Is College Worthwhile for the Government?

With the constant attention given to the unsolvable debate over whether college is “worth it” for students, the question that gets ignored is if college is worthwhile for local governments. That is, if college isn’t all it’s cracked up to be, is funding for higher education a good investment for states? According to a new study by economists Amy Damon and Paul Glewwe, the answer is yes for the state of Minnesota.

In 2005, the University of Minnesota and the Minnesota State Colleges and Universities system received $832 million from Minnesota’s state government to support educational programs. These subsidies allow these institutions to offer lower tuition rates, increasing the number of Minnesotans with bachelor and graduate degrees. We calculate that removing these subsidies would eventually lead to 14,000 fewer graduate degree holders in Minnesota, and reduce those with bachelor’s degrees or “some college” by 42,000. The annual economic cost of these subsidies is about $326 million; this is less than annual state appropriations because most of those appropriations are income transfers from taxpayers to students, not an economic cost. We estimate that the annual value of the benefits of these subsidies is between $531 and $786 million ($381 and $570 million) when a 3 percent (5 percent) discount rate is used.

At some point there are bound to be diminishing returns to these investments, but right now the findings remind us that cuts to higher education are probably not in the “winning the future” playbook.

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