Introduction Higher education in the US has transformed from a post Second World War era characterized by high state funding and minimal tuition charges in public institutions (Phillips & Morell, 1996). As it stands now, state appropriations for public higher education have not increased to match inflation and allocation increases in other economic sectors. As a result, higher education institutions have to look for other financial avenues to fill their budgets. This literature review delineates the declining direct public support of higher education in the USA and highlights the causes and the responses that higher education institutions have taken. It offers perspectives from the state governments, the federal governments and the public on the approaches taken in funding higher education. To illustrate the complexity facing higher education funding in different US states, this paper includes a case of Pennsylvania. The Declining Public Funding According to Longanecker (2006), two communities with opposing views show commitment to the task of having all Americans obtain access to quality higher education. These are the providers of higher education and the creators of policy providing a sustainable environment for higher education. There has been a 20 percent drop in the state appropriation for higher education from a high of 7.3 percent of total state spending in the 1970s to less than 6 percent. Additionally, state wealth allocation for higher education dropped significantly from US$ 8.53 for every US$1000 in the 1970s to US$7.50 for every US$1000 in year 2000. Furthermore, the declining rate of state funding mirrors state appropriations that form a source of public university revenue. In 1977, state appropriations were 46.5 percent and reduced to 40 percent in 1996 signifying a loss of US$ 13 billion in terms of potential revenue to public universities. Higher education institutions offset the drop in budgetary allocations by increasing their tuition costs. Tuition costs now forms more than a third of the total revenues of higher education. Average tuition charges have increased from US$ 1,531 in 1990-1991 to US$2,786 in 2001-2002. The Pell Grant is a federal intervention program that guarantees entrance to higher education for poor students. The amount of protection provided by Pell Grant has declined in recent years because the increasing tuition fees have not been catered for by an increase in the program’s funding. Lastly, federal policy makers have shifted their support from funding grants to supporting loan programs (Lyall & Sell, 2006). Longanecker (2006) explains that in defense of the state, policy makers argue that actual funding to higher education has increased through an overall increase in the pool of state dollars. Both state and local tax appropriations increased from below US$ 6,500 in 1970 to above US$ 7,000 in 2000. A key issue that has contributed to the relatively slow pace in which state governments have increased their higher education funding after a recession has been the fact that unlike federal government, the states cannot have budget deficits. Furthermore, education budgetary allowances for elementary and secondary education cannot be trimmed as the federal government mandates them. Policy makers feel that an increase in tuition fees does