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THE COSTS AND BENEFITS OF AN EXCELLENT EDUCATION: U.S. Could Net $45 Billion Annually if One Year’s Worth of High School Dropouts Were Cut in Half, According to Leading Researchers in Education and Economics

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“High school graduation is associated with higher incomes, better health, lower criminal activity, and lower welfare receipt.”

U.S. taxpayers could reap $45 billion if the nation were to cut one year’s worth of high school dropouts in half, according to a new study conducted by a group of the nation’s leading researchers in education and economics. According to the study, The Costs and Benefits of an Excellent Education for All of America’s Children, it would take an overall investment of $82,000 per student for educational interventions and additional years of school attendance leading to graduation, but that amount would result in a public benefit of $209,000 in higher government revenues and lower government spending. In total, the authors of the report identified a net economic benefit of $127,000 for each additional high school graduate, a benefit 2.5 times greater than the initial investment.

“High school graduation is associated with higher incomes, better health, lower criminal activity, and lower welfare receipt,” the report states. “This has private benefits, but it also produces significant public benefits. When we calculate these benefits in a consistent form, their magnitudes are substantial.” The study was conducted by Henry Levin, William Heard Kilpatrick Professor of Economics and Education at Teachers CollegeClive Belfield, assistant professor of economics and education at Queens College, City University of New YorkPeter Muennig, M.D., assistant professor at Columbia University’s Mailman School of Public Health; and Cecilia Rouse, Theodore A. Wells ’29 Professor of Economics at Princeton University.

Increased Tax Revenue Only the Beginning

According to the report, male high school graduates earn $117,000–$322,000 more over the courses of their lifetimes than dropouts, while college graduates earn $950,000–$1,387,000 more. Given these higher salaries, individuals with a high school education and beyond pay considerably more in taxes. As the chart below indicates, male dropouts pay approximately $200,000 in taxes over the courses of their lifetimes while high school graduates pay an additional $76,000–$153,000 and college graduates pay an extra $503,000–$674,000. (Click here or on the chart for a larger image).

cost and benefits

 

The report notes that, in addition to paying higher taxes, high school graduates also have better health and lower rates of mortality than high school dropouts. Individuals with higher educational attainment also are less likely to use public social services such as Medicaid. In fact, the report states that roughly 25 percent of high school dropouts are enrolled in Medicaid, compared to 8 percent of high school graduates, and 1 percent of college graduates. Using these enrollment figures, the report’s authors estimate that a white female who drops out of high school will receive an average of $60,800 in Medicaid or Medicare payments or services over her lifetime up to age sixty-five. On the other hand, a white female high school graduate will receive less than half that amount ($23,200), and a white female college graduate will only receive $3,600.

The report also states that increasing the number of high school graduates significant decreases crime. It notes that dropouts make up over 50 percent of the state prison inmate population even though they constitute less than 20 percent of the nation’s overall population. The report notes that, in total, the criminal justice system saves an average of $26,600 on each new high school graduate. Most of the savings are from lower incarceration costs, but there are substantial savings from lower criminal justice system costs as well.

When examining the anticipated savings on welfare payments, the report’s authors note that the federal government spends $168 billion annually and state governments spend $25 billion annually on programs such as cash aid, food benefits, housing aid, training, and energy aid. To determine savings associated with increased education, they examine three programs: Temporary Assistance for Needy Families (TANF), housing assistance, and food stamps. They find that a high school graduate is 40 percent less likely to use TANF, 1 percent less likely to need housing assistance, and 19 percent less likely to use food stamps. Overall, the authors estimate a savings of $3,000 per new high school graduate over the course of his or her lifetime.

By adding the benefit per graduate from higher taxes, improved health, less crime, and fewer welfare payments, the authors estimate a public benefit of $209,000 in higher government revenues and lower government spending for each additional high school graduate. In order to determine the total public benefit, they multiplied the benefit per graduate of $209,000 by 700,000—the number of twenty-year-olds in 2005 who had a ninth- to eleventh-grade education and GEDs. “These persons are at the margin of high school graduation and would likely be most positively impacted by educational interventions that would help them complete high school,” the report reads. In total, the report’s authors find additional tax revenues and increased savings of approximately $148 billion.

Is the Investment Worthwhile?

Unlike similar studies that only project the savings associated with higher graduation rates, this report contains an analysis examining the project financial cost of graduating more students. “Do the benefits to society of investing in an educational strategy outweigh the costs?,” it reads.

Before answering this question, the report’s authors identify five interventions that have proven track records in graduating more students from high school. Two interventions take place in preschool(the Perry Preschool program and the Chicago Child-Parent Center program), oneoccurs in elementary school (class size reduction), one in high school (First Things First), and one throughout the K–12 years (a 10 percent increase in teacher salaries for grades K–12). The authors then run a cost-benefit analysis for each intervention in order to determine the amount needed to produce one additional high school graduate (represented by “costs” in the table below) and the benefits that each additional graduate would bring to the nation (“benefits”). As shown in the table below, the benefits easily exceed the costs for each intervention, resulting in net present values for each intervention of between $65,500 and $150,000.

Interventions to raise high school graduation rates

Per additional expected high school graduate First Things First Chicago Parent-Child Center Teacher Salary Increase Perry Preschool Class Size Reduction
Costs (C) $59,100 $67,700 $82,000 $90,700 $143,600
Benefits (B) $209,100 $209,100 $209,100 $209,100 $209,100
Net Present Value (B-C) $150,000 $141,400 $127,100 $118,400 $65,500

 

After calculating the total benefit of $148 billion (the $209,000 benefit for each additional graduate multiplied by 700,000 twenty-year-olds) and taking into account the costs listed above, the authors conclude that the nation would save approximately $45 billion if it could cut the number of dropouts in half. This figure is only for one year’s worth of dropouts and does not include private benefits such as higher salaries that flow directly to the individual.

“What makes this study so powerful is that it has been conducted by economists of the first rank, using sophisticated approaches that, if anything, understate the potential value of investing up front in education,” said Bob Wise, president of the Alliance for Excellent Education and former governor of West Virginia. “At a time when Congress is reevaluating the effectiveness of the federal No Child Left Behind Act, it provides lawmakers with a valuable tool to make the case that schools must be given more capacity to improve the achievement of their students.”

Support for the study, which was published by Teachers College, was provided by Lilo and Gerry Leeds, who also cofounded the Alliance for Excellent Education.

The complete report is available at here.

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Every Child a Graduate. Every Child Prepared for Life.