The Washington State Dream Act: An Investment for All Washingtonians

Introduction 

The Washington State Dream Act (WSDA) will improve access to higher education for Washington state residents by allowing undocumented students a chance to get financial aid for college. WSDA would also give our economy a much needed boost by ensuring that our state has the well-educated, highly skilled workforce it needs to be competitive in the global economy. (1)

Washingtonians have already recognized the importance of investing in these students -- also known as Dreamers. Just over a decade ago, Washington state joined a handful of other states at the forefront of immigration reform by enacting a law that allowed Dreamers to qualify for the same tuition rates that other residents pay at state colleges and universities. (2) But Dreamers still do not qualify for state and federal financial aid like their classmates, and therefore rely solely on private funding. Given soaring tuition and fees, this often makes the pursuit of higher education unattainable for these students, who are disproportionately from lower income families.

The WSDA would give Dreamers who work hard, earn good grades, and graduate from Washington state high schools the opportunity to compete for the State Need Grant -- our state's need-based grant program -- alongside their peers. Providing Dreamers with the same access to higher education as everyone else is a smart investment -- not only does broad access to higher education lead to greater prosperity for individuals and their communities, there are significant benefits to the state economy.

Extending the State Need Grant (SNG) to Dreamers would make the pursuit of higher education more attainable, leading to higher paying careers and increased state and local tax contributions over time.

  • Increased earnings. Higher education helps ensure that individuals and families can meet their basic needs and also thrive in an increasingly competitive economy. People who receive a bachelor’s degree earn nearly $840,000  more over their working life than people with only a high school diploma. An associate’s degree yields $300,000 over a working life than a high school diploma. (3)
  • Positive return on investment. For every Dreamer that receives the SNG and earns a bachelor’s degree, the tax revenue return to the state and localities could be as much as $43,000 over the course of a 40-year working life – money that can be reinvested in  colleges, K-12 schools, and other resources that bolster our economy. (4)  For a recipient of the SNG that graduates from a community and technical college (CTC), the revenue return could be up to $22,000 over a 40-year working life.(5)
  • Narrowing the opportunity gap. Children from lower income families, particularly in communities of color, do not have the same educational opportunities as their more affluent peers.  The cost of higher education can be a major disincentive for high school completion.  Nearly 40 percent of undocumented youth do not graduate from high school, compared to 15 percent of lawfully present immigrants and 8 per- cent of U.S.-born citizens.(6)   Access to college financial aid would give Dreamers a strong incentive to finish high school, since they would then have a realistic possibility of pursuing higher education.

The American Dream is an integral part of our culture in the United States.  Our country was built on the dreams of immigrants becoming a reality through hard work and determination, and many of us owe our success to our own immigrant past. Yet for thousands of talented youth in this country, one of the tools necessary to make their dreams and aspirations – an affordable college education – remains out of reach. Washingtonians have an opportunity to change that with the Washington State Dream Act.

A Smart Investment for Washington State

The Washington State Dream Act (WSDA) would open the door to better-paying jobs and opportunities to get ahead for Dreamers by making higher education more affordable.   The legislation would allow Dreamers to compete alongside their peers for the State Need Grant– our state’s need-based grant program (see Box 1 for details).

The benefits of higher education are not limited to an individual and their families; everyone in Washington state gains by furthering the education of all students. The WSDA would expand on the key contributions immigrants already make to the state economy, including increased economic productivity and tax revenues.

Box 1 b

Increased earnings and opportunity will benefit all Washingtonians

While undocumented immigrants make up 3 percent of the population in Washington state, they account for 5 percent of the total workforce. (8)  The vast majority of undocumented immigrants in the United States are of prime working age, between 25 and 64 years old, and they are working or looking for work at rates equal to, and in some cases higher than, U.S.- born citizens. (9)

Undocumented immigrants are nearly twice as likely to live in poverty as U.S.- born citizens, despite their high levels of employment.(10) In part, this is due to disproportionately low levels of education compared to the rest of the population, which makes them more likely to have lower wage jobs and lower earnings, as illustrated in Figure 1. (11)
 

Figure 1 

Improving educational outcomes for this integral part of the Washington state work-force will provide major benefits.  Financial aid programs such as the State Need Grant incentivize high school graduation and boost college graduation rates. (12)   This in turn leads to higher earnings for the individual.  Figure 2 shows the earnings potential over a 40-year working life for Washington state residents based on their level of education. Increases in earnings in turn lead to higher tax revenues for the state and localities, illustrated by Figure 3. (13)

Figure 2 

 

Figure 3

A person with a bachelor’s degree can earn roughly $840,000 more than a person with only a high school diploma. That same per- son would contribute just over $142,000 in state and local taxes, approximately $55,000 more than a person with a high school diploma in that same time period.

