC districts stand to lose cost-of-living increases if they fail to meet performance benchmarks, threatening operating budgets and potentially forcing CC closures.

5. Rising student non-tuition costs:

While tuition is generally lower, students face significant financial strain from increasing costs for housing, food, transportation, and childcare. CC districts face pressure from higher equipment, supplies, and utility costs, with health care premiums being the most significant cost increase.

6. Technological adaptation:

CC’s are faced with digital infrastructure and connectivity challenges. Some campuses struggle with outdated or inadequate IT systems capability and overburdened Wi-Fi is an especially acute problem.

Even as campuses become less crowded due to lower on-campus attendance, student reliance on virtual services such as email, e-testing, assignment submission portals, and courses using cloud-based video communications platforms such as Zoom, places a heavy burden on underfunded IT systems and networks. Obsolescent hardware impedes performance and security because devices can’t run new software. This degrades performance and increases risk.

Artificial Intelligence (AI) brings both opportunity and disruption to CC’s, yet a clear strategy is often lacking. Many faculty members are experimenting with AI for student support tasks, but few CC’s track overall AI usage or have formal policies in place. AI usage is fragmented because faculty members are piloting specific AI tools, but often without central coordination or a strategy that takes into account desired student outcomes.

Many CC students, upon arriving at college, lack proficiency in digital technology, affecting both learning and technology adoption. They must be brought up to speed quickly, which places a cost burden on CC’s that four-year colleges generally don’t encounter.

CC’s are at a critical point in terms of technology. They must bridge gaps in infrastructure, safeguard student data, integrate AI, and support both students and faculty in raising digital fluency, all while coping with tight budgets.

7. Enrollment and retention issues:

While the enrollment in short-term credentialing programs is up, the demographics of students and their commitment to the traditional academic path is declining, making it more difficult to retain current students and expand enrollment. Below are some of the reasons:

• Pandemic after-effects and enrollment decline: Between fall 2019 and fall 2022, CC’s lost over 772,600 students, a 16% drop. Although a recovery began in fall 2023, enrollment is fragile. Since the pandemic, CC’s have seen a cumulative loss of 827,000 students.
• First-time freshman decline: While overall enrollment increased slightly between fall 2023 and 2024, the growth was driven primarily by returning pre-pandemic students, not new freshmen.
• Funding formula pressures: State funding now often depends on meeting targets regarding enrollment, graduation, and program completion statistics. Districts failing to meet targets can lose funding.

•  Cost of living and housing instability: Many students face housing insecurity: In 2024, 15% reported experiencing homelessness and 51% were housing-insecure.
• Rural enrollment challenges: Rural high school graduates enroll in college at a lower rate (55% in 2023) than their urban (59%) and suburban (64%) peers. Barriers include distance, cultural attitudes, and lack of family higher education experience.  Among CC students who drop out, 49% cited the need to work full time as a reason (42% in 2022), 31% reported that they could no longer afford the program, 27% reported loss of motivation, and 24% cited the overall rise in the cost-of-living

8. Student support and mental health:

Students, particularly those balancing jobs and families, need greater support beyond academic advising such as resources for mental health, nutrition assistance, and childcare. For low-income students, a top cause of dropping out is mental health issues, yet few students have access to mental health services.

9. Confusion about Federal financial aid and support:

The rollout of the FAFSA system in 2023–24 was delayed and problematic, causing an 12% drop in FAFSA completion rates. The shortened timeline for admission strained the financial aid offices of CC’s.

In a recent policy about-face, modifications to the 2025 reconciliation law enable 400,000 CC students enrolled half-time or less as well as students completing skill certification programs to receive Pell Grants.

Supporters of recent legislation and new tariff policies cite the need to return U.S. manufacturing to its former preeminence.  Yet, at this time, 400,000 factory jobs are vacant due to a lack of applicants with appropriate skills. These positions could be filled by students who have completed relevant training at CC’s. Advocates warn against short-changing the CC’s that serve as training centers for the  changing American workforce.