• Chart of the Week
  • February 12, 2020

Foreign investment


Fancy dorms, expansive administrative budgets, and gourmet dining options are popular targets for critics who decry the exploding costs of higher education. But state funding cuts have played a massive role in causing public schools to shift costs onto tuition-paying students. 

Cutbacks to state appropriations haven’t just made it more difficult for students to afford a college education—it has changed the composition of the student body on campus, according to a paper in the February issue of American Economic Journal: Economic Policy.

Authors John Bound, Breno Braga, Gaurav Khanna, and Sarah Turner say drops in state funding are correlated with gains in the number of international students at public schools. They estimate that a 10 percent drop in state appropriations between 1996-2012 led to an increase in foreign enrollment of 16 percent at public research universities. Meanwhile, the trend for private schools has gone in the opposite direction.



Figure 4 from Bound et al. (2020)

The figure above includes a sample of 60 research universities, charting the log change in foreign first-year students (vertical axis) and the log change in total state appropriations. The trend for public universities (represented by the blue best fit line) shows that steeper funding cuts are correlated with an increased share of entering international students. For private universities (in red), there is no association between the change in the representation of international students and cuts in state funding.

Pennsylvania and North Carolina provide striking examples of the dynamic. The states are at opposite ends of the funding trends, with Pennsylvania legislators implementing severe cutbacks while North Carolina appropriated more money to public higher education. The University of Pittsburgh and Penn State, two public universities, saw a near doubling in foreign enrollments while public universities in North Carolina changed more modestly. Yet, private Pennsylvania schools like Carnegie Mellon University and the University of Pennsylvania did not have different growth in foreign enrollment than those in North Carolina like Duke.