Investing in Dreamers provides a big return

Every $1 invested through the SNG in a Dreamer who graduates from a four-year university could produce up to $2 in increased state and local tax revenue over time.(14)  Additionally, every $1 invested through the
SNG in a Dreamer who graduates from a community and technical college (CTC) could produce up to $4 in increased state and local tax revenue (Figure 4). (15)

Figure 4

Over 40 years, the net return of this investment for the state could be as much as $43,000 per graduate at a four-year public university and $22,000 per graduate at a public CTC (Figure 5).(16, 17)

Figure 5

 
These benefits are conservative estimates and do not take into account the range of other benefits the state and local governments could expect from improving the educational outcomes of Dreamers, including improved health, increased purchasing power and productivity, and better educational outcomes for future generations. (18)

Box 2a

Addressing the Opportunity Gap

The difference between the resources and opportunities available to children from different social and economic backgrounds – referred to as the opportunity gap – is growing in Washington state.  Nearly every indicator of economic well being indicates that lower income families and their children are subject to significant disparities, particularly in health care and education.(19)    This is especially evident among communities of color and undocumented immigrants.

The WSDA would directly target these disparities by encouraging Dreamers to finish high school and increase the likelihood that they will pursue higher
education.  In addition, the benefits of WSDA would carry through to future generations of Washingtonians – children of better-educated parents are healthier, have better educational outcomes, and practice better family planning. (20)

Wide gap in educational attainment for dreamers

Currently, few undocumented youth complete high school, and an even smaller number go on to college (Figure 6).(21)   Poor job prospects and the cost of pursuing higher education are disincentives for many of these young aspiring citizens to finish their high school education.

Figure 6


Only 49 percent of the estimated 65,000 undocumented students who graduate from high school each year in the United States, pursue higher education. (22, 23) These rates are significantly lower than their U.S.-born and lawfully present immigrants peers, illustrated in Figure 7.

 

Figure 7

Financial aid key to college enrollment and persistence

For undocumented students in Washington state, finances are the leading factor in their decision to attend college or not.(24)   The Washington State Dream Act will increase the likelihood that Dreamers will attend college by making the decision more afford- able.  For example, a $1,000 increase in grant aid can increase the likelihood that an individual will pursue higher education by 4 percentage points (Figure 8). (25)

The WSDA would also improve Dreamers persistence, or continued enrollment from one year to the next, once enrolled.  The same study found that increases
in grant aid also increased the amount of education obtained (Figure 8).(26)

Figure 8

Conclusion

The success of our country and our state is due in part, to the success of our own immigrant past. Immigrants are the cornerstone of our communities and exemplify the pursuit of the American Dream. For too many undocumented youth, the American Dream is out of reach. Washingtonians already stood in support of Dreamers once before, proving that while immigration may be a federal issue, education is the responsibility of the state.   With the Washington State Dream Act we have the opportunity to stand with them again.

Acknowledgements

The Budget & Policy Center gratefully acknowledges the support of the Bill & Melinda Gates Foundation, Annie E. Casey Foundation, Paul G. Allen Family Foundation, Campion Foundation, Northwest Area Foundation, Stoneman Family Foundation, Washington Progress Fund, The Seattle Foundation and the generous support of individual donors.

The following individuals provided data and guidance with this report:  Tanya
Broder (National Immigration Law Center), Joseph Cook (University of Washington), Toby Guevin (OneAmerica), David Dyssegaard Kallick (Fiscal Policy Institute), Stephanie Lee (Washington State Institute for Public Policy), Emily Murphy (OneAmerica), Maria Perez (University of Washington), Robert Plotnick (University of Washington), Annie Pennucci (Washington State Institute for Public Policy), Rachelle Sharpe (Washington Student Achievement Council), Chris Stiffler (Colorado Fiscal Institute), Rich Stolz (OneAmerica), Jim West (Washington Student Achievement Council). The findings and conclusions presented in this report are those of the author alone, and do not necessarily reflect the opinions of the individuals or organizations listed.

