With state-funded universities cutting programs and tuition fees rising as a result of the economic climate, there is a growing chorus that foreign students are taking resources at the expense of local students.  Protectionist sentiments like this are typical during an economic downturn, but they are being fueled by the increasing numbers of foreign students on campuses.  The objections start with the premise that state-funded universities exist to educate local students and that subsidizing foreign students is a luxury that taxpayers cannot afford.  Some countries are debating caps on foreign student visas to address this perceived problem, while others see international students as a critical factor for global competitiveness.  The data confirms that educating foreign students is a strategic investment in the economy.  President Obama, in his 2011 State of the Union address picked up on this theme, stating that many students “come here from abroad to study in our colleges and universities.  But as soon as they obtain advanced degrees, we send them back home to compete against us.” 

The U.S. Department of Commerce’s official figures show that international students contribute nearly $20 billion to the U.S. economy a year, which makes the education of foreign students one of the country’s largest service exports.  This is based on a detailed analysis performed by the Institute of International Education, NAFSA, and Indiana University – Bloomington.  The net contribution to the U.S. economy is calculated by taking into account the tuition fees and the living expenses of the students, as well as any accompanying family members, and subtracting any financial support provided by any U.S. bodies.  While the value is calculated based on detailed data, it is in fact a conservative number as I will argue. 

The methodology is based on enrollment data by institution and tuition and living expenses data from Wintergreen Orchard House.  The tuition fees account for the fact that the vast majority of foreign students are paying the maximum tuition at their respective institutions as they typically do not qualify for in-state tuition, financial aid, or scholarships.  The living expenses data captures the fact that the students and their families pay for accommodation, groceries and meals, books and supplies, transportation, and health insurance, among other expenditures.  The results of the study are broken down by state and even by institution.      

It is important to note that the economic contribution is spread relatively equally, especially when compared to other export service industries, such as financial services or information technology services.  Universities are located in many cities throughout a state, indeed many prominent state universities are not located in the largest cities but in college towns, for example College Park in Texas, Boulder in Colorado, and Urbana-Champaign in Illinois.  Furthermore, we must not forget the contribution of community colleges, whose foreign student population contribute over $2 billion to the U.S. economy each year, many of which are in suburban or rural counties.  By accounting for the living expenses of the foreign students, the economic impact extends well beyond the boundary of the campuses.  Students rent accommodation, buy from local shops, go to restaurants, take taxis, and pay for services.  This expenditure generates sales tax revenue and supports jobs and small businesses indirectly related to the campus.         

The authors of the study acknowledge that the estimate is conservative, and as an economist, I have to agree; here is why:

The global economy is changing and this century is being already being coined the Asian Century, which anticipates the balance of power shifting from the West to Asian countries, led by China and India.  As these are the countries that send the most students to study internationally, it presents a great opportunity to create the feedback loops that will connect the US’ growth the success of these emerging markets.  The feedback loops will work in three domains: business, education, and tourism. 

The network effect that links business leaders to the US through their educational backgrounds will be of vital importance as developing economies become increasingly dominant in global trade.  Foreign students are likely to work for US companies, either here or in their home countries.  By applying their skills here, they are contributing to the growth of the US economy (and paying taxes, of course).  There is a burgeoning movement to allow foreign students to stay in the US if they found companies here.  This would promote the migration of technological and entrepreneurial talent to the US.  If they return to their home countries, either working for a US company or a domestic company, they facilitate trade between the nations based on their understanding of and cultural affiliation to the US.  This helps US companies penetrate these high growth economies.

Education has a feedback loop all of its own that fuels the positive externalities of the business benefits.  The US’ higher education system retains and attracts top academics, as well as enrolls highly qualified students from around the world.  The research programs continue to generate valuable patents and intellectual property, as well as the next generation of researchers (from an international pool of PhD candidates) many of whom will stay at US universities and be at the leading edge of technology.  This will create a pipeline of innovation will be of vital importance to sustain the growth of the US economy in this age in which wealth is derived primarily from the control (and enforcement) of intellectual property.     

There is an immediate impact from tourism as family members come to visit a current international student while they are enrolled at a university, perhaps attending the graduation ceremony.  However, the ties that are forged between the student and the campus or their friends, will keep the alumni returning time and time again during their lifetimes.  They will bring their children with them in the future and impart that connection to the US on the next generation.  It is also the exposure to a democratic system and the free market economy that forms the goodwill from the students’ experiences in the US.  As Michelle Obama said in a speech on study abroad in January 2011: “young people are America’s best ambassadors” whether interfacing at home or abroad with students from other countries.    

Based on this evidence, public policy should acknowledge that universities are at the heart of positioning the economy for long term competitiveness in the global era.  The mandate of a public university to educate the local student population is too narrow and squanders the internationally competitive infrastructure that is in place.  The golden ticket is that this benefit can be earned without a significant investment.  The infrastructure of academic institutions already exists, and the foreign students pay their own way.  The economy is leveraging its assets to generate sustained growth through the innovation and network effects.  Canada, a smaller economy that depends more heavily on global trade, recognizes the benefits of having foreign students on campus, with approximately 75% of Canadian students agreeing that interacting with foreign students enhances their education.  Educating foreign students is a strategic investment that will pay for itself multiple times over.

[Top image credit: iStockphoto/Thinkstock]

By Robin Hart © 2012 StudentRoads. All rights reserved. Do not reprint without permission.