Walter W. McMahon, a professor of economics emeritus and educational organization and leadership emeritus, is the author of "Higher Learning, Greater Good: The Private & Social Benefits of Higher Education," recently published by The Johns Hopkins University Press. McMahon is an expert on the economics of education, education financing and macroeconomic analysis. McMahon was interviewed by News Bureau news editor Phil Ciciora.
How will higher education spending in the stimulus package benefit colleges and universities?
There are three main types of benefits. First, there's a $16.1 billion increase in funding for Pell Grants and other student aid programs such as work-study. With the U.S. falling behind Canada, South Korea and Europe in higher education enrollment rates, that's a significant investment in our human capital. And considering those grants covered only about a quarter of tuition, fees and room and board for the average college student in 2008, that's good news if you're a college student or the parent of one.
The second type is aid to all public education institutions including higher education - $39.5 billion total, $2.05 billion for the state of Illinois - for the renovation of education facilities. That will restore state-support of education in Illinois to a 2008-level, and is the reason Gov. (Patrick) Quinn has not been forced to cut education funding in the new budget.
The third type of benefit is the restoration of $16.4 billion in funding for research. That money will go to the National Science Foundation, the National Institutes of Health, the Department of Energy and NASA, among others.
What's the payoff for those investments?
The portion of the stimulus package that supports investment in human capital through increased student aid and support for higher education institutions pays for itself in the form of increased earnings and economic growth about once every seven years for each student who graduates from college, or about seven times over during the 45-year span a typical college graduate spends in the labor force. It also means increased income and other tax revenue that will help to reduce the size of the deficit later.
In the short term, every dollar spent by the government is re-spent by recipients, which in turn generates local demand for goods such as groceries, clothing, lab supplies, and even big-ticket items like computers and cars. This investment acts as a multiplier that further increases demand, thereby allowing small businesses to retain and hire workers. And that's the overall objective of the stimulus package - to create demand for the goods and services of small businesses.
In the long term, all government expenditures related to education and research have an enormous payoff down the road. It doesn't necessarily crowd out private investment, but instead induces additional private investment by families as more students enroll in classes. Current social rates of return are about 15 percent at the two- and four-year college level, which means mathematically that the higher education support portion of the stimulus package will pay for itself about 6.7 times over during the next 45 years that each graduate is in the labor pool.
How can increased higher education spending help the middle class?
Investment in human capital through Pell Grants and through direct support to community colleges and universities support the investment by the middle class as well as the lifelong learning by adults that is vital to rescuing the middle class.
Two-thirds of the U.S. has a high school education or less. That includes just about the entire middle class, who have experienced flat or falling real earnings and income since 1980. During that same period, college degree holders have enjoyed a 57 percent increase in their income. This reflects an enormous under-investment in two- and four-year degree programs throughout this period, both by middle-class families and the government.
The result is widening social and economic inequality, a middle class that is unable to share in the benefits of economic growth and a globalizing economy, and a loss of U.S. leadership in the world as other countries educate their middle class, innovate and pull ahead of us.
What are the non-monetary benefits of a college education?
There are many non-monetary benefits to individuals over and above increased earnings. The private benefits include better overall health, greater longevity, better child development and education, and increased happiness. Society-wide, some of the social benefits include increased political stability, support for institutions necessary for democracy and human rights, a reduction in poverty and crime, and lower health-care and criminal justice system costs.
Poor information about these non-monetary benefits and their value has contributed to a significant degree of under-investment in higher education by both families and government.
Research indicates that the total value of the private, non-monetary benefit beyond earnings generated by each year of college education throughout a person's life has been estimated to be about $9,883 per year of schooling. This means that each year of college is twice as valuable in private benefits alone as we previously thought. When the external social benefits mentioned are included, the payoff is even larger.
By all measures, the return on the investment of taxpayer dollars in higher education is more than almost all alternatives. Investment in education represents not just a short term stimulus but also a rescue line in response to the plight of the middle class, generating future earnings and improvements to the quality of life of future graduates, while also contributing to other members of the community and the nation's future.