Research universities a bad deal for taxpayers?

Every student who earns a bachelor's degree at a not-for-profit or public institution, does so at some expense to taxpayers. But that's good for America, right?

Invest in education of young people and they will pay society back by getting higher-paying jobs and paying more income tax.

That's the theory, anyway. In real life, the results are mixed, according to new research.

Bachelor's degrees from private institutions and for-profit institutions offer the best payback, from a strictly taxpayer point of view, says a study from Nexus Research and Policy Center and the American Institutes for Research (AIR), released earlier this month. State schools offer a much smaller payback, and graduates of the most and least selective ones will, on average, never repay in taxes what taxpayers have spent on them. Though Nexus is independently governed, it does receive funding from the Apollo Group, which owns several for-profit educational institutions, including the University of Phoenix.

In terms of financial returns, the most competitive public schools – a category that includes most states’ research universities – are the worst deal for taxpayers, costing them an average of $9,278 per degree. The least selective public institutions absorb more money than graduates pay back, too. Each degree represents a net loss of $7,458 to taxpayers.

The most selective public institutions are a net loss to taxpayers because those institutions are usually highly expensive research institutions, like the University of North Carolina at Chapel Hill, that receive a large amount of government funding. The least selective public schools lose money because so many students enroll for some amount of time but don’t graduate.

“Students are absorbing large amounts of money, and then they don’t come back for a second year,” says Mark Schneider, a vice president at AIR and a co-author of the study.

Dropouts, he explains, will earn much lower incomes than those who graduate, so they won’t pay back as much income tax in their lifetimes. The subsidies that dropouts receive are added onto the subsidies that the people who actually graduate receive, for the purposes of the study.

On the flip side, the most selective not-for-profit institutions are the best deal for taxpayers, with graduates paying back $88,402 in additional income taxes in a lifetime, after the cost of their degree to taxpayers is subtracted. For-profit institutions fare well, too, since they only absorb public funds in the form of students’ Pell Grants. After those grants are subtracted, graduates of for-profits pay back an additional $60,948 per degree. (This may be a pleasant finding for the other author of the study, Jorge Klor de Alva, who is a former president of the University of Phoenix.)

The biggest recommendation from the findings is that more efforts should be made to reduce the number of dropouts at less competitive institutions. For instance, the study finds that if the dropout rate were reduced by half, taxpayers would save $14,527 per degree at the least competitive public schools.

The authors also question whether public research institutions are the most efficient places to educate undergraduates.

“We realize that flagships are actually critical,” says Mr. Klor de Alva. But policymakers should start asking some hard questions, he adds, such as: “Do we really need 10 research institutions [in a state], or would five be sufficient?”

The study makes certain assumptions. It calculates the financial cost or benefit to taxpayers as the difference between the average lifetime income taxes paid by a college graduate at each type of institution and the average lifetime income taxes of a high school graduate.

Another assumption, about how taxpayer subsidies are tallied, is more problematic. For public institutions, all public money that flows in is seen as funding for bachelor's degrees.

It's not fair to assign all the taxpayer money that goes to research universities as a cost of teaching undergraduates, says Dennis Jones, president of the National Center for Higher Education Management Systems, a nonprofit research group based in Boulder, Colo. “Those elite institutions have much broader missions than just teaching undergraduates.”

It’s a criticism the authors acknowledge.

The AIR study was “an earnest and pretty decent attempt” at sorting taxpayer costs and benefits of higher education, says David Longanecker, president of the Western Interstate Commission for Higher Education, a nonprofit organization that encourages institutions to share resources, also based in Boulder. But he questioned the way the study calculated some taxpayer subsidies and thought the study could have looked more closely at the role of students who drop out.