The Students Rising Above Program (SRA) is an investment in educational opportunities for disadvantaged 11th graders in the Bay Area of California. SRA students receive financial assistance, as well as mentoring (advising), student workshops, summer internship opportunities, and access to healthcare. The aim of the program is to help these 11th graders pursue their education and graduate from college.
A college education has substantial value, particularly for disadvantaged students who face social, economic, and personal challenges. A large research evidence base has established the labor market gains of college: higher earnings and a higher probability of being employed, as well as more benefits such as health insurance and pensions. In addition, a college degree is independently and positively correlated with health status; and it is negatively associated with reliance on welfare and involvement in the criminal justice system.
A college degree is therefore an investment, yielding private gains to the graduate and a stream of fiscal and social benefits. The fiscal benefits are higher tax revenues and lower spending on health, criminal justice, and welfare programs (net of subsidies for college). The social benefits include the savings to victims of crime and the value to firms from access to a more skilled workforce. By comparing these benefits to the costs of the program, it is possible to calculate a fiscal and social ‘return on investment’ to the SRA program.
Despite significant personal and economic obstacles, participants in the SRA program graduate from college at very high rates. Using actual data for the cohorts from 2001-2005 and projections for the cohorts from 2006-2009, 90% of the SRA participants are expected to graduate from a four-year college. By contrast, first-generation, low-income students who are accepted to a four-year college have much lower degree completion rates: only 37% complete their degrees within six years. Using this significant difference in attainment, along with the best available research evidence and data for California, it is possible to calculate the private, social and fiscal returns from investments in SRA.
(Full details of these calculations are reported in Belfield (2010)).
The economic value of the SRA program is calculated as the lifetime benefits relative to the average first-generation, low-income student who enrolls at a four-year college but who has a lower probability of completing their degree. These lifetime benefits are: higher earnings; higher taxes (including income and sales taxes); lower public health spending; lower criminal justice system spending (excluding victim costs); and lower welfare spending. The costs of extra education – public subsidies and tuition fees – are also counted as a ‘negative benefit’. All these benefits are adjusted for California prices and are expressed in 2010 dollars. They are all calculated from the start of the program (11th grade) as present values, i.e. adjusted for the time period in which they are received, with a discount rate of 3.5%.
The primary gain from college is in the labor market, most clearly through higher earnings for participants. The Current Population Survey is used to extrapolate lifetime earnings profiles, adjusting for productivity growth, unemployment probabilities, and the value of fringe health benefits. (No adjustment is made to earnings of female workers to account for their lower participation rates, which leads to an understatement of the full value of education). Lifetime earnings profiles are calculated by race and sex separately and then weighted according to the demographic characteristics of the SRA program.
A student participating in the SRA program will earn significantly more over their lifetime as a result of being more likely to complete a four-year degree. Lifetime present value earnings are given in Figure 1. These lifetime differences equate to a net gain in earnings of $343,166 for male SRA participants and $285,025 for female SRA participants.
These earnings gains yield benefits to California taxpayers. Federal and state income tax payments, as well as sales, excise
and corporate taxes, are simulated to derive the additional amount of tax paid by an SRA participant. Academic research evidence is used to calculate the taxpayer savings in terms of reduced spending on government health programs, on the criminal justice system, and on welfare and income support programs. All of these savings are attributable either to the direct effect of college (by enhancing their productivity and changing their behaviors) or the indirect effect of education (by making individuals ineligible for public supports). State and federal college tuition subsidies are subtracted.
The fiscal consequences of the SRA program are substantial. The figures show the net saving per SRA participant, expressed in present values and divided across federal and state budgets.
The total fiscal effect of the SRA program is $155,623 per male participant and $150,251 per female participant over the lifetime. This is the present value amount the California taxpayer gains as a result of the program. The largest proportion of the savings come from extra federal tax contributions, but there are also significant state savings. The other benefits – crime, welfare, and health effects net of college subsidies – are also significant.
To calculate the “fiscal return on investment” these benefits may be compared to the costs of the SRA program to yield the net present value of the program (benefits minus costs) or the benefit–cost ratio.
The SRA program includes a significant commitment of resources over multiple years. This commitment is measured using financial statements from the years 2007-2010 and accounting for the numbers of students enrolled. The estimated present value expenditure per SRA student entering the program in the 11th grade is $36,740. This amount covers all the years that the student receives support from SRA and can be compared directly against the fiscal benefits. (Importantly, the California government does not fund the SRA program, so from its perspective the direct costs of the program are close to zero).
The SRA program yields fiscal benefits that exceed program spending by $115,498 for each participant on average. For every dollar spent on the program, $4.14 dollars are returned as fiscal benefits. For the California Treasury, the program yields tax and expenditure benefits that are 1.19 times greater than the cost.
These results are likely to understate the actual value of the SRA program. The benefits are calculated on a conservative basis with respect to the comparison group, the measurement of non-work time for females, and the omission of any value placed on helping disadvantaged students. Also, recent evidence suggests that the value of a college degree is likely to grow, such that future generations will experience even greater advantage from graduation.
The full social value of the SRA program will be even greater. The social value of an educational investment is greater than its fiscal value. The social valuation includes: the full income gains to the SRA participants (including tax payments); the value of improved health; the social value of reduced crime to victims and the criminal justice system; and the productivity gains associated with a more educated workforce. (Welfare payments are not counted because these are transfers within society). Accounting for these social benefits, each participant in the SRA program will generate a present value saving of $508,647. As with the fiscal estimates, the social gains may in fact be even larger, especially if current trends in earnings and health care costs continue.