The back-to-school season is an important economic event. Students of all ages go back-to-school shopping for clothes and supplies. There’s a brisk trade in college textbooks. On campus, cable companies and credit card firms angle to sign up young customers.
But amid the frenzy, there’s a barely perceptible—yet crucially important—economic trend that unfolds in late August and early September. It’s as if college campuses (particularly the areas that house graduate programs) are temporarily transformed into ports, shipping terminals and cargo airfields. Why? Universities are among the most prolific exporters America has.
It may sound counterintuitive at first. The University of Mississippi doesn’t actually send much of anything overseas. And most American exports consist of goods like grains, or cherries, or electric turbines, or airplanes. Exporting typically involves putting this stuff on a plane or a boat and shipping it overseas. In 2012, exports of goods came to an impressive $1.56 trillion. But the U.S., which is primarily a service economy, also exports services—like money management, or tourism, or health care, or education. In fact, many Americans are in the export business even though they may never leave the country. In 2012, service exports were $649 billion, up a healthy six percent from the year before.
Higher education is small but rapidly growing service export. When a student comes from China to get a master’s degree in engineering at Georgia Tech, or a student from Brazil enrolls in UCLA’s MBA program—the tuition he pays is tabulated as an export. And an expensive one, at that. Despite the high price tag of American degrees, U.S. universities remain remarkably competitive in the global marketplace. For all its problems, the U.S. higher education system—especially the post-graduate education system—is the best in the world.
Let’s look at the numbers.
Universities and college graduate programs have long been an attraction for foreign students. Barack Obama, Sr., came to study at the University of Hawaii in the 1950s. Indra Nooyi, came from India to study at the Yale School of Management in the late 1970s—and now runs Pepsi. Since 1972, the number of foreign students in the U.S. has risen every year, with the exception of the three years after 9/11. The long-term trend can be seen here. From the recent low of 564,766 in the 2005-2006 academic year, enrollment has risen sharply. According to the Institute of International Education, total international student enrollment in the U.S. rose six percent in the 2011/2012 academic year to a record 764,495 students. That figure, which is almost double the total of 1989-1990, was divided between 309,342 undergraduate students and 300,430 graduate students. Of the graduate students, 153,735 were studying for master’s programs and 117,564 were in doctoral programs.
To a degree, this particular export tracks global population trends. China supplies the largest number of students (194,029 total, including 90,000 graduate students), followed by India (100,270, including 59,014 graduate students). South Korea comes in third with 72,295 (including 23,000 graduate students.) Saudi Arabia sends a surprisingly large number of graduate students to the U.S.—6,133 in the most recent academic year. Data by country can be seen here. The most popular fields of study for foreign students, which can be seen here are business and management (166,733), followed by engineering (141,285), mathematics and computer science (71,364), and then social sciences (66,163).
This is really important for several reasons. First, universities function as funnels for talent. They bring in ambitious foreigners, give them skills, and then send them into the workforce—often in the U.S. Second, in an environment where the 320 million Americans are having difficulty scraping up the funds for tuition, an increasing number of the 6.6 billion non-American humans have the resources and desire to come fill up America’s dorms and classrooms. Foreign students are pretty desirable customers, in part because they rely less on the U.S. government for aid, and rely instead on families and their own governments and employers. According to NAFSA, about 64 percent of international students rely mostly on private resources to pay for their degrees.
Most significantly, all these students add to the U.S. economy. Data on the economic impact of foreign students can be seen here) In the most recent academic year, foreign students spent $15.8 billion on tuition and fees, and $14 billion on living expenses, while family members spent another $400 million. Subtract out U.S. support for these students (grants, scholarships, other financial aid) of $8.4 billion, and their net economic contribution was $21.8 billion. That’s up by more than 50 percent from $14.5 billion in the 2006-2007 academic year. NAFSA says this is a conservative estimate because it doesn’t include a “multiplier effect,” i.e. how all the spending might in turn create other jobs.
Thanks to this trend, many of the elite post-graduate professional schools now have a highly international flavor. At Harvard Business School, where tuition is about $56,000, about 34 percent of the Class of 2012 were international students. At Stanford Business School, for the 2012-2013 class, international students (including permanent residents) accounted for 42 percent of the student body. At Yale University’s professional schools, foreign students account for about 18 percent of total enrollment, including 23 percent at the School of Public Health and 43 percent at the School of Music. At the University of Michigan (PDF), where about 13.5 percent of all students are international, it is estimated that foreign students contributed “an estimated $205 million to the local economy.” In the most recent academic year, about 70 percent of the roughly 6,000 international students in Ann Arbor were in graduate programs.
The trend presents challenges. Americans must now compete for precious spots at the most competitive schools with ambitious peers from around the world. Universities increasingly have to adapt to serve students whose first language may not be English. And foreign students still face significant visa and other logistical problems when they try to enroll in American universities.
The good news? There’s still a great deal of room for growth. In the aggregate, foreign students only account for four percent of total enrollment.