AAC&U News, May 2014

Where Value Meets Values: The Economic Impact of Community Colleges

A new report by Economic Modeling Specialists International, prepared on behalf of the American Association of Community Colleges (AACC), attempts to quantify the economic impact of community colleges in the United States using industry and employment data from the US Census Bureau and the Department of Labor, and academic and financial data from 1,025 two-year colleges that report to the Integrated Postsecondary Education Data System.

Community colleges operate on a combination of tuition paid by students and appropriations from federal, state, and local taxes, and thus these institutions represent not just individual but societal investments. The AACC report suggests that the investment is a sound one—community college-educated workers have higher earnings than workers without any postsecondary education, which leads to higher tax revenues and increased demand for goods and services throughout the economy. These individuals are also less likely to draw on government-funded social services and tend to enjoy better health. The full report, including an explanation of the methodology, is available at the AACC website.

Contributions to National Economy

  • Workers who have attended community college tend to earn higher incomes than workers with no postsecondary education; the accumulated earnings of community college-educated workers added an estimated $800 billion to the national economy in 2012.
  • International students attending community colleges contributed $1.5 billion in tuition and another $1.1 billion in living expenditures in 2012 (146,500 international students studied at US community colleges that year).
  • The additional income of community-college-educated workers and the tuition and living expenses paid by international students added $809 billion to the economy in 2012—the equivalent of 5.4 percent of US gross domestic product.

Social Savings

  • Educated citizens not only earn higher incomes and contribute more tax revenue—they are also less likely to commit crimes and to have health issues that reduce productivity and result in government expenditures.
  • By reducing need for services such as Medicare, welfare, and unemployment, community colleges saves society approximately $19.2 billion per year.
  • Those savings, combined with the increased tax revenue from more highly skilled workers, will result in a total estimated benefit of $46.4 billion per year to society over the course of the working lives of today’s community college students.

Cost/Benefit Analysis

  • Students paid $18.7 billion for tuition and fees at community colleges in 2012, and tax payers contributed another $44.9 billion; students also forwent an estimated $78.7 billion in earnings while cutting back on work hours to attend classes.
  • The increased lifetime earnings for community college-educated students more than make up for the cost of tuition and foregone earnings, with a net value of $4.80 for every dollar spent, resulting in an internal rate of return 17.8 percent.1
  • Taxpayers also enjoy a favorable rate of return on the revenue they contribute toward community colleges—$6.80 in benefits for every dollar of tax revenue allocated to community college operations, with an internal rate of return of 14 percent.

Did You Know?

  • The higher earnings and reduced need for social services among community college graduates saves $46.4 billion a year in government spending.
  • Community college graduates tend to have better health and less need for government services than citizens with no postsecondary education.
  • Students earn back $4.80 for every dollar spent on their education; tax payers save $6.80 for every dollar spent.

1. Because this model projects current benefits into the future as investments and then discounts them back to their present value, an adjusted internal rate of return may be a more accurate long-term estimate of economic benefit than the immediate net savings. 

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AAC&U News is written and edited by Ben Dedman. If you have questions or comments about the newsletter's contents, please e-mail dedman@aacu.org.


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