Over the past two years, Ithaka S+R, in partnership with the Joyce Foundation, has examined the role of state policy in ensuring postsecondary access and opportunity for all students. In a newly released research paper, we build on our previous work and make the economic case for states to increase their attainment rates. To reap the benefits of their investments in increased attainment, we recommend that state leaders increase investment into historically underserved students, adopt progressive tax structures, invest in high-demand fields, and examine their efforts to increase attainment in relation to state labor market needs.

While we know that, on average, a postsecondary credential pays dividends to students and provides a host of nonpecuniary benefits to society, our analyses provide novel state-by-state estimates of the relationship between attainment and state revenues and expenditures. We focus on a narrow, but meaningful, set of revenues and expenditures: on the revenue side, individually paid income, property, and sales and excise taxes, and on the expenditures side, individual consumption of Medicaid and public welfare spending. We explore how an individual’s contributions to these revenues and expenditures vary by attainment level (e.g., high school diploma, associate’s degree, bachelor’s degree). Nationally, we find that the average bachelor’s degree provides states with an average net benefit of $2,500 per year in increased individual-level taxes and decreased consumption of social services. The net benefit for individual states ranges from $500 in Nevada to $4,200 in California.

To create a rough estimate of the potential benefits of increased attainment on these net benefits, we apply a hypothetical five-percentage point increase in each state’s postsecondary attainment rate and calculate the impact this increase has on the state’s net benefit. Not surprisingly, variation in states’ net benefits is directly related to the differentiated value of a postsecondary credential, the state’s population size, the progressivity of its income tax schedule, and the generosity of its welfare expenditures. For example, in Wyoming, an increase in the bachelor’s degree attainment rate may provide an additional $6 million annually to the state from the aforementioned sources, but in California, the same increase might provide the state an additional $4.5 billion. These variations also underscore the potential for states to maximize the benefits of increased attainment by adopting more progressive tax policies.

Although our analyses are neither a full cost-benefit analysis of postsecondary attainment nor causal estimates of the effects of increased attainment, they provide important insights into how individual tax revenues and social service expenditures may change as states increase attainment rates. We conclude our report with four recommendations for state policymakers:

  1. States should invest in lower-income students and students of color who are likely to benefit the most from increased educational attainment. Such investments would help improve social equality as well as states’ fiscal situations.
  2. State policymakers should advocate for progressive income tax policies that will augment the economic benefits of increased attainment. As we show in the report, states with the most progressive tax policies appear to benefit financially from increased attainment significantly more than other states.
  3. State policymakers should invest in postsecondary programs that align with high-demand fields in the state. These investments create more alignment between the postsecondary system and the workforce, help states better meet their labor market demand, increase the earnings of students who graduate from these programs, and increase the state’s net benefits of postsecondary attainment.
  4. State policymakers should ensure that their efforts to increase attainment have meaningful labor market benefits for students. This includes using research into their labor market needs to inform efforts to increase attainment and to understand the labor market effects of increasing the number of workers with a postsecondary credential. This would help ensure students and the state benefit from concerted efforts to increase attainment.

Our findings help make the economic case for increased postsecondary investments. By providing state-specific estimates and policy recommendations, we hope this report will be useful to policymakers and postsecondary advocates. But, given the challenges of estimating the relationship between attainment and economic returns, this report only goes so far. To do right by students, states need to ensure they target their postsecondary investments in ways that will advance equity and opportunity for students, both in achieving a degree and applying that degree to a robust labor market. In future reports, we hope to examine states’ labor market capacity to absorb additional postsecondary credentials and, given that context, recommend approaches for maximizing returns to increased attainment.