What is the economic benefit of vouchers?

A recent study of the Washington, DC voucher program purports to show that the voucher program yields a whopping 162 percent rate of return because more students graduate due to the voucher program than would have without the program in place. Not too shabby. However, a closer look at how they came to this number raises some serious questions about such large rates of returns.

When it comes to calculating the economic benefits of the voucher program the study does use a similar methodology as other studies that have calculated rate of returns on other education policies such as high quality Pre-k and dropout prevention programs, among others.

In this, as well as, previous studies the economic benefit was based on the increased wages and lower unemployment rates of those who graduate high school compared to dropouts, so more high school graduates means more tax revenues.

Moreover, high school graduates tend to require fewer government services so they will use less taxpayer money as well.  While there is certainly room to disagree with the accuracy of these measures, they do provide some estimate of the economic benefit of such education programs. So the question is not how much students benefit from the program.

The big question is actually how many students benefit from the voucher program. The economic benefits may be large but if very few students graduate high school due to the voucher program then it doesn’t matter how great the economic benefits are. So the larger question really is whether the voucher program improves graduation rates as much as the report states it does?

To determine how many more students graduated high school due to the voucher program, the report used the official evaluation of the voucher program which found graduation rates were 12 percentage points higher for those students who used the voucher and those students who entered the lottery but did not receive a voucher. According to the study, if this rate held true more than 400 students per year would graduate high school due to the voucher program.

However, I’ve looked over the report and while its methodology is sound, there are number of issues that raise the question whether the increase in graduation rates can really be attributable to the voucher program?

A major issue to keep in mind is that the voucher evaluation was about determining the impact of having a voucher system not about whether students were better off using the voucher. In fact, the majority of students who were offered vouchers never used them. They either attended a charter school, remained in their traditional public school, or attended a non-participating private school.

Moreover, half of the students who entered the voucher lottery but did not win a voucher (control group) went on to attend to a charter school or a private school. So the 12 percentage point increase in the probability that a student will graduate is based on whether a student was ‘offered’ a voucher, not whether the student actually ‘used’ the voucher.

What the evaluation actually found was simply offering a student a voucher— even if they remained at their local public school or charter school— improves a student’s chances of graduating high school. I am a strong believer in the ‘invisible hand’ and the power of competition. However, this just doesn’t make sense to me. If the evaluation was simply measuring the impact of vouchers to create competition then that impact should be felt by all students even those who didn’t enter the voucher lottery.

This makes the claim that vouchers increase graduation rates 12 percentage points quite suspect, especially since the same evaluation found that the voucher program had no impact on student achievement. One reason this may be the case is that test scores are objective measures provided by the schools. However, the graduation rates of those students who took part in the voucher program are based on parent responses to follow-up surveys.

It could be the parents of students who were offered a voucher, claimed their child graduated but did not. Also, we don’t know if students who graduated from private schools were required to meet as rigorous requirements as students in public schools.  So, it really is questionable whether the DC Voucher program has produced more high school graduates prepared for the real world.

What this new study shows is that any program that increases high school graduates will yield significant economic benefits in the form of additional tax revenue and less demand for government services.  But whether the DC voucher program does actually increase the chances a student will graduate high school is still not known, as the original evaluation failed to isolate the impact of using a voucher. Without an accurate measure of the number of students who graduated high school due to the voucher program it is impossible to say that the DC voucher program provides a 162 percent rate of return.

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