Societal Return On Investment In Higher Education

Societal Return On Investment in Higher Education


December 2014

In past editorials, I’ve focused primarily on the “return on investment” (ROI) which students in North Dakota receive for their investment in public higher education. Illustratively, external studies have shown the ROI for NDSU students to be more than 14 percent, one of the highest for any major public research university in the nation.

Student ROI is extremely important, but in this discussion I’d like to highlight our state’s ROI for educating students, and supporting university research and service.  Economists generally agree that those societal benefits are the greatest contribution of higher education.

From a business perspective it’s interesting if not ironic that during the recent U.S. economic downturn, most states slashed higher education funding.  While public higher education might intuitively and thus politically be perceived as a discretionary investment, it is well documented to be one of the most reliable engines for strengthening an economy. 

Worth noting, developing countries like China and India have in recent years prioritized massive increases in support for higher education and research, at rates well beyond that of the U.S. (as just one example, we have dropped to 10th in the world for R&D investment as a percentage of GDP).  As a result, many such economies are blossoming while ours languishes.

Those countries recognize that the unparalleled ascension of the U.S. economy between the latter half of the 19th century and latter half of the 20th century, and our resulting world leadership, was not simply coincidental to the Morrill Land Grant Act of 1862.  Through the resulting system of public colleges and universities, Americans could access higher education as never before possible anywhere in the world -- and they took advantage of the opportunity!

That investment in the human capital of our country allowed for rapid advancements in agriculture, science, engineering and the liberal arts.  Doing so resulted in massive increases in new knowledge and discoveries, leading to a combination of productivity, business and job growth never before possible.  The resulting vitality diversified and broadened the economic environment, and had a reciprocal impact on our tax base, which provided the opportunity for further governmental investment in both higher education and other public services.  The results speak for themselves: by the mid-1900s we had become a worldwide economic leader.

That said, it is also fair to observe that higher education became a victim of its own success following the post- WWII/GI Bill years of the 1940-1980s.  Higher education had become more accessible and more affordable than ever imaginable.  However, the public’s faith and burgeoning investment in higher education, combined with quickly broadening support for other public goods and services, would ultimately lead to a dilemma of public funding priorities.

In the following decades, as federal and most state economies became leaner, higher education was often pit against the other public services which had emerged and grown during more prosperous times.  Many of those services, such as prisons and police protection, understandably seemed of more immediacy than higher education.  Worsening its situation, higher education also failed to tell its ‘value added’ story in a compelling way.  As a result, in the zero-sum game of the past decade, higher education has in most states become the loser.

As a provocative anecdote, though, it is worth noting that keeping a person in prison costs on average about $40,000 per year.  That same taxpayer contribution would cover a four year degree from many public institutions and lead to an educated, employable citizen typically paying higher than average taxes.  It goes without saying that in a philosophical sense, flipping the two priorities changes a cost into an investment with substantial returns.

However, North Dakota has and continues in several ways to be anomalous in its support of higher education.  On one hand, our state has for a long time made a substantial commitment of public resources to its system of 11 colleges and universities.  On the other hand, because of that unusually broad level of access, our funding of higher education--on a per-institution/per-student basis--has actually been relatively modest versus other states.

In recent years, though, state leaders have been able to steadily increase their support of higher education and should be complimented for their vision.  Doing so is allowing our state to address growing workforce needs tied to our burgeoning economy, and is providing the backbone for economic diversification and strength never before imaginable but now within our state’s reach.  To put a number to all that, a 2013 analysis suggested that the total economic impact of our state higher education system and its students was $4.8 billion dollars a year—and growing.  It is clear that higher education is providing a substantial and critical return on the public’s investment in it, while providing the economic foundation for a new future.

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