Trent Kittleman News & Opinion

Since when are we denied choice in our consumption decisions? That certainly is not the case in free markets. Only when there is a monopoly are we denied choice. The negative consequences of that are well known, and there is a long tradition in the United States of monitoring and breaking up monopolies. At a later point, there will be discussion about how public education monopolies came about but, suffice it to say, there is no longer an economic justification for them. Monopolies produce goods and services at a higher price and a lower quality than would be obtained in a competitive market. That is certainly the case with public education.

The purpose of this study is to report on data and facts gathered about the relative costs and benefits of public school education versus the alternatives. Data was found that we believe has not been analyzed before, despite their existence in databases available from reliable US government agencies. When discussing school costs, the data typically evaluated is from nonprofit organizations. Their reports are based on data given to them by participating schools or derived from sources that the uncritical mind naively believes are useful, as is, for analytically based decision-making.

Human progress and the development of human capital go hand in hand. Formal education is the crucial beginning of that development. This leads to more productive and innovative citizens, which, in turn, leads to greater economic growth and social success. This chain of success begins with the education of the young. Naturally, society should be interested in data about the costs and outcomes of different approaches to education, namely public versus private schools, and how this data should affect our choices and behavior.

It is not easy to acquire comprehensive and consistent data over time. In this report new ground is broken as a result of finding data from non-conventional but reliable government data agency sources. This data breakthrough allows a long-term analysis of trends and levels in the relative cost, per pupil, for public and private education at the K-12 level. In addition, though initially difficult to obtain, we succeeded in obtaining to a limited degree standardized testing results for public and private schools.

This study obtained expenditure data buried in the details of the National Income and Product Accounts of the US, more familiarly known as the NIPA accounts. The data is constructed from public and nonpublic sources by the Bureau of Economic Analysis (BEA) at the US Department of Commerce – the same agency that calculates the data for Gross Domestic Product (GDP). Enrollment statistics were obtained from the US Census Department. 

For comparison purposes we also looked at expenditure and enrollment data gathered by the National Center for Education Statistics (NCES). More on that later.

Per Student Cost of Public and Private Education

This study found that currently (as of 2018), a public school education in the US costs 89% more than private education; that is, $14,653 for a public school and $7,736 for a private education. The high relative cost of public school education has persisted since the earliest period for which the data has been collected – 1965 (Chart 1a). This is a rather startling finding and contrary to the understanding public officials have generally led us to believe about the cost of public and private education.  

Private education is significantly less expensive. However, its cost has been rising at a somewhat more rapid rate then public school education. In the 1960s, private education was 35-40% of the cost of public schools. Today, it is slightly more than half the cost.

These are averages computed from US Government data. As averages they obscure the fact that  the costs vary widely across the country for both public and private education. Some public schools are very expensive and exclusive to the residents of towns and cities that are very prosperous and collectively agree to accept high property and real estate taxes to finance that outcome. Other locals are not as well endowed, despite supplemental funds transferred from state educational funds. At the same time the cost of private education is also highly variable ranging from exclusive boarding schools and prep schools to neighborhood charter and parochial schools, and homeschooling.

The NCES estimates the 2018 per pupil cost for public school education at 10% less than the BEA’s estimate at $13,220 compared to the $14,643 mentioned above. The overall trend and level of NCES’s cost calculations for public schools are broadly similar to our BEA-derived estimates. Both suffer from the omission of the true actuarial cost of the benefit package school system employees receive in their retirement years. The data we are given only include the annual contribution to those benefit funds. However, as is well known from other studies, state and local benefit plans are hugely underfunded and the shortfall is expensed annually from the general budget. It has been estimated that this omission, if properly accounted for, would likely add 15% to the per pupil cost of public education. Total compensation in the school system comes to 75% of the total school budget.

Setting aside errors and differences in the cost estimates of public school education, the real contribution to useful knowledge of the data provided in this study is a more accurate estimate of the cost of private education using BEA data rather than the NCES data. The NCES looks only at “posted” tuition charges for a sample of private schools (see next section for more details). In 2011, the last year the NCES provided a cost estimate, the BEA cost per pupil came in at half of the NCES estimate at $5,400 vs $10,700.

There is wide variation between school districts. There are approximately 14,000 local school agencies in the US. Public sources do not provide data at that fine a level of detail. To get some feel for the variation of costs, state level data was used. According to the NCES, the cost per pupil varies between $7,000 and $23,000, suggesting a variance of +/- 50% around the national average. There is little doubt the variance is even greater at the district and county level, given the very high real estate taxes paid by residents in the toniest zip codes that provide near exclusive private school levels of education quality and cost.

What is Private Education?

To better understand these startling cost differences, one must understand what is meant by private education; that is, what is included in the universe of private education providers, outside of the public school system. The parents of the students who are the consumers of education are clever and determined to craft and negotiate affordable quality education. Many types of private education solutions have emerged. At one end there is homeschooling, which in total accounts for about 10% of the private education population. A variant called ‘school pods’ have emerged in recent years that pools homeschooling on the internet. At the other end of the spectrum, there are expensive and exclusive prep schools. They, too, represent about 10% of all private education enrollment. In between are a wide variety of parochial and non-sectarian schools that operate on tight budgets. 

Important to the understanding of the data, as it turns out, parents rarely pay the full posted tuition, even at the expensive prep schools. Our finding of $7,736 is half of the tuition schools post in their offering documents as stated by the NCES. Schools offer discounts, grants and scholarships. I have seen the books of one school that reveals a realized per pupil tuition that is about half the posted price. Homeschooling and school pods bring further economies of cost. One would not have an inkling of that from the standard data provided by the education industry.

What is Public School Education?

The quality and nature of public schools are not uniform across the country. In wealthy suburban areas, the community agrees to impose upon itself high real estate taxes in order to finance outstanding education. Even within urban areas, there are specialty schools that have competitive entry exams and often are organized toward a particular career path such as the arts or sciences. Every state government understands that there are unequal economic conditions across their state. To remedy the unequal impact that would have on local education quality, a portion of local real estate taxes are redistributed from richer to poorer districts to level the school funding to a fairer degree.

Is the Demand for Private Education Growing Rapidly?

Curiously, there appears to be virtually no growth in private education enrollments over the past 30 years whereas public school enrollments have grown. Homeschooling, almost invisible at the bottom of Chart 2, has grown somewhat. However, data for homeschooling is very scarce as there isn’t a large national constituency and data collecting organization. Of course, most of the data is delayed by 2 years, so there may be an uptick in private school demand once we get data for the most recent two years through 2020. 

This lack of growth in private education is surprising given the reputation of better academic outcomes being realized. An obvious explanation for the absence of relative growth in private education, despite its low relative cost, is because the total cost of private education is in addition to the cost of public education. Everyone pays for the cost of public education, whether they have children of school age or not, whether they rent or own an apartment or own a house, and irrespective of whether they send their children to private school. 

There are some interesting exceptions to how quasi-private school is priced, which would invite further study regarding the price elasticities of school demand. For example, homeschooling is a quasi-private education, yet the cost of homeschooling does not add significant additional costs. A homeschooled child is attached to a public school district and subject to their control. However, there are considerable indirect costs, namely the value of parental time devoted to teaching. Charter schools, as well, do not impose an additional cost burden on parents, as charter schools are generally operated within the public school system, often in the same building.