Return on Public Investments in Higher Education

I dig this analysis by Martin Hutchinson at PrudentBear.com where he breaks down the returns states see on investments in higher education. The thinking here is that educated people earn more on average over their careers, pay more in taxes based on their higher incomes & tax rates, and end up providing a positive return to the state that invests in those students.

With the average cost including room and board of a four-year college being $9,295 in 1975 in today’s dollars (and 1973 won’t have been much different – the Great Inflation of college costs had not really begun) the pre-tax payback period from earnings for a four-year college was 2.77 years for men or 3.84 years for women. That’s rather too favorable, because college graduates had to pay more tax on their increased earnings. Assuming a 30% average rate of tax on earnings the payback period became 3.96 years for men and 5.48 years for women. For the state, subsidizing the college costs of poor students or providing state colleges with subsidized fees, and receiving tax payments after graduation at 30% on additional earnings, the payback period can be calculated as 9.24 years for men and 12.8 years for women.

Why can’t more politicians present government spending justifications like this?

Mark Dayton and other candidates who support investing in higher education could say things like: Look, higher education is expensive. But better educated people tend to make more money over their careers than those who aren’t, which means that we actually see a positive return on what we spend on education. If we stop educating people, we’ll save money short-term, but lose in the long term. Additionally, better educated people tend to be healthier and happier, which I think we can agree is a good thing.

Tom Horner seems a bit more pragmatic on things like this, so could argue something like this: Look, higher education is important to the state, and we actually see a positive return on what we spend on it. However, that’s at a high level. If we look closer at the numbers, we see that some programs are worth investing in while others are not. Because of this, we should only publicly fund degrees and other forms of higher education that have proven to raise incomes and help Minnesota continue to innovate and compete in the future.

Tom Emmer seems to have come from a perspective where every government program is a waste, which, as the numbers above show, it not really the case, but Emmer seems to be immune to economic justifications. He also thinks the government should spend money violating the civil rights of gay people, which is an economically idiotic thing to do.

Maybe Emmer could show that he’s serious about controlling spending by proposing the elimination of public funding for athletic scholarships? According to Kaarme, the U of MN ranks 12th in the country for money spent on athletic scholarships, but doesn’t turn a profit (or their profits fall below Ferris State, who was net positive $100,586 for 292nd place).

Emmer’s proposal would cut spending on higher education by 16.5% vs. the projected 2012-13 budget. Emmer being Emmer, he doesn’t bother to explain where $417 million should be cut. He does say that higher education needs to be reformed, but doesn’t explain how. And he doesn’t explain how the reforms he doesn’t describe would be paid for.

Tom Emmer’s lazy budgeting is not what I’m looking for in a governor. I believe that money can be saved in many areas of government, but I don’t believe Emmer has done the work to identify the waste or considered the benefits Minnesotans receive from the programs he appears to be blindly proposing to cut.

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