MCC Program Based Economic Impact Analysis: Feb 2018

TABLE A2.4: Accounting program’s students projected benefits and costs 1 2 3 4 5 6

students who graduate with a certificate or a degree and by one to five years for degree-seeking students who do not complete during the analysis year. Beyond the first five years of the time horizon, students will leave the workforce for any number of reasons, whether death, retirement, or unemployment. We esti- mate the rate of attrition using the same data and assumptions applied in the calculation of the attrition rate in the alumni impact analysis of Section 2. 17 The likelihood of leaving the workforce increases as students age, so the attrition rate is more aggressive near the end of the time horizon than in the beginning. Column 4 of Table A2.4 shows the net higher earnings to students after accounting for both the settling-in patterns and attrition. Return on investment to students of the Accounting program Having estimated the students’ costs and their future benefits stream for Accounting program’s students, the next step is to discount the results to the present to reflect the time value of money. We assume a dis- count rate of 4.3% (see below). Because students tend to rely upon debt to pay for their educations – i.e. they are negative savers – their discount rate is based upon student loan interest rates. 18 The present value of the benefits is then compared to student costs to derive the investment analysis results, expressed in terms of a benefit-cost ratio, rate of return, and payback period. The investment is feasible if returns match or exceed the minimum threshold values; i.e., a benefit-cost ratio greater than 1, a rate of return that exceeds the dis- count rate, and a reasonably short payback period. 17 See the discussion of the alumni impact in Section 2. The main sources for deriving the attrition rate are the National Center for Health Statistics, the Social Security Administration, and the Bureau of Labor Statistics. Note that we do not account for migration patterns in the student investment analysis because the higher earnings that students receive as a result of their education will accrue to them regardless of where they find employment. 18 The student discount rate is derived from the baseline forecasts for the 10-year Treasury rate published by the Congressional Budget Office. See the Congressional Budget Office, “Table 4. Projection of Borrower Interest Rates: CBO’s January 2017 Base- line,” Congressional Budget Office Publications, CBO’s January 2017 Baseline Projections for the Student Loan Program , last modified January 25, 2017, accessed February 2017, https://www. cbo.gov/sites/default/files/recurringdata/ 51310-2017-01-student- loan.pdf.

Year

Gross higher $0.3

earnings to students (millions) % active in

workforce* 5% <$0.1 10% <$0.1 19% <$0.1 35% $0.1 61% $0.2 91% $0.4 91% $0.4 91% $0.4 91% $0.4 91% $0.5 90% $0.5 90% $0.5 90% $0.5 90% $0.5 90% $0.6 90% $0.6 90% $0.6 89% $0.6 89% $0.6 89% $0.6 89% $0.6 88% $0.6 88% $0.6 87% $0.7 87% $0.7 86% $0.7 86% $0.7 85% $0.7 85% $0.7 84% $0.7 83% $0.6 83% $0.6 82% $0.6 81% $0.6 80% $0.6 50% $0.4 31% $0.2

Net higher

earnings to students (millions) $1.2

Student costs (millions) $0.0 <$0.1 $0.0 <$0.1

Net cash flow (millions) -$1.2

0 1 2 3 4 5 6 7 8 9

$0.3 $0.4 $0.4 $0.4 $0.4 $0.5 $0.5 $0.5 $0.5 $0.5 $0.6 $0.6 $0.6 $0.6 $0.6 $0.7 $0.7 $0.7 $0.7 $0.7 $0.7 $0.7 $0.7 $0.8 $0.8 $0.8 $0.8 $0.8 $0.8 $0.8 $0.8 $0.8 $0.8 $0.8 $0.8 $0.7

$0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $1.2

$0.1 $0.2 $0.4 $0.4 $0.4 $0.4 $0.5 $0.5 $0.5 $0.5 $0.5 $0.6 $0.6 $0.6 $0.6 $0.6 $0.6 $0.6 $0.6 $0.6 $0.7 $0.7 $0.7 $0.7 $0.7 $0.7 $0.7 $0.6 $0.6 $0.6 $0.6 $0.6 $0.4 $0.2 $7.1

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

Present value

$8.4

Internal rate of return

21.9%

Benefit-cost ratio

6.7 6.9

Payback period (no. of years) 

* Includes the “settling-in” factors and attrition. Source: Emsi impact model.

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PROGRAM BASED ECONOMIC IMPACT ANALYSIS