Technical Appendix

 

Calculating Benefits and Costs

 

For the purposes of this preliminary analysis, the benefits and costs of the Washington State Dream Act were examined from the perspective of the state of Washington.  The cost-benefit ratio and net present value were calculated on a per-person basis for a recipient of the State Need Grant (SNG) who graduated from either a public four-year institution or community and technical college (CTC).  Because of these assumptions, the estimates therein are likely upper bounds.

 

Discount Rate and Time Period

This analysis examined net benefits and costs for an individual graduate over a 40-year working life.  Costs and benefits in future years are viewed as less valuable than costs and benefits in present terms, therefore these estimates must be discounted.  This analysis used a discount rate of 3.5% for an intragenerational study funded through tax revenues. (27)

State Need Grant Expenditures

The calculation of State Need Grant (SNG) expenditures varied based on sector (i.e. public four-year or community and technical colleges).  For the purposes of this analysis, only public four-year and community and technical colleges were examined because the vast majority of SNG recipients attend schools in these two sectors.  The average annual award for a public four- year institution ($6,711) and the average annual award for Community and Technical Colleges ($2,077) were used to calculate the costs. (28)   A growth rate was included for each sector as well, based on tuition growth rates prior to the start of the recession (2004-05 to 2007-08) when tuition growth was more stable than recent years. (29)   The SNG eligibility time frame is equal to 125% of the expected time to degree completion. For a four-year institution, the maximum time frame is five years.  For a CTC, the time frame was assumed to be two and a half years.


Wage Premium

In this analysis, the wage premium is the increase in earnings associated with changes in educational out- comes.  American Communities Survey (ACS) data for Latinos in Washington state were used to calculate the median wage and salary income for individuals with a high school diploma, associate’s degree, and bachelor’s degree.  Data were limited to those over the age of 25, worked 35 or more hours per week, and 50 or more weeks per year.  The difference between the median wage and salary income for an individual with a high school diploma and an associate’s degree is the wage premium for obtaining an associate’s degree.  The difference between the median wage and salary income for an individual with a high school diploma and a bachelor’s degree is the wage premium for obtaining an bachelor’s degree.  To account for wage and salary growth over time, the annual median wage and salary income was inflated each year after the first year by a real earnings growth rate of 2.5%, based on forecasts by Washington State’s Office of Financial Management. (30)   Fringe benefits were not included in

this estimate because it is not clear what the labor market outcomes for Dreamers will be in the future given the state of federal immigration reform.

This analysis assumed a relatively constant wage premium.  However, it should be noted that in doing so, the estimate likely overestimates the wage premium in early years and underestimates the wage premium in later years.  The analysis also used wage data for Latinos in Washington state rather than the general population because this population is likely the best proxy for what the earnings of undocumented immigrants would be in the future.  While not all undocumented immigrants are Latino, Latinos do represent the largest share.  This model would likely present a closer approximation than data for immi- grants generally, which would include naturalized citizens and other immigrants with much higher earnings.  In addition, these estimates were calculated for graduates only and did not take into account increases in earnings for each additional year of schooling.


Increased Tax Revenues

Increases in tax revenues were calculated based on a model devised by the Washington State Institute for Public Policy (WSIPP). (31)   The total effective tax rate is assumed to be 30.1% of income based on analysis from the Center for Tax Justice. (32)   Using this tax rate provides the aggregate total for federal, state, and local taxes.  To calculate the proportion that represents state and local taxes only, estimates about the share of tax revenues from various sources were collected from the Tax Policy Center.  According to these estimates, also used by WSIPP, 22.1% of the aggregate tax revenues come from state sources and 16.5% come from local sources. (33)

 

Sources

1.    HB 1817 and SB 6523 (2014 legislative session) would change the eligibility requirement for the State Need Grant to include those who graduated from Washington state high schools in alignment with laws regarding the definition of a state resident for the purposes of in-state tuition.

2.    HB 1079 passed during the 2003 legislative session and changed the definition of a resident to include those who graduated from Washington state high schools, irrespective of their immigration status, for the purposes of qualifying for in-state tuition.

