Education and Skills Impact Framework (ESIF) - college provision: contextual summary report 2022

Return on Investment

Introduction

The analysis assesses the Return on Investment (ROI) associated with Scottish domiciled individuals who started qualifications at College in Scotland in the 2018-19 academic year. This involves the estimation of benefits and costs associated with each level of qualification, at the individual and exchequer level.

Using the marginal earnings and employment returns presented in section 4, Return on Investment (ROI) was estimated for the qualifications sat by students beginning their studies in AY 2018-19. Lifetime earnings were estimated for students who achieved their qualification and the control group. For the other undergraduate group, the control group was learners with a highest qualification at SCQF level 6. For each other group considered in this report the control group was learners who started but did not complete the qualification in question.

Lifetime earnings are estimated by combining earning figures from LEO, earning growth rates from the Labour Force Survey (LFS) and marginal earning and employment figures presented in section 4. Comparison of lifetime earnings between learners achieving the qualification and the control group provided an estimate of the increase in gross lifetime earnings from completing a qualification. This provided the basis to calculate the net benefit to both the individual and exchequer based on the total costs and benefits unique to each. Results are disaggregated by qualification type and sex, reflecting the characteristics of a typical learner within those groups. For some groups lifetime earnings were estimated based on one or more non-significant result as this provided the best available point estimate. Such groups are highlighted in grey.

Calculations apply to Scottish domiciled students living anywhere in the UK after completion of their studies.

Results presented are net present values (NPVs) calculated using discount and inflation rates from the HM Treasury Green Book and Office for Budget Responsibility (OBR) forecasts, respectively. Changes to economic conditions, such as inflation, may alter the estimated return on investment to qualifications.

The approach to estimating costs and benefits for the ROI model is summarised in Figure 1.

Figure 1 - Overview of benefits and costs associated with College qualifications.

ROI to college qualifications

Students/graduates

Benefits during study:

• Public fee waivers (SFC data)
• Other public student support (SFC data)

Benefits post-study:

• Enhanced net earnings post- completion (LEO & LFS data)

Costs (all during study only):

• Foregone net earnings (counterfactual; LEO & LFS data)
• Tuition fees (SFC data)

Exchequer

Benefits during study: n.a

Benefit post-study:

• Enhanced income tax and NI contributions post-completion (LEO & LFS data)

Costs (all during study only):

• Public fee waivers (SFC data)
• Other public student support (SFC data)
• Public teaching grants (SFC data)
• Public capital grants (SFC data)
• Foregone tax and NI contributions (counterfactual; LEO and LFS data)

Individuals

Table 13 presents return on investment expressed as lifetime net benefit per learner and benefit-to-cost ratios associated with the completion of each qualification. The ROI estimates are net present values, representing the difference in lifetime earnings (after costs) between individuals who complete a qualification and the control group. For example, a typical woman whose highest qualification is at SCQF

level 5 is estimated to earn £61,605 more than a comparable individual who started but did not complete a qualification at that level. This is equivalent to a benefit to cost ratio of 9.3 to 1 for the individual – in other words a woman completing an SCQF level 5 qualification receives an average additional return of £9.30 for every pound that she spends on gaining the qualification (compared with a non-completer).

*Shaded cells indicate estimates are calculated based on one or more non-significant marginal earning/employment result.

Key findings:

• The majority of qualifications are associated with a net increase in lifetime earnings for the individual, compared to control groups.

Exchequer

Table 14 presents the ROI to the Scottish Exchequer (the net return to public investment). The return on investment to the Exchequer represents the difference in exchequer income between qualifiers and the relevant control group, over an individual’s lifetime. For example, men who completed a qualification at SCQF level 5 provide the public purse with a net benefit of £45,654 over their lifetime compared to non-completers with similar characteristics. This is equivalent to a benefit to cost ratio of 6.7 to 1 for the public purse – in other words, a man completing a SCQF level 5 qualification generates an additional return of £6.70 for every pound of public investment (compared with a non-completer).

*Shaded cells indicate estimates are calculated based on one or more non-significant marginal earning/employment result.

Key findings:

• The majority of qualifications are associated with a net increase in income to the Exchequer and as such a positive benefit to cost ratio.