ANALYSIS: Student Loan Reform Would Inject More Than $100 Billion Of Income Into The Economy

Our guest blogger is Ulrich Boser, a Senior Fellow at the Center for American Progress Action Fund.

moneygradOver the coming days, congressional leaders will be debating the virtues of the Student Aid and Fiscal Responsibility Act (SAFRA), which would end costly subsidies to student-loan companies and reinvest the money into grants for low- and middle-income students. Part of the discussion revolves around the economic impact of the bill, and so we conducted a new data analysis, examining the additional expected lifetime earnings gained by students who would get new Pell grants and graduate from college under the proposal.

The resulting numbers astounded us. Our analysis found that the reform could inject as much as $126 billion in income into the economy over the lifetimes of those students.

Such an economic boost would have tremendous benefits for our nation and greatly help pinched state and federal budgets gain much-needed tax revenue. It would also benefit students, who would earn larger salaries and have better employment prospects. And it’s clear that even relatively small sums of aid can make a big difference. A recent Brookings Institution study found that among low-income high school graduates, a grant-induced decline of roughly $1,000 in net price resulted in an approximately a 7 percentage point jump in college-going rates.

For our analysis, we looked at the estimated number of new Pell Grant recipients under the adminstration’s proposal and then presumed that only 63 percent would graduate from college. We then multiplied that figure by a low and high estimate of additional lifetime earnings that the new grant recipients would earn with a college degree instead of a high school degree. Our analysis makes a number of other assumptions as well. (See our full brief for methodological details.)

Whatever the limitations of our methodology, though, our findings are consistent with other research in this area, which has found that higher education represents a very sound investment for the federal government, with a return on investment from increased tax revenues of 14 percent and a payback period of less than six years. Students who graduate from college also typically earn more money, have better health, and are more active in their communities.

In order to keep our country’s economic edge and make college affordable to all students, Congress should take action and pass SAFRA. Indeed, for federal, state, and local governments, the reform of the student loan system seems a win-win: While making government work more efficiently, it allows a greater number students to attend college who will in turn have higher incomes and produce larger tax revenues.

Read the full report here.