Do Foreign Students Contribute Billions to U.S. Economy, or Take from It?

By David North on November 17, 2010

If you read the New York Times article "China Surges Past India as Top Home of Foreign Students" on Monday you might have seen this line: "And, according to the Commerce Department such [i.e., foreign] students contribute nearly $20 billion [a year] to the U.S. economy."

It's the annual (and sadly, always successful) attempt of academia, with a small assist from the U.S. Department of Commerce, to convince the unthinking (including 100 percent of the media) that foreign students are good for this nation's finances and balance of trade.

The implication is that the $20 billion is a flow of dollars to the U.S. roughly comparable to selling $20 billion worth of soy beans and corn to the rest of the world.

It is not, because much of the $20 billion is from U.S. sources, and could be used to support U.S. students.

The Times story is based on the release of the annual report called "Open Doors" polished, published, and promoted by the Institute for International Education, a government- and foundation-supported advocacy outfit that encourages the importation of foreign students to the U.S. For this year's press release see here.

The basic problems of the IIE report are threefold: 1) it ignores the massive hidden subsidies that most college and grad school students get from U.S. taxpayers and U.S. endowments; 2) it counts only the visible expenditures on tuition and room and board; and 3) it cooks the books to show that the share of foreign support for the higher education of foreign students – even within the visible sphere just described – is much greater than it really is.

IIE uses good sources to compute the total visible costs of educating the foreign students, and then uses a dreadful methodology to figure out what percentage of those costs come from overseas. As to the latter, they ask a bunch of cheerleaders for the foreign students – the foreign student advisors – about the students' primary source of funding; the advisors are good people, I am sure, but quite distant from information on how those students are funded. The advisors' estimates seriously overstate the homeland contributions, while if you talk to the grad students themselves, such as those just finishing their PhDs, you get much better, and much different data.

Disclosure: Every year, as a volunteer, I run an income tax assistance program for hundreds of graduate students at the University of Maryland and, as a result, I have spent a lot of time talking to foreign grad students about their sources of income; these sources, at Maryland anyway, are almost totally American.

The surveyed foreign student advisors, however, think that the primary source of funding for foreign PhD students is from their own and homeland sources (55 percent), while in a different study, only 5 percent of the new PhDs – who have a much better grasp of their own finances than the foreign student advisors – say that the primary source of their funding is from their own (and homeland) sources. Of the new PhDs, 91 percent say the primary source of funding is the U.S.

The just-quoted data is from the excellent – but ignored by the media – annual survey of the new PhDs funded by six U.S. government agencies: Doctorate Recipients from United States Universities: Summary Report.

Yes, some foreign students, particularly the cheaper-to-educate undergraduates, bring some money with them to pay some of the visible expenses of their education, but at the graduate level that largely disappears, as noted above. These matters are covered in some detail in a CIS Backgrounder I wrote two years ago, "Who Pays? Foreign Students Do Not Help with the Balance of Payments."

This year IIE brings into the picture a Commerce Department estimate of foreign students' contribution to the economy, probably because the government's number, $19.9 billion, is a little larger than the one generated by the IIE, $18.8 billion. Whereas the entire "Open Doors" publication is devoted to foreign students in the U.S., with many tables and graphs and much text, the role of education payments gets exactly two lines in two different tables of the 17-page government report, which can be seen here.

One cannot tell from reading the article, "U.S. International Services," where the Commerce Department secured its numbers, but they may well be based in part on IIE data, as the Data Sources note indicates that "private sources" provide some of the data for the article.

I find it interesting that the IIE press release prints the $19.9 billion number which can be found on page 25 of the Commerce Department report but fails to mention another education-related number on the next page of the report; this is the one that shows that $5.6 billion was spent on sending American students overseas. One would think that one would subtract the $5.6 billion from the $19.9 billion and get a net of $14.3 billion, for a net dollar value (in IIE's eyes) of the educational exchanges.

My strong sense is that a very large chunk of the $19.9 billion spent on foreign students in the U.S. comes from American sources, and that very little of the $5.6 billion spent on U.S. students abroad comes from foreign sources. For example, when I was a foreign student, several decades ago in New Zealand, I was on a Fulbright which was 100 percent supported by American funds.

My personal belief is that a sprinkling of foreign students is a good thing for an institution, though I may be biased. A mix of American and foreign students is a particularly good thing in the humanities and the social sciences, but, sadly, most international students in this country are in sciences and business administration.

Further, the mix is best for American students if the students from overseas speak reasonable English, as virtually all the Indians do, and most of the Chinese do not. So the fact that led to the Times headline, that the Chinese are now the most numerous of the foreign grad students rather than the Indians, is not encouraging.

Returning to the question of who pays for the education of the foreign students, there is a variable that IIE cannot explore, given its peculiar methodology for estimating homeland vs. U.S. support of these students – that is, which nations are more likely to support their students in the U.S., and which nations are less likely to do so.

You can only get the answer to that question by asking the students (not their advisors) about their sources of funding. When I did exactly that, with a group of 87 foreign PhD candidates, for a study funded by the Sloan Foundation about 12 years ago, asking did your homeland provide any financial support at all to your graduate education? I got these answers:


  No Yes
From China 74% 26%
From rest of the world 58% 42%


Maybe the next time President Obama complains, as he should, about the imbalance of trade with China, he should discuss how much the U.S. spends on Chinese students here, and compare that with what China pays to help educate Americans in its universities. Is that imbalance against us 10 to 1, or is it more like 100 to 1?

If anyone is interested in this Sloan-funded report of mine, which is not on the net, drop me a line at [email protected]. The title is "The U.S. Pays: A Study of the Funding of Foreign-Born PhD Candidates in Science and Engineering."