Removing Barriers to Higher Education: The Economic Benefit of Tuition Opportunity in Tennessee (2018 Update)

Increasing access to higher education is a top priority in Tennessee. In 2014, Governor Bill Haslam launched the Drive to 55, an ambitious initiative designed to promote workforce and economic development, reduce unemployment, and improve quality of life by aiming to equip 55 percent of Tennessee residents with a college degree or certificate by 2025. As of January 2018, the program is running two years ahead of schedule.[1]

Yet the state’s current policies are leaving thousands of potential college graduates out of the equation—specifically, undocumented students who have grown up in the state and graduated from Tennessee high schools. These students are currently ineligible to pay the in-state tuition rate at Tennessee’s public college and universities, putting the cost of completing higher education—a rate sometimes three times hiring than the in-state rate—out of reach for many of them.

Recognizing the financial barrier out-of-state tuition imposes for undocumented students, nearly 20 other states—including Florida, Oklahoma, Kansas, and Nebraska—grant these students access to in-state tuition. These policies are a logical step for many states, given that their taxpayers have already invested in the education of undocumented students in public schools at the elementary and high school levels.

There is evidence that in many states this legislation is already achieving its goal of increasing college enrollment among disadvantaged students. Previous studies have found that Latino non-citizens residing in states with in-state tuition policies are anywhere from 31[2] to 54 percent[3] more likely to be enrolled in higher education than their peers in other states. Research also shows that these policies impact high school completion as well, reducing drop out rates among Mexican non-citizens by as much as 14 percent.[4]

In this brief, we use data from the American Community Survey, as well as the Chronicle of Higher Education, to update and refine our 2015 estimates on the impact of passing Tuition Opportunity legislation in Tennessee. The Tennessee General Assembly has debated Tuition Opportunity legislation in years past, and is again considering a bill that would exempt certain undocumented students from paying out-of-state tuition at state institutions of higher education. Our research puts the benefits of passing this legislation into concrete, economic terms.

Specifically, this brief quantifies the added earnings undocumented students would realize as a result of their added education, as well as the potential impact on state and local tax revenues. The results our analysis produces are clear. We estimate that the additional students who could potentially enroll in and complete college as a result of a change in Tennessee’s law would earn millions of dollars in additional income—translating into meaningful financial benefits for the entire state.

Key Findings:

  • Nearly 4,500 Tennessee students could benefit from a Tuition Opportunity policy. Based on the college enrollment rates of students from similar demographic and socioeconomic backgrounds, we estimate that an additional 4,478 undocumented students in the state would be able to enroll in college.
  • Earning a college degree would boost the earnings of Tennessee’s undocumented students by nearly $25 million annually. We estimate that if Tuition Opportunity were to become law in Tennessee, at least 2,145 of the new students who enroll would go on to graduate college within six years. Collectively, that group would earn $25 million in additional income annually following graduation.
  • The additional wages earned by these college graduates would elevate their spending power by nearly $20 million annually. After graduation, these students would hold a collective spending power of $19.4 million that could go back into the state and local economy through consumer spending.
  • Tuition Opportunity could add up to $5.5 million more per year to state and federal tax revenues. Although Tennessee lacks an income tax, the higher wages of new graduates would allow them to spend more as consumers, benefitting the state in the form of sales, excise, and property tax revenues, among others. We estimate that the 2,145 students who would benefit from Tuition Opportunity and graduate within six years would pay as much as $5.5 million in additional, aggregate annual taxes into federal and Tennessee’s state coffers.

The case for passing a Tuition Opportunity bill is clear: there are concrete financial benefits that come with helping undocumented students attend college in the state. Passing this legislation would provide a valuable stimulus to Tennessee’s economy in the long term—one the state would be remiss to pass up.


Methodology:  

Estimating the Number of Students Eligible for In-State Tuition and Tuition Opportunity Policies and Expected Graduation Rates:

The number of people eligible for Tennessee’s potential tuition opportunity program was estimated assuming that the beneficiary population would be undocumented immigrants between the ages of 16 and 44. Estimates for this were generated using NAE’s methodology used to identify undocumented individuals in U.S. Census microdata.

