International students boost public finances and drive economic growth

Based on plausible assumptions, the 2022 cohort of around 79,000 international students intending to graduate from German universities will generate a long-term surplus of roughly 15.5 billion euros for the public purse in taxes and social contributions. This is a key finding of calculations carried out by the German Economic Institute (IW) on behalf of the German Academic Exchange Service (DAAD). 

There are various reasons to provide access to higher education to people migrating from abroad. In the English-speaking world, this is typically done to strengthen university finances through tuition fees and improve the external trade surplus. In Germany and many other European countries, the situation is different: the main interest in educating international students lies in their contribution to the internationalisation of science and research, and the creation of a global network of partners. Since the 2010s, securing a skilled workforce has become an additional economic motive in Germany: as the baby boomer generation moves into retirement, growing labour shortages are posing a threat to growth and prosperity. 

Retention rates and statistical background

In order to make a meaningful contribution to securing the skilled workforce and to drive economic development, international students need to remain in the country after completing their studies. While it is unclear how many will stay in Germany in the future, an OECD study from 2022 found that 45 per cent of those who entered Germany in 2010 on a student visa were still in the country ten years later – this is a very high retention rate in international comparison, and one that is likely to increase further.

Against this backdrop, the IW calculated three different scenarios to estimate the long-term macroeconomic and fiscal effects of international students. The assumption of the scenario with high retention rates is that out of 1,000 new international students intending to graduate, 50 per cent complete their degree within five years and remain in Germany at first. Of these 500 students, 125 leave the country ten years after graduation and 375 stay for life. In the scenario with medium retention rates, 400 students remain in Germany after completing their degree and 200 stay in the country on a long-term basis. This reflects current retention patterns best. Finally, in the scenario with low retention rates, the figures are 300 and 75 respectively (Geis-Thöne et al., 2025). In all three scenarios, some international students leave Germany during their studies without graduating, while others leave after completing their degree.

Powerful macroeconomic impact

Additional factors relevant to the overall economic and fiscal effects of international students data are found in the microcensus – including labour market participation and earnings during and after the period of studying. According to national accounts, there is roughly a 2:1 ratio between gross value added per hour worked and the average gross hourly wage. Based on this, and excluding possible indirect effects, 1,000 international first year international students contribute the following amounts as value added during their life in Germany:

• with a high retention rate: 1.77 billion euros,
• with a medium retention rate: 1.12 billion euros,
• with a low retention rate: 0.62 billion euros.

It should be noted that these contributions are generated over a period of 44 years – from the start of studies through to retirement. On a per capita, per year basis, the figures range from 66,700 euros to 87,600 euros across the scenarios (Geis-Thöne et al., 2025).
Fiscal effects in the billions

Fiscal effects are more complex to calculate. For instance, the size of statutory pension payments depends on the contributions made to the pension system. Furthermore, a pension entitlement may still apply abroad if international students meet the required minimum insurance period before leaving Germany. Unless a double taxation agreement stipulates otherwise, these pension payments are also subject to German income tax. These and other aspects of the institutional framework were taken into account when calculating the overall fiscal impact of international students. Using a strictly partial analytical approach – which only considers payment flows directly attributable to international students – the long-term net fiscal surplus per 1,000 first-year students is as follows:

• with a high retention rate: 329.75 million euros,
• with a medium retention rate: 195.88 million euros,
• with a low retention rate: 93.32 million euros.

If the notional share of international students in non-personalised public services with demand based on population size is also included – such as transport infrastructure – the total fiscal effect per 1,000 first-year students drops to 260.90 million euros with a high retention rate, 150.39 million euros with a medium retention rate, and 65.38 million euros with a low retention rate. If additional indirect positive effects were included – such as the taxes and social contributions paid by teaching staff involved in educating international students– these further second-order effects would likely offset the expenditures for non-personalized population-based public services.  

In 2022, around 79,000 international students came to Germany intending to graduate. For this cohort, the lifetime net fiscal gains for the public purse (illustrated in the figure above) are as follows:

• with a high retention rate: 26.00 billion euros,
• with a medium retention rate: 15.45 billion euros,
• with a low retention rate: 7.36 billion euros.

Early profitability of investment

Educating international students pays off for public finances already in the short term. Assuming high retention rates, the net balance of financial flows between international students and the public sector turns positive just two to three years after graduation. At low retention rates, this point is reached after three to five years (Geis-Thöne et al., 2025).

Stabilising economic growth

In addition to the clear fiscal benefits they provide, international students also help stabilise the country’s economic growth potential. According to calculations based on the OXFORD model, the annual growth rate of GDP is set to fall by around 0.5 percentage points over the next ten years as a result of demographic change. Twenty per cent of this demographic slowdown can be offset solely through the immigration of international students, assuming around 79,000 new students per year. This is a significant economic impact. 

Other positive long-term effects

Given the demographic development, it is more important than ever to educate international students from an economic perspective. Furthermore, the return to a nine-year secondary school system in several federal states and generally smaller incoming domestic student cohorts are expected to free up considerable capacity at universities in Germany. 

As such, it is essential to provide targeted support for attracting international students, ensuring successful academic outcomes and facilitating the transition of international students to the German labour market. Support programmes for international students should be expanded and made permanent. This is not just a task for universities themselves: it also requires action on the part of policymakers, the private sector, and indeed society as a whole. However, Germany’s aim in attracting international students goes well beyond simply filling gaps in the labour market: building global partnerships and networks, training future specialists and leaders who return to their home countries or move on elsewhere, and the internationalisation of science and research likewise remain key goals. Against this background, it is not necessary for all international students to stay in Germany in order to achieve a positive economic effect.