The $100,000 OPT fee is a Trojan Horse for H-1B abuse

Fresh off of a federal court vacating the Trump administration's $100,000 H-1B fee, the Department of Homeland Security is considering whether to resurrect the exact same tool to use against an even bigger target: the Optional Practical Training program (OPT). 

OPT is a program that authorizes international students to work in their fields of study for a maximum of three years after graduating.^[1] It constitutes America's largest pipeline for recruiting international talent, bringing approximately 108,000 professionals into the U.S. workforce each year, mostly in the fields of science, technology, engineering, and mathematics.^[2] It would effectively shut out the world's most promising young scientists and entrepreneurs, eliminating countless jobs and inventions that would have otherwise been created on American soil.

While the administration cites "protect[ing] the integrity of the legal immigration system" as justification for considering the fee, it would yield the exact opposite outcome by tilting the skilled immigration system against top foreign talent educated at U.S. universities and in favor of lower-wage workers educated abroad. This is because our international students compete with workers coming directly from abroad for a limited number of H-1B visas, which are allocated by an arbitrary lottery rather than merit. The OPT program gives international students a leg up in securing an H-1B by allowing them to work in the U.S. in the meantime. During each of their years working in the country, OPT participants can enter the H-1B lottery, dramatically increasing their odds of success. 

While it's theoretically possible for an international student to be sponsored for an H-1B directly upon completion of their studies, most work on OPT for a period of time before they make the jump to H-1B.^[3] As the chart below illustrates, the vast majority of international students who transition to H-1B wait at least a year before making that jump.

OPT, in other words, functions as an international student's bridge to obtaining an H-1B visa. Without it, international students lose the opportunity to truly showcase their value in the labor market, making employers less likely to incur the thousands of dollars in administrative and legal fees to sponsor them for the H-1B. Limiting the opportunity for recent graduates to test the labor market and enter the lottery will leave a vacuum in the H-1B program that would ultimately be filled by the infamous IT outsourcing firms. These multinational companies have a deliberate strategy of using the H-1B to transfer their workers from India to their U.S. offices. They're also infamous for violating rules and exploiting loopholes in the program. 

H-1Bs working under these IT outsourcers are also known to earn relatively low wages compared to other H-1B workers. Despite being six years older than their counterparts who transitioned from student visas on average, they earn nearly $9,000 less.

There are many reasons why H-1Bs employed by IT outsourcing firms face such a steep earnings disadvantage. Roughly 83 percent of the H-1B lottery winners employed by outsourcers arrived straight from abroad with no prior status. While H-1Bs who arrived as international students have spent years in the U.S. building cultural fluency and developing their professional networks, H-1Bs coming directly from abroad likely have lower English proficiency and credentials that employers find less valuable. 

Retaining international students is America First policy

Attracting and retaining international students isn't only valuable because it crowds lower-paid workers out of the H-1B program, but also because it creates more opportunities for Americans. When international students first arrive in the U.S. they typically pay out-of-state tuition, subsidizing the college education of state residents. This leads to a gradual uptick in domestic enrollments as universities reinvest a portion of that revenue into expanding their programs. On average, an increase of ten international students increases U.S. student enrollment by eight students. 

When more international students work in the U.S. post-graduation, they don't merely fill job vacancies — they generate more economic opportunity for Americans by helping local firms grow. In 2016, when DHS extended OPT for STEM graduates by seven months, entrepreneurship and employment opportunities quickly increased in the localities most exposed to the program. On average, the total number of firms in commuting zones with high STEM OPT employment rose by 1 percent, as more tech startups entered the market. Existing employers also expanded headcounts in response to increased labor supply. The average employment gain was equivalent to roughly 450 additional U.S. workers per 100,000 residents, with no drops in mean wages. The employment benefit mostly accrued to highly-skilled, young American workers, indicating that OPT hires due to the STEM extension did not crowd out recent U.S. graduates, but instead raised overall labor demand in ways that complemented American skills.

The local contributions of students on OPT make particular sense when looking at their overall economic value. Contrary to the narrative that employers want to hire international students so they can pay them lower wages, employers are actually paying a premium to keep them precisely because they're top talent. Overall, the international students who stay command unusually high salaries among U.S. STEM degree holders. These earnings figures show the additive talent that a $100,000 OPT fee would prevent the U.S. labor market from accessing. 

Retaining international students is crucial for U.S. geopolitical competitiveness, given that foreign-born inventors have authored or co-authored over 30 percent of patents in strategic industries like semiconductors and pharmaceuticals.

The international students who go on to become permanent residents and citizens make especially important contributions to U.S. scientific leadership. U.S. nationals who first arrived in the country as international students, in other words, students who were able to remain in the U.S. long-term, have an outsized presence in federally-funded scientific research. This is despite the fact that they account for just 2.6 percent of working-age Americans in the labor force.

These findings suggest the path to employment, residency, and eventually naturalization has been vital for retaining foreign scholars who go on to make continual contributions to American science over their lifetimes.

Crackdown on the visa mills, not the students

The U.S. receives immense value from international students despite the flawed features and perverse incentives of the programs used to retain them. One particular issue lies with a widespread practice called Curricular Practical Training (CPT), a program available to students still pursuing their degrees. Unlike OPT, CPT requires no approval from DHS and is issued if the school sees such work as integral to the degree program. While most students are required to wait one year before obtaining CPT work authorization, this requirement can be waived for graduate programs that require immediate on the job learning, allowing schools to grant CPT immediately. 

While there are many valid use cases for CPT, such as internships or career progression in fields like nursing, a handful of schools design their programs in ways that mold "Day-1 CPT" into de facto work permits. Many of these Day-1 CPT schools can require as little as four hours of in-person classroom instruction while allowing enrollees to work on the first day of their first semester. This practice creates perverse incentives for "fake degrees" and "ghost schools" that exist solely to provide work authorization, not education.

Schools that facilitate the importation of foreign workers under the guise of study are highly identifiable from CPT data obtained via the Freedom of Information Act from DHS.^[4] We flagged 41 schools that host less than 3 percent of international students in the U.S. but account for 64.3 percent of Day-1 CPTs. Among these likely exploiters, Day-1 CPTs on average make up 30.3 percent of international students, compared to just 0.5 percent at other universities.

A wider reform agenda

DHS can take further steps to correct perverse incentives in the visa system by giving H-1Bs to the highest-paid workers rather than distributing them by chance. Such a system would select for international students with desirable skills and shut out outsourcers who undercut American wages.

The proposed plan to attach a $100,000 fee to OPT throws out the baby and keeps the bathwater. Assuming schools incur the fee directly, they would attempt to pass costs on to international students or their prospective employers, and the vast majority of these students, who make up roughly half of H-1B lottery winners, would no longer be able to apply for the program.

If the fundamental issues of lottery-based H-1B allocation remain unaddressed and top talent can no longer utilize OPT as a stepping stone into the H-1B system, the program's most notorious abusers will be the primary ones left to fill the void.