Valuing the benefits of the education provided by public universities: A case study of Minnesota

Abstract

This study estimates the value of the private and public benefits that accrue to Minnesota residents from state government subsidies to higher education. In 2005, the University of Minnesota and the Minnesota State Colleges and Universities system received $832 million from Minnesota's state government to support educational programs. These subsidies allow these institutions to offer lower tuition rates, increasing the number of Minnesotans with bachelor and graduate degrees. We calculate that removing these subsidies would eventually lead to 14,000 fewer graduate degree holders in Minnesota, and reduce those with bachelor's degrees or “some college” by 42,000. The annual economic cost of these subsidies is about $326 million; this is less than annual state appropriations because most of those appropriations are income transfers from taxpayers to students, not an economic cost. We estimate that the annual value of the benefits of these subsidies is between $531 and $786 million ($381 and $570 million) when a 3% (5%) discount rate is used. We also discuss some of the income distribution consequences.