Identifying the Undocumented Population

Using data from the 5-year 2012-2016 American Community Survey, we apply the methodological approach outlined by Harvard University economist George Borjas to arrive at an estimate of the undocumented immigrant population in the overall United States and individual states.[5] The foreign-born population is adjusted for misreporting in two ways. Foreign-born individuals who reported naturalization are reclassified as non-naturalized if the individual had resided in the United States for less than six years (as of 2016) or, if married to a U.S. citizen, for less than three years. We use the following criteria to code foreign-born individuals as legal U.S. residents:

  • Arrived in the U.S. before 1980
  • Citizens and children less than 18 years old reporting that at least one U.S.-born parent
  • Recipients of Social Security benefits, Supplemental Security Income, Medicaid, Medicare, military insurance, or public assistance
  • Households with at least one citizen that received SNAP benefits
  • People in the Armed Forces and veterans
  • Refugees
  • Working in occupations requiring a license
  • Working in occupations that immigrants are likely to be on H-1B or other visas, including computer scientists, professors, engineers, and life scientists
  • Government employees, and people working in the public administration sector
  • Any of the above conditions applies to the householder’s spouse

The remainder of the foreign-born population that do not meet these criteria are reclassified as undocumented. For the purposes of this analysis, we limit the population of interest to those between the ages of 16 and 44 with a high school degree or its equivalent or some college experience, but lacking a bachelor’s degree. 

To estimate the share of this population that would enroll in higher education under this policy, we assume that easing the financial burden will result in the same college attendance rates for the non-citizen population.

To estimate the share of enrollees that would ultimately graduate, we apply statistics from the Chronicle of Higher Education regarding public 4-year colleges.[6] This estimate gives us the number of additional successfully graduating students within 4 years as well as within 6 years of their enrollment that would be attributable to the state’s tuition opportunity program.

Given that current U.S. Census data does not include information on where an individual completed/attended high school or received their GED equivalency, we are unable to target that specific population. We are, however, confident that we have estimated the likely eligible population who would take up the opportunity to enroll and graduate from higher education based on their income and past educational experience.

Wage Premium:

We use regression analysis to arrive at the total yearly gain in income resulting from obtaining a college degree. Our sample includes full-time employed non-citizen workers aged 25 and above. The model regresses the log of wages on education and controls for race, sex, age, marital status, and English language skills. The model allows for wage levels and returns to education to vary by citizenship status. Our analysis of the wage premium that undocumented students gain from earning a college degree shows that each graduate in Tennessee would earns $13,786 in additional annual earnings each year (in 2016 dollars) as a direct result of earning a bachelor’s degree.

Tax Estimates:

Figures on the additional taxes that would be paid as a result of this policy were calculating using the increase in wages mentioned above multiplied by the per capita incidence of state and local taxes in Tennessee as well the federal income tax rate. The state and local tax incidence rate used was taken from the Tax Foundation, one of the country’s leading independent tax policy research organizations. This percentage represents the total amount of taxes paid to state and local governments divided by the total amount of income earned by all state residents. The state and local taxes included in the Tax Foundation’s calculation include income, sales, excise, property, public utilities, motor vehicle, death, severance, and other licensing taxes.[7] Since the state of Tennessee’s income tax only applies to investment and dividend income, the vast majority of our estimate for additional taxes generated is made up of non-income taxes. The federal income tax rate was taken from TaxAct.com, a tax preparation website. 

[1] http://driveto55.org/gov-bill-haslam-touts-education-gains-says-drive-to-55-two-years-ahead-of-pace/

[2] Kaushal, N. (2008). In-State Tuition for the Undocumented: Education Effects on Mexican Young Adults. Journal of Policy Analysis and Management, Vol. 27, No. 4.

[3] Flores, S. M. (2010). State Dream Acts: The Effect of In-State Resident Tuition Polices and Undocumented Latino Students. The Review of Higher Education, Vol. 33, No. 2.

[4] Potochinick, S. (2010) How States Can Reduce the Dropout Rate for Undocumented Immigrant Youth: The Effects of In-State Resident Tuition Policies. Paper presented at the APPAM Conference.

[5] George J. Borjas, “The Labor Supply of Undocumented Immigrants,” NBER Working Paper (National Bureau of Economic Research, Inc, 2016).

[6] The Chronicle of Higher Education, “College Completion: Tennessee” (2013 Rates). Available here: http://collegecompletion.chronicle.com/ state/#state=tn&sector=public_four.

[7] Liz Malm and Gerald Prante (2014) “Tax Foundation State-Local Tax Burden Estimates: An Overview of Methodology,” Tax Foundation, April 2, 2014. Available at: http://taxfoundation.org/article/tax-foundation-state-local-taxburden-estimates-overview-methodology

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