Who Wins? Who Pays? The Economic Returns and Costs of a Bachelor’s Degree
Given the importance of a college education to entering and staying in the middle class and the high cost of obtaining a bachelor’s degree, Who Wins? and Who Pays? are questions being asked today at kitchen tables and in the halls of government throughout the nation. This study shows that the answers are different than what is commonly found in the media.
Much of the current debate about the cost and value of higher education has focused on how much students pay, how much they borrow, and how poorly some of them are being educated. Much less attention is being paid to how well or how badly taxpayers are being served both by the institutions they are helping to fund and by the students they have helped to graduate.
Using publicly available data, we look at who wins and who pays across the full spectrum of higher education institutions in the United States, combining information on “institutional control” (public, private not-for-profit, or private for-profit college or university) and selectivity (ranging from open admission to most selective, based on Barron’s Profiles of American Colleges). We focus on two critical questions:
- 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?
- Do taxpayers get a positive return on their investment in the nation’s colleges and universities?
The answer to the first is “yes.”
- In terms of wages, a bachelor’s degree, whether from a public, a not-for-profit, or a for-profit institution, pays a handsome net financial reward in comparison to a high school diploma—a reward that over a lifetime can vary, on average, from more than $230,000 at less selective not-for-profit colleges (such as the University of Bridgeport in Connecticut and Dowling College in New York) to well over $500,000 at the most competitive public or not-for-profit institutions (such as the University of California at Los Angeles and Amherst College).
The answer to the second question is more complicated.
- Taxpayers benefit from the higher state and federal income taxes paid on the higher salaries earned by college graduates, varying from $60,000 in additional taxes paid over the work life of a graduate from a less selective public institution to almost $150,000 in additional income taxes paid over the work life of a graduate from the most selective not-for-profit colleges or universities.
- However, taxpayers also subsidize the education that students receive in most colleges and universities. This takes the form mostly of direct state appropriations for public universities and tax exemptions for not-for-profit ones.
- Taxpayers subsidize bachelor’s degrees in nearly all not-for-profit institutions at around $8,000 per degree. In public institutions, the taxpayer investment is more than $60,000.
- Taxpayer subsidies increase dramatically among the most selective institutions, from almost $60,000 in the most selective not-for-profit institutions to well over $100,000 in the most selective public institutions.
- Because for-profit institutions do not receive state subsidies and pay taxes rather than receive tax exemptions, even after including the cost of government-funded financial aid, taxpayers benefit by around $6,000 per bachelor’s degree.
From the data presented in this study, we conclude that:
- Given the financial return to graduates for each completed bachelor’s degree, the high cost of dropouts, and the high dropout rates in less selective public colleges and universities, the states and the Federal Government must focus their resources and policies on increasing retention and degree completion at less selective institutions.
- Given that the lowest levels of taxpayer support go to the institutions that enroll the highest percentage of students from low-income families, nontraditional students, and minority students, the states and the Federal Government must reverse their policies and focus their support for completion on the neediest students.
- Given that the research on cost shows that not-for-profit and for-profit institutions are the best deal for taxpayers, to lower cost and increase capacity, the states and the Federal Government should support high-quality, nontraditional providers.
- Given that state and federal policy discussions concerning how and who to fund must be informed by reliable data drawn from institutions across all types of control and levels of selectivity, the states and the Federal Government should move to make such data available, and the latter should move to scrap the antiquated and inadequate federal Integrated Postsecondary Education Data System (IPEDS) in favor of a data system based on student-level data that can measure the success of the growing number of “nontraditional” college students, who now make up the majority of postsecondary students in the country.