Governments are big winners from college degrees
Politicians are always in favor of more education. The chart below explains why. A college graduate pays more than twice as much income tax as a high school graduate, while a professional degree holder is four times as valuable.
Notice that while the states bear much of the burden of financing education, the big winner on tax day is the federal government. However, looking at income taxes captures only part of the additional tax revenues from the well educated. Higher earners spend more and buy bigger homes, so they pay more sales and property tax.
Taxes significantly reduce the return on education to students
While college graduates earn more than high school graduates, 36% of the college premium goes to the government in tax. This has to be paid before the student pays for the cost of the degree itself.
For people going on to grad school, 42% of the premium over a BA degree holder goes in tax.
When people in education and the media promote the benefits of a degree, they invariably ignore the fact that a significant fraction of those benefits disappears in tax. And much of the cost of that education has to be paid for out of after tax earnings, reducing the true benefits of college still further.
Relative to other business investments, educational investments are uniquely tax disadvantaged. If a self-employed person invests in a truck for their business, they can reclaim the capital costs of the vehicle out of before tax income. However the cost of investments in education and training have to be paid for out of after tax income.
Government loses when students can't afford college
For every student who doesn't graduate college due to financial reasons, the Federal government will lose up to $6000/year in tax revenue, or up to $240,000 over a working life. For a government who is currently able to borrow extremely cheaply, this is a tremendous missed opportunity. There are powerful social justice arguments for making it possible for people from all social backgrounds to attend college. Even when those are ignored, the prospect for higher future tax revenues justifies financial aid to students who otherwise can't afford college. This is true as long as the students in question are likely to graduate. Government should avoid giving financial aid to students who lack the aptitude for academic work.
This study provides evidence that many academically gifted students from poor families do not complete college. Of students who scored highly on math tests, only 29% achieved a college degree if their family was poor. High scoring students from wealthy families achieved degrees at a 74% rate.
Reproduction of privilege
Pell grants cover fewer costs
Statistics from the College Board