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In previous chapters, we have described some of the financial benefits that taxpayers will realize if students attain higher levels of education. Presumably, however, those additional years of schooling will also cost money. In this chapter, we identify what the costs of providing additional schooling would be. As noted in Chapter One, we do not address the question of what could be done to induce students to continue their educa- tion to a higher level or what such efforts would cost. Rather, we focus on the benefits taxpayers would realize if students increased their education net of the costs of provid- ing the increases in education.

The relevant cost concept is that of “marginal” cost: the cost of providing educa- tion to one additional student. Marginal cost will typically be lower than average cost because several expense items (such as a principal’s salary) are fixed regardless of the number of students enrolled. However, data on the marginal costs of education are generally not available. Accordingly, we estimated the costs of raising a person’s educa- tion level based on what the average costs are per student at each level of education. Because average costs are typically larger than are marginal costs, our estimates over- estimate the costs of providing education to an additional student and, consequently, underestimate the net benefits to taxpayers of increased education.

The costs of education vary from state to state and within states, by type of insti- tution, and by level of education. We used national average operating cost estimates for U.S. public high schools and colleges to estimate the costs of providing increased education and, consequently, taxpayers’ net benefits from increased educational attain- ment. For the public secondary education system, per-pupil spending figures are based on average daily attendance (ADA), the average number of students who attended school on each day of the school year. At the postsecondary level, because college stu- dents can enroll for a full course load or for individual classes, per-pupil spending fig- ures are based on full-time equivalent (FTE) students: the total number of enrollments in all courses divided by the number of courses taken by a full-time student.

We used SIPP data collected in 2002 to estimate the benefits that taxpayers would realize from increases in education. The closest corresponding school year is the 2001–2002 school year. In that school year, the national average expenditure per ADA in public K–12 education was $7,727 (U.S. Department of Education, National

70 The Benefits to Taxpayers from Increases in Students’ Educational Attainment

Center for Education Statistics, 2007, Table 33, p. 46). Assuming that K–12 school districts can generally accommodate some increases in enrollment without additional construction, we estimate that the cost of additional education in secondary schools will average about $7,700 per pupil ADA. If a student were to complete high school rather than dropping out, taxpayers would have to pay roughly $15,000, in 2002 dol- lars discounted to age 18, to pay for the additional schooling.

In the 2000–2001 school year, the most recent school year for which data were available, public two-year colleges’ current expenditures averaged about $9,400 per FTE pupil (U.S. Department of Education, National Center for Education Statis- tics, 2007, Table 346, p. 500). Two-year colleges’ tuition and fees that year averaged about $1,800 per FTE (U.S. Department of Education, National Center for Educa- tion Statistics, 2007, Table 320, p. 467). We assume that virtually all two-year colleges’ expenditures are for educational activities and that federal, state, and local govern- ment appropriations provide the difference between two-year colleges’ average current expenses and students’ tuition and fees. Accordingly, it would cost taxpayers about $7,600 per FTE to provide additional education in a two-year college.

We assume that students who are induced to obtain some college rather than terminating their education at high school graduation will generally attend lower- cost institutions that are relatively close to their homes. Accordingly, we assume that increasing education from high school graduation to some college will cost taxpayers about $15,000, in 2002 dollars, to pay for the increase in education.

In the 2000–2001 school year, public four-year colleges’ current expenditures averaged about $28,000 per FTE pupil (U.S. Department of Education, National Center for Education Statistics, 2007, Table 346, p. 500). Students’ tuition and fees that year averaged about $7,800 per FTE (U.S. Department of Education, National Center for Education Statistics, 2007, Table 320, p. 467). Public four-year institutions’ current revenues other than tuition and fees are equally divided between sources of rev- enues that contribute, at least in part, to the costs of educating students (federal, state, and local government appropriations; private gifts, grants, and contracts; and endow- ment income) and revenues from sources (federal, state, and local government grants; contracts; federally funded research and development centers; independent operations; and sales and services) that generally support expenditures on activities other than education. If all the funds provided by the first group of sources are used to support educational expenses, taxpayers spent about $10,100 per FTE student in public four- year institutions for educational purposes. We assume that it would cost taxpayers about $10,000 per FTE to provide additional education in a four-year public college or university. We estimate that increasing education from some college to a college degree will cost taxpayers about $20,000 in 2002 dollars.

Finally, the extreme example we consider is increasing a student’s education from high school dropout to college graduate. This would entail two more years of high school and four years of college. The costs of providing this increase would be spread

The Costs of providing Additional Education 71

over six years. The discounted present value of the cost of this increase in education would be about $47,000 in 2002 dollars.

Research has shown that the average cost of education per student falls as the number of students in a school or district rises. To the extent that educational attain- ment is increased by adding students to the existing educational infrastructure, the cost of education we use is an overestimate of the costs taxpayers would incur to increase education. For policy goals that would result in a large increase in enrollment, capac- ity may need to be expanded through new investments. In this case, the use of current average cost will certainly be more appropriate than current marginal cost. Across both cases, our practice of using average rather than marginal costs in our estimates implies that our net benefit calculations are lower bounds.

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