Research Study Shows that Increased Funding Delivers Better Outcomes for Low Income Students

New research from the United States on the relationship between school funding and outcomes shows that money matters in education for low income students. Its findings suggest that the ending of the Gonski funding plan by the Federal Government means that Australia has lost the opportunity to significantly improve the school results of disadvantaged children.

The new study shows that school finance reform in many US states has increased expenditure in low income school districts which improved school and later adult attainments of low income children. The increased school spending had a positive effect on the years spent in school and high school graduation rates for children from poor families. It also had positive effects on later adult earnings, family income, and adult poverty status.

A range of school finance reforms (SFRs) were introduced in many US states between 1967 and 2005 which resulted in significant changes to school funding formula. By 2005, most states had some form of SFR: 23 states had at least one court-ordered reform, 32 states had at least one legislative reform, and 45 had some change in the school funding formula.

The study, published this month by the prestigious US National Bureau of Economic Research, analysed the impact of these reforms on the spending patterns of school districts over the period 1967 to 2010. It found that SFRs were instrumental in equalizing school spending between low and high income districts and many reforms did so by increasing spending in poor districts.

The court-ordered reforms reduced the spending gap between the lowest and highest income districts by about 70 per cent. This was done mainly by increasing expenditure in low income districts. The impact of legislative reforms was less, reducing the gap by 27 per cent. The legislated changes tended to re-distribute funding from higher to lower income districts rather than increasing overall expenditure.

The impact of these reforms on school outcomes of low income children was significant. Cohorts of students from poor families exposed to the reforms had higher high school graduation rates than the pre-reform cohorts, and districts that experienced larger spending increases had better high school graduation rates than those with smaller spending increases for the exposed cohorts.

The study estimated the effects of these reform-induced changes in per-student spending on years spent in school and the probability of graduating from high school. It found that a 20 per cent increase in per-student spending each year for all 12 years of public school for children from poor families leads to about 0.93 more years of schooling which would almost eliminate the gap of 1.01 years between these students and those from non-poor families. It would also increase high school graduation rate for those children by between 11 and 46 per cent, which is large enough to completely eliminate the high school graduation gap between children for poor and non-poor families.

The study also shows large, significant effects of school spending on poor children’s subsequent adult economic status and labour market outcomes. Increasing per student spending by 20 per cent in all 12 school age years increases the adult wages of poor children by 25 percent, a difference which is large enough to eliminate the wage gap between children from low and high income families. It would also leads to a 52 per cent increase in family income. The school funding increases also decreases the likelihood of falling into poverty as an adult by 20 percentage points.

The study concluded that “our results indicate a causal relationship between per-pupil spending and student outcomes” [p. 44].

The relationship was only apparent for children from poor families. The study found little to no effects of increased school spending on school outcomes for children from non-poor families or on their adult earnings.

The study also attempted to separately identify the pathways through which various types of K-12 education spending and the composition of school expenditures impact on school outcomes and subsequent adult attainments. It examined the impacts of SFRs on instructional spending, school support services, physical capital and school building expenditures and found that they led to increases in all categories of spending. The increases were roughly proportional to the allocation of funds on average, indicating that schools simply increased spending in all categories with little change in the allocation of funds across categories.

The study found that districts that experienced a 20 per cent increase in spending from the reforms implemented reductions in school size, fewer students per teacher, fewer students per counsellor, and fewer students per administrator. It said that while there may be other mechanisms through which increased school spending may improve student outcomes, the results suggest that the positive effects are driven, at least in part, by reductions in class size and having more adults per student in schools.

The authors said that their results bear upon the much debated issue of whether money matters in education and conclusively show that money does matter for disadvantaged students:

These results provide compelling evidence that the SFRs of the 1970s through 2000s had important effects on the distribution of school spending and the subsequent socioeconomic wellbeing of affected students. Importantly, the results also speak to the broader question of whether money matters….. many have questioned whether increased school spending can really help improve the educational and lifetime outcomes of children from disadvantaged backgrounds. The results in this paper suggest that it can. [p. 5]

Christopher Pyne’s justification for not implementing the full Gonski funding increase is that increasing school funding does not increase student results. This new study shows that he is wrong. Increased funding is fundamental to improving school outcomes for disadvantaged students.

Trevor Cobbold

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