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The opinions expressed on this page are mine alone. Any similarities to the views of my employer are completely coincidental.

Friday, 7 January 2011

Paying for Higher Education

I figure it's about time that I tried to set out my reaction to the Browne Report and the likely direction of future government policy on higher education. It is, obviously, important to distinguish these from each other, not least because some of the good (in my view) intentions that lie behind Browne's recommendations could be undermined by cack-handed implementation that fails to realise that policies work best when they are part of a mutually reinforcing package. So what you make of Browne partly depends on whether you trust the Coalition to avoid taking short cuts that will undermine the achievement of some of the policy objectives. On this count I must say that the current proposal to abolish the Educational Maintenance Allowance is stupid and it would be entirely reasonable on the basis of this to doubt that the Coalition is acting in good faith. If the major driver of tertiary level participation is school  grades at 18/19 and we are worried that children from poorer households drop out of school too early, then removing financial support that helps to keep them  in school seems not only obtuse but actually smacks of kicking the weakest section of society. A lot of the  hand wringing of the Liberal Democrats would be better directed at protesting against this rather than beating themselves up about their policy U turn on tuition fees. 
This is a big topic so I'm not going to discuss all the issues in one post. Here I'm going to stick just to the question of fees and how to pay for higher education.
Now to Browne itself. To make sense of the report you have to accept the following diagnosis of what is wrong with the way that we currently finance our universities. There are a number of elements of this which I'll just list: 1) Universities  need more money than the current system will provide and they need it now; 2) It is  highly unlikely for political reasons that any government will fill the funding gap from general taxation - ie in a fight with the Treasury over public spending, education will always be trumped by other departments; 3) The current funding arrangements restrict supply - ie limit the number of university places available and distort the preferences of universities in favour of high fee paying overseas students; 4) The current fees cap in effect means that students pay the same regardless of whether they eat caