Final answer:
State and local government's financial support for university students through grants and loans leads to positive externalities which benefit society, such as better individual health, lower crime rates, and a more robust economy with a skilled workforce.
Step-by-step explanation:
When state and local governments subsidize university students with grants and low-interest loans, they are investing in public education, which is known to generate positive externalities. These benefits, while not always immediately quantifiable, spread beyond the individual to society at large.
Positive externalities from higher education can include a wide array of social benefits like enhanced health outcomes, decreased crime rates, a cleaner environment, and a more stable democracy. Investing in education enhances the quality of the workforce, fosters innovation, and can lead to a more educated citizenry that participates more in democratic processes.
Businesses can benefit directly by partnering with educational institutions, gaining access to a pool of knowledgeable and trained potential employees, while also contributing to a more vibrant local economy. As these social returns on education are realized, the initial investment by governments is often recouped through a more productive and healthy society.