3.    Calculated using median earnings for Washington state from 2007-11 ACS 5-Year Estimates of wage and salary data for adults over the age of 25 that work 35 or more hours per week and 50 or more weeks per year. Subject to a 2.5% real earning growth rate annual, based on Office of Financial Management estimates in 2013 Long-Term Forecast of Washington Personal Income.  Discounted annually over 40 years by 3.5%.

4.    Listed in present value terms and represents upper-bound estimates of increased state and local tax revenues minus program costs over the course of a 40-year working life.  See technical appendix for more details.

5.    Listed in present value terms and represents upper-bound estimates of increased state and local tax revenues minus program costs over the course of a 40-year working life.  See technical appendix for more details.

6.    Passel, Jeffery S., and D’Vera Cohn. “A Portrait of Unauthorized Immigrants in the United States.” Pew Hispanic Center . N.p., 14 Apr. 2009. Web. 30 Dec. 2013. <http://www.pewhispanic.org/2009/04/14/a-portrait-of- unauthorized-immigrants-in-the-united-states/>.

7.    “State Need Grant Manual 2013-14.” Washington State Achievement Council. Web Dec. 2013. <http://www.wsac. wa.gov/sites/default/files/SNG_Manual-2013-14.pdf>

8.    Budget & Policy Center analysis of data from: Passel, Jeffery S. and D’Vera Cohn. “Unauthorized Immigrant Population: National and State Trends, 2010.” N.p., 1 Feb. 2011. Web. 3 Jan. 2014. <http://www.pewhispanic.org/ files/reports/133.pdf>.

9.    Passel, Jeffery S., and D’Vera Cohn. “A Portrait of Unauthorized Immigrants in the United States.” Pew Hispanic Center.

10.    Passel, Jeffery S., and D’Vera Cohn. “A Portrait of Unauthorized Immigrants in the United States.” Pew Hispanic Center.

11.    Passel, Jeffery S., and D’Vera Cohn. “A Portrait of Unauthorized Immigrants in the United States.” Pew Hispanic Center.

12.    Dynarski, Susan M. “Does Aid Matter? Measuring the Effect of Student Aid on College Attendance and Completion.” National Bureau of Economic Research Working Paper 7422 (1999): National Bureau of Economic Research. Web. 30 Dec. 2013.

13.    Calculated using median earnings for Washington state from 2007-11 ACS 5-Year Estimates of wage and salary data for adults over the age of 25 that work 35 or more hours per week and 50 or more weeks per year. Subject to a 2.5% real earning growth rate annual, based on Office of Financial Management estimates in 2013 Long-Term Forecast of Washington Personal Income.  Discounted annually over 40 years by 3.5%.

14.    Ratio of benefits accrued through increased state and local tax revenues divided by SNG award costs for a graduate of a public four-year university, in present value terms. This is in comparison to an individual with only a high school diploma and calculated over a 40-year working life.  See technical appendix for details.  The difference in benefit- cost ratio for CTC versus four-year institutions is due to the increased SNG costs associated with four-year institutions. SNG grants are based in part on the cost of tuition, which is higher for four-year institutions than CTC.  Students at four-year institutions also receive SNG awards for a longer period of time.  These estimates only include benefits asso- ciated with increase state and local tax revenues.  Inclusion of other benefits would likely increase the value over time, particularly for graduates of four-year institutions.

15.    Ratio of benefits accrued through increased state and local tax revenues divided by SNG award costs for a graduate of a public community and technical college (CTC), in pres- ent value terms. This is in comparison to an individual with only a high school diploma and calculated over a 40-year working life.  See technical appendix for details.  The difference in benefit-cost ratio for CTC versus four-year institutions is due to the increased SNG costs associated with four-year institutions.  SNG grants are based in part on the cost of tuition, which is higher for four-year institu- tions than CTC.  Students at four-year institutions also receive SNG awards for a longer period of time. These estimates only include benefits associated with increase state and local tax revenues.  Inclusion of other benefits would likely increase the value over time, particularly for graduates of four-year institutions.

16.    This is the net present value, or present value of total costs minus present value of total benefits for a graduate that receives the SNG and attends a four-year public institution. See technical appendix for details.  These estimates only include benefits associated with increase state and local tax revenues.  Inclusion of other benefits would likely increase the value over time, particularly for graduates of four-year institutions.

