State higher education investments offer strong economic returns

Despite the cost, college remains a sound investment for individuals and the state, according to a new report. (Getty Images)

Increasingly, people are questioning whether college is still worth it. The average cost to attend a Kentucky public university for one year is now around $25,000, including tuition, room and board, books and associated expenses. In 2023, Kentucky spent about ten percent of its General Fund on appropriations to public postsecondary institutions and state financial aid, totaling about $1.5 billion. Are we getting our money’s worth?

According to a recent report from the Center on Business and Economic Research (CBER) at the University of Kentucky, the answer is a resounding yes. 

The report, commissioned by the Council on Postsecondary Education (CPE), examines the financial impact of the state’s higher education investments in terms of their effect on earnings, tax revenue and consumer spending. Here’s what CBER found:

• College remains a sound investment for individuals. On average, Kentucky college graduates earn significantly higher salaries than high school graduates. These earnings more than make up for the initial educational investment, even considering opportunity costs associated with delayed entry into the labor force. Over a working life, Kentucky degree holders will earn twice as much as high school graduates ($1.2 million compared to $600,000, on average). 
• College is a sound investment for the state. When states invest in higher education, degree production increases. Over the last five years, degree production in Kentucky has risen 10 percent, which means more workers earning higher salaries. CBER estimates the tax revenue generated from college graduates (including sales, property and state and local income tax) is four and half times greater than the state’s initial higher education investment. In other words, for every dollar the state spends on higher education, state and local governments capture $4.50 in revenue.
• College is a sound investment for local businesses. It stands to reason that Kentuckians who earn more spend more money in their communities. CBER estimates that consumer spending associated with college graduates is 17 times greater than the initial investment. So, every dollar the state spends on higher education generates $17 for local restaurants, bars and other small businesses.

These financial returns are conservative estimates, because they don’t account for additional savings associated with increased degree attainment, which are more difficult to quantify. Research shows that college graduates enjoy better health, are more likely to be employed, and are less likely to be incarcerated or reliant on public assistance. Medicaid spending alone accounts for about a third of Kentucky’s General Fund. Educating Kentuckians to higher levels would lower funding obligations for Medicaid, prisons and entitlement programs and free up resources for investments in business, infrastructure and other policy priorities.

When states experience budget shortfalls, higher education often finds itself on the chopping block. Unlike public elementary and secondary schools, public colleges and universities can increase tuition to help offset cuts. But this strategy limits the substantial return on investment associated with higher education spending. 

Kentucky is fortunate that revenue growth has been strong, and that the state has increased higher education appropriations the past two legislative sessions. However, should that situation change, this report offers a compelling argument for sustained investment in higher education. To put it simply, if treating a disease costs thousands of dollars, wouldn’t you spend more, not less, on the cure?