University of California, Berkeley Study Finds $1.00 Invested in Higher Education Will Return $3.00 While $1.00 "Saved" Will Lose $2.00. (December 9, 2005)

    The University of California, Berkeley's Survey Research Center on November 30 released a 129 page analysis, commissioned by a grantee of the Hewlett Foundation, The Campaign for College Opportunity, entitled Return on Investment: Educational Choices and Demographic Change in California's Future, which opens with the rhetorical question, "Investing in higher education: how much is it worth to California?"

The authors' of the analysis, Henry Brady, Michael Hout and Jon Stiles point out that, "Hard times should make us think hard about investment opportunities. California is now in the throes of a state-wide budget crisis that forces tough decisions about important public services. What decisions should we be making about higher education?" A situation rather different from that of Australia with a current Federal budgetary surplus of multi-billion dollars.

The overall findings in the report are summarised in the following key points:

1.  Young Californian adults entering the ages in which postsecondary education is usually acquired (18-24) are an important and quickly growing population. Department of Finance projections show that from 2005 to 2010, this population will add 426,000 more members to its ranks, an increase greater than in any period since 1970. Between 2010 and 2015, this population will add nearly 100,000 members more.

2. Investments in higher education result in substantial benefits for the individual and the state. If the state increases the number of college graduates, Californians' individual incomes will increase. Greater educational attainment and earning power will produce a windfall for state coffers due to increased revenue from income taxes and decreased spending on social services and incarceration (Figure 1). For every new dollar California invests to get more students in and through college, it will receive a net return on investment of three dollars.

3. While the payback from the investment is not immediate, it is surprisingly quick (Figure 2). California's public sector will show a positive balance 10 years after these students have completed their education. By age 35, the state's initial investment will be repaid in full. For the next 30 years these individuals spend working until they retire at age 65, they effectively produce a "bonus" to the state in terms of income tax contributions.

4. A comparison of the "increased college-going scenario" to the "current conditions scenario" for 2015 shows that each class of graduating high school seniors can provide nearly 3 billion additional dollars in net tax revenue over their lifetime. Compounded year after year for each cohort of seniors, these gains are large enough to substantially improve the economic viability of the state.

5. If the level of higher education enrolment stalls where it is now, the short-term savings of under investing soon turns into a long-term cost. The state faces a net loss of two dollars in the long run for every dollar it failed to spend in the short run, a potential loss of 1.5 billion dollars over the lifetime of the 2015 cohort of potential college entrants.

The analysis utilised four scenarios for the study (see figures):

The authors are at pains to describe in detail the modelling methods used in deriving their quantitative conclusions which are stated as follows:

Return on Investment: The Net Benefits of Greater College-Going

• Comparison to Current Conditions: This study uses a cohort model that analyses average benefits to the entire population over their lifetime, not just the additional individuals going to college. In the scenarios, improvements in educational success are phased in gradually between 2005 and 2020. For illustrative purposes, lifetime gains and losses are discussed below for the 2015 cohort and compared to the current conditions scenario, which holds educational success rates fixed at current ethnicity-specific rates.

• Fixed capacity: The state will save US$1,300 in educational costs on average per 18-year-old, but it will pay heavily for these savings later by racking up US$4,100 in lost tax receipts per person and increased costs for incarceration and subsidies for the poor. The state’s net lifetime losses will average US$2,800 per person or US$1.5 billion for the entire cohort. Each 18-year-old will cost the state more than US$2 net over his lifetime for every dollar the State did not invest in educational support.

•  Increased college-going: The state will pay an additional US$1,400 per person but, over time, will reap a combined US$6,700 per person in additional taxes and decreased spending for welfare and incarceration. The state will gain US$5,300 per person, or US$3 billion over the life of the 18-yearold cohort. This represents a nearly 4 to 1 net return on the state’s initial investment.

• Improved completion: If the state were to increase educational investment to influence rates of college going and completion for young people who will be 18-year-olds in

  How Relevant are the Californian Findings to Australia? Interestingly,  with all the reviews that the Minister for Education, Brendan Nelson, has called for during his tenure, and considering his approach to the reformation of Australia's higher education system, he has not undertaken what ought to have been the most important analysis of all, to determine the return on investment in higher education. Surely that speaks volumes as to the government's motives.      And so far there is no indication that the Opposition has had such a study undertaken.

   2015, the net return on investment would be US$6,800 on anticipated investments of US$2,200 per 18-year-old, yielding a potential lifetime gain to the state of US$3.7 billion. In each case, potential losses or gains could be partially offset by interstate migration.

The authors state that the four scenarios considered regarding changes in public higher education used demographic projections to determine how much each scenario would cost the state in increased funding and produce in returns to the state.

With regard to increased college-going the report says, "Effectively, these increases translate into an increase in rates of public high school graduation of 2% for Asians, 6% for non-Hispanic Whites, 8% for Blacks, and 18% for Hispanics by 2015. These are increases in the rates, not gains in absolute percentages, for completing high school. College-going rates - the rates of college entry among high school graduates - is set to increase by 2 absolute percentage points within each ethnic category."

Larry McCarthy, president of the California Taxpayers’ Association is quoted as saying, "This report merits serious attention by California residents and policymakers. Expanding the number of students attending and completing a degree at our state's community colleges or universities is a wise investment with positive returns for all California taxpayers. There is good news here. We can get this job done if we work together."

In sharp contrast Prime Minister John Howard is reported as saying today that any money available in a healthy budget should be returned to the public through tax cuts. "And in returning it to the public we don't just focus on a small section of the public, we try and focus as far as possible on everybody," he told Southern Cross radio. "Clearly any government in its right mind, if it's got the capacity to do so, wants to continue to give tax relief." On Macquarie Radio he told listeners, "In the end, what the public wants, if we can afford it as a nation after we've provided the necessary ... is a lower tax burden."