17.    This is the net present value, or present value of total costs minus present value of total benefits for a graduate that receives the SNG and attends a public community and technical college.  See technical appendix for details.  These estimates only include benefits associated with increase state and local tax revenues.  Inclusion of other benefits would likely increase the value over time, particularly for graduates of four-year institutions.

18.    Wolfe, Barbara, and Haveman, Robert. “Accounting for the Social and Non-Market Benefits of Education.” Organization for Economic Co-operation and Development.  2002. Web. 3 Jan. 2014. < http://www. oecd.org/innovation/research/1825109.pdf>

19.    “KIDS COUNT 2013 Data Book: State trends in child well-being.” Annie E. Casey Foundation. 2013. Web.7 February 2014. <http://www.aecf.org/~/media/Pubs/ Initiatives/KIDS%20COUNT/123/2013KIDSCOUNTDa taBook/2013KIDSCOUNTDataBookr.pdf>

20.    Wolfe, Barbara, and Haveman, Robert. “Accounting for the Social and Non-Market Benefits of Education.”

21.    Passel, Jeffery S., and D’Vera Cohn. “A Portrait of Unauthorized Immigrants in the United States.” Pew Hispanic Center.

22.    Passel, Jeffery S., and D’Vera Cohn. “A Portrait of Unauthorized Immigrants in the United States.” Pew Hispanic Center.

23.    Passel, Jeffrey S.. “The Urban Institute.” Further Demographic Information Relating to the DREAM Act. N.p., 21 Oct. 2003. Web. 3 Jan. 2014. < http://www. google.com/url?sa=t&rct=j&q=&esrc=s&source=web& cd=1&ved=0CCoQFjAA&url=http%3A%2F%2Fwww. nilc.org%2Fdocument.html%3Fid%3D20&ei=sXHVUqblPMfuoATS9ICABA&usg=AFQjCNFVTL78TNALU4 CQ_aW5iBg0WxE7YQ&bvm=bv.59378465,d.cGU>

24.    Rincon, Alejandra . Undocumented Immigrants and Higher Education: Si se puede!. New York: LFB Scholarly Publishing LLC, 2008. Print.

25.    Dynarski, Susan M.. “Does Aid Matter? Measuring the Effect of Student Aid on College Attendance and Completion.”

26.    Dynarski, Susan M.. “Does Aid Matter? Measuring the Effect of Student Aid on College Attendance and Completion.”

27.    Moore, M. A., Boardman, A. E., Vining, A. R., Weimer,
D. L. and Greenberg, D. H. (2009) “Just Give me a Number!” Practical Values for the Social Discount Rate, in Cost-Benefit Analysis and Public Policy (ed D. L. Weimer), Blackwell Publishing Ltd., Oxford, UK. doi: 10.1002/9781444307177.ch11

28.    Washington State Achievement Council. “State Need Grant Manual 2013-14.” Web. 23 Dec. 2013. < http:// www.wsac.wa.gov/sites/default/files/SNG_Manual-2013-14. pdf>

29.    “Tuition and Fees by Sector and State over Time.” College Board. Web. 30 Jan. 2014. < http://trends.collegeboard.org/ college-pricing/figures-tables/tuition-and-fees-sector-and- state-over-time>

30.    Office of Financial Management. “Chapter 4: Long-Term Forecast of Washington Personal Income.” 2013. Web.
30 Dec. 2013. < http://www.ofm.wa.gov/economy/long- term/2013/lt2013ch4.pdf>.

31.    Washington State Institute for Public Policy, “ Benefit- Cost Technical Manual: Methods and User Guide. (Document No. 13-10-1201b).” Oct. 2013. Web. 23 Dec. 2013. < http://www.wsipp.wa.gov/TechnicalManual/ WsippBenefitCostTechnicalManual.pdf>.

32.    Citizens for Tax Justice. “Who Pays Taxes in America in 2013?” N.p., 2 Apr. 2013. Web. 3 Dec. 2013. <http://www. ctj.org/pdf/taxday2013.pdf>.

33.    Williams, Roberton . “The Numbers: What is the breakdown of revenues among federal, state, and local governments?.” What is the breakdown of revenue among federal, state, and local governments?. N.p., 24 Jan. 2012. Web. 2 Jan. 2014. <http://www.taxpolicycenter.org/brief- ing-book/background/numbers/revenue-breakdown.cfm>.

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