Real World Economics: North Star Promises benefits all of us

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Edward Lotterman

The North Star Promise Scholarship Program, passed by the Minnesota Legislature in 2023, goes into effect for the fall 2024 semester at all state colleges and universities and our four tribal colleges.

The program picks up all residual tuition and fees for students from households with under $80,000 income as calculated on federal student aid applications.

It is a “last dollar” program that picks up whatever remains after all other scholarships and grants from whatever other sources are used.

The DFL already is touting the program in its campaign advertising. Public reaction is generally positive. But there are the economic points to be raised. What are the ins and outs of a program that adds a first-year taxpayer cost of nearly $120 million to a $55 billion budget?

The “spillover benefits” of public education are a starting point. Education is a “mixed good” that has benefits not only for the individual “consuming” it, but also for society as a whole.

Let’s understand our terms: A hamburger or T-shirt is a private good. It benefits only the person eating or wearing the product. Tornado warning sirens and aircraft carriers are “public goods;” These benefit large swaths of the population, or the entire nation, as a whole without being tied to any individual. Education has aspects of both.

Pure public goods like tornado warning sirens are “non-rival.” If I hear the warning, it does not “use up” anything. Everyone within earshot can hear it too, whether they number 100 or 1,000 or 10,000. The warning is also “non-excludable.” I cannot stop anyone from benefiting from it even if, for example, they don’t pay a fee.

Education is different. A student taking up one place in a physical classroom means there is one less place for someone else. However, this is much less true for virtual or other on-line courses. So there is some level of “rivalry.” And it is possible to exclude students from the benefits of both physical or virtual participation in a course, even if only by the power to not grant degrees to those who were not admitted as students or who did not pay fees or tuition.

Students benefit from education. It makes it easier for them to cope with many aspects of life and participate more productively in social and economic activities. It also prepares people to make more money. Others generally benefit too, if only because education provides more doctors, lawyers, teachers, engineers and other professions that contribute to the public good.

Before governments provided schools, people of means hired tutors for their children and banded together to open local schools. Religious denominations did so also, in part to produce educated clergy. In the colonies that became the 13 original U.S. states, schools organized by local governments eventually were broadly available. Founding father John Adams years spent teaching in rural western Massachusetts.

In the 1800s, state governments began requiring local governments to establish schools. Then some mandated attendance up to a certain age. Public high schools joined private ones and denominational “academies” in providing secondary education. Private colleges, many denominational, sprang up across our nation. Eventually, the 1862 Morrill Act, perhaps the most economically momentous legislation in our history, required states to establish land grant colleges.

All this was driven by the understanding that there were great spillover benefits to society and the economy as a whole from education. The public in general should fund education to a certain level and mandate attendance, not just for the benefit of individual students, but for the entire society. The investment had a tangible return.

Except for Black students before 1954’s Brown vs. Board of Education Supreme Court decision, we otherwise have had a standard of free K-12 public education coupled with mandatory attendance until age 16 in all states for nearly a century.

In post-secondary education, the G.I. Bill, passed a year before World War II ended, gave nearly 16 million veterans the right to college or vocational schooling. Many additional millions have benefited since then. In the 1960s, fear of the Soviets led to widespread consensus on benefits of further education, which led to federal funding for students and colleges alike via grants and loans or subsidized loans for dormitory construction.

In the context of this history, Minnesota’s North Star Promise program is just an incremental step. In 1971, I could attend a year at the University of Minnesota for $366 in tuition and fees, including heath service, equivalent to $2,688 today. Now those costs will be zero for many. Technology and our economy in general have become more complex and the spillover benefits of post-secondary programs have risen. Spending more to foster these programs is justified.

Yet someone has to come up with the money — a bit over $20 for each Minnesotan per year. Apparently that will end up being added to taxes that many already think are too high.

There are other economic factors, however, that may not be obvious.

First, higher education involves a lot of “fixed costs” that don’t vary directly with the number of students. Enrollments have been dropping but a college still needs a library director, dean of students, head of physical plant and so on. A college still must pay utility bills whether each chair holds a student or not.

To the extent that North Star Promise brings in additional students whose payments are funded in part by federal student grants and scholarships, state and tribal campuses will have additional income without commensurate additional expense. Fixed costs will be spread over more students.

On the negative side, the new program further tilts the playing field against private institutions. Our myriad private universities, many still church-related, provide excellent educations, but they will now be marginally more expensive, on average, than state schools.

Our nation has long had an incongruous mental and emotional split on government funding of religious schools. There is a strong majority view that tax money should not go to religious schools, and this has roots in the U.S. Constitution. This is true for K-12 levels. But the G.I. Bill pragmatically let veterans use benefits to study at Concordia, Calvin, Southern Methodist and Notre Dame. There just were not enough state schools to accommodate 15 million vets.

So the G.I. Bill and subsequent 1960s student grant and loan programs effectively became vouchers. There was no violation of First Amendment taboos against establishment of religion since it was money given to an individual rather than an institution.

Non-public schools may clamor for the program to benefit their students as well. But the Promise is open-ended, picking up the balance after everything else. That may work out well in a system where institutions’ budgets are state-controlled. But enormous “moral hazard” or perverse incentives would be created by trying to stretch the program to cover all private colleges.

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St. Paul economist and writer Edward Lotterman can be reached at

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