Washington, D.C. – Taxpayer subsidies that cover the operating costs of most colleges and universities ranges from around $8,000 to more than $100,000 for each bachelor’s degree awarded, with most public institutions averaging more than $60,000 per degree, according to an analysis by the American Institutes for Research (AIR) and Nexus Research and Policy Center (Nexus).
Among elite private universities, like Harvard and Yale, the average taxpayer subsidy is $13,000 per student per year, while the annual subsidy at the most selective public universities, like the University of North Carolina, Chapel Hill, and the University of California, Los Angeles is more than $23,000 per student annually.
The financial figures reflect the amount of money colleges and universities receive in direct government support and tax breaks. They do not include loans and grants provided by state and federal governments to help students meet tuition costs.
“Taxpayers have long supported colleges and universities – both in terms of subsidies for state institutions and tax breaks for private institutions – under the promise that a better educated populace improves economic standing for all,” said Dr. Mark Schneider, an AIR vice president and co-author of the study, Who Wins? Who Pays? The Economic Returns and Costs of a Bachelor’s Degree. “State budgets are currently stretched far beyond their limits, with higher education demanding a larger portion of a shrinking pie. As states cut their higher education budgets, this report gives legislators better information about the kind of support colleges and universities are getting from the government—and what students and taxpayers are getting back in return.”
“The cost of higher education is at the center of state budget crises across the nation. This is the first study to determine whether states and taxpayers are getting a fair return on their investment,” said Dr. Jorge Klor de Alva, Nexus president and co-author of the study.
While higher education may produce many non-pecuniary benefits for graduates and for society, in Who Wins? Who Pays?, researchers looked at two key questions. First, do students who earn a bachelor’s degree and participate in the labor force experience returns, such as higher wages, that justify the costs incurred by them in earning that degree? Second, do taxpayers get a return on their investment in the nation’s colleges and universities?
The study confirmed the long-held belief that, in terms of wages, a bachelor’s degree is associated with greater earning power. An individual with a degree from the most competitive institutions is likely to earn more than $550,000 in additional earnings compared with the typical earnings of someone with only a high school diploma. Graduates from less-selective colleges can expect to earn more than $230,000 in additional lifetime earnings, compared to a high school graduate.
Because colleges and universities differ in how they are financed and vary widely in their admissions policies, the study examines public, not-for-profit, and for-profit institutions, and breaks down their selectivity in admissions (non/less competitive, competitive, very competitive, highly competitive, and most competitive). This descriptive analysis is based on data from the federal Institute of Education Science’s Integrated Postsecondary Education Data System, as well as from the Federal Reserve System, the Internal Revenue Service, the Tax Foundation, the federal Office of Management and Budget and the U.S. Treasury Department, and is designed to help decision makers better understand whether schools with similar students produce different benefits and costs for the tax payer.
Key findings included:
- Taxpayers benefit from the higher income taxes paid on the higher salaries earned by college graduates, ranging from $50,000 in additional taxes paid over the work life of a graduate from a less selective not-for-profit institution to almost $150,000 in additional income taxes paid over the work life of a graduate from the most selective not-for-profits.
- Taxpayers subsidize the education that students receive in most colleges and universities. Each student earning a bachelor’s degree at a public college or university accounts for more than $60,000 in subsidies to the institutions.
- Among open admission and less selective schools, taxpayers – on average – paid almost $8,000 per student at not-for-profit institutions.
- The subsidies increase dramatically among the most selective institutions, from almost $60,000 in not-for-profit institutions to nearly $110,000 in the most selective public institutions.
The study also found that less selective private institutions, both not-for-profit and for-profit, generate “a much better bang for the taxpayer buck.” For-profit colleges, for instance, give taxpayers a net gain of more than $6,000 per bachelor’s degree. For the same degree, equally selective, private not-for-profit schools post a net taxpayer cost of $8,000; however, comparable state schools are at a net cost of more than $60,000 per degree.
“With education dollars at a premium, all involved – from governors and state legislatures down to the students themselves – must recognize there is more to college costs than simply the sticker price charged to the consumer,” Schneider said. “If we are to make educated decisions on how best to fund higher education and boost college degree completions, we must understand the full costs, including state appropriations and tax breaks. Clearly, not all bachelor’s degrees are created equal.”
The report is available on the AIR website.
Established in 1946, with headquarters in Washington, D.C., the American Institutes for Research (AIR) is a nonpartisan, not-for-profit organization that conducts behavioral and social science research and delivers technical assistance both domestically and internationally in the areas of health, education, and workforce productivity. For more information, visit www.air.org.
Nexus Research and Policy Center is an independent, not-for-profit, nonpartisan center organized to conduct educational research and prepare action-oriented analyses of pressing policy issues facing states and the nation regarding the improvement of educational efficiency, effectiveness and degree completion success, especially on behalf of underserved student populations and the institutions that provide them access to higher education. In particular, Nexus seeks to do research and promote policies that improve the proprietary education sector and that contribute to a better understanding between the proprietary and traditional sectors of higher education. For more information, visit www.nexusresearch.org.