The economic case for more funding


The battleground for higher education dollars is largely between community colleges and public universities. Both obviously merit public funding because they provide valuable economic services to citizens, in general.

The question is how to divide the scarce state taxpayer dollars between the two sectors to ensure that the money will be optimally spent. From both perspectives, increasing the funding of one must be at the expense of decreasing funding for the other. If the current distribution of funding between the two sectors is not optimal now, state taxpayers, through their legislative representatives, should change the distribution for good economic reasons. And good economic reasons are best portrayed by the returns taxpayers will experience from investing in either sector.

This article is an excerpt from the book Community College as Economic Engines by Kjell A. Christophersen. It is co-published Rowan & Littlefield and the American Association of Community Colleges.

It is, therefore, the responsibility of the leadership for both the community colleges and universities to come to the table as well-prepared as possible with economic impact study (EIS) results based on recent data. Also included should be the proposals for changes in the funding structure between the sectors backed up with data-driven analysis of the extent to which they will increase the gross regional product if implemented. This discussion is the purpose of legislative sessions.

Helping local residents

The first challenge for legislators is to assess which institutions benefit the region or state the most — the community colleges or the universities? This obviously is a challenging task, and not one we are seeking to resolve here. We are certainly in favor of both sectors, because education is generating returns to both students and taxpayers that far exceed threshold levels. And when these sectors generate those kinds of returns, by definition, society at large is better off with than without them.

The differences between the EIS results for community colleges and universities, however, are significant in their interpretation, although the metrics are the same. The university regions are larger, and in some cases extend far beyond state boundaries. Their funding focus, therefore, must be more expansive, including perhaps a greater reliance on federal dollars (higher percentages) instead of state taxpayer dollars. Universities can be considered more like destination schools that draw students from outside the state far more so than the community colleges, and so perhaps they should rely relatively more on federal funding sources.

Community college students, on the other hand, have a greater propensity to remain in their home regions after exiting, and thereby add more productivity value for their regions, than do university students. The latter tend to be more mobile, even to the point of taking jobs in faraway states. Based on the sample of 364 colleges and 135 universities, approximately 90 percent of the community college students settled in the region served by the colleges after completing their studies, compared to an average of 73 percent for universities.

A bigger bump in earnings

Another argument community college leaders can invoke for more funding relative to the universities is that the rewards to education for the majority of their students tend to be greater than for university students for the time and money spent. Students who attend college from one year shy of a high school diploma to high school plus two years (including the associate degree) happen to receive the biggest bump in earnings for their efforts. The earnings function tends to be steeper for this time period and educational effort, on average — steeper than between the associate-degree level (two years post high school) to four years (to and including a bachelor’s degree).

Of course, this does not mean that community college students earn more; in fact, they generally don’t. What it does mean is that the benefit/cost ratio is consistently higher for students who attend community college relative to all subsequent education levels. The rewards to education increase at an increasing rate with education up to and including the associate degree, and then continue to increase but at a decreasing rate for the higher-education levels.

Better ROI

A third argument is that more community college students are also gainfully employed (at least part-time) while attending college (68 percent) than university students (57 percent), so they invest less. Their opportunity cost of time, therefore, is lower than it is for university students. This is another reason that the return on investment (ROI) for community college students is generally higher.

In the battle for public funds, community college leaders should use the relatively low-tuition argument at their institutions in the zero-sum game of competing for total student enrollment in the higher education sector. Because tuition rates are significantly lower at community colleges, it is far less expensive for students to enroll there for the first two years of their college career and then transfer than it is to attend the full four years at a public university.

To this, we can add the incentive that community colleges enroll the lion’s share of Pell Grant-eligible students in higher education. For many of these students, attendance costs them literally nothing, or close to zero. The student ROI, therefore, is higher because the costs are significantly lower.

About the Author

Kjell A. Christophersen
is cofounder and senior economist of Emsi, a company that specializes in economic impact analysis, labor market/workforce development forecasting, and economic growth analysis. Emsi is a corporate partner of the American Association of Community Colleges.
The owner of this website has made a commitment to accessibility and inclusion, please report any problems that you encounter using the contact form on this website. This site uses the WP ADA Compliance Check plugin to enhance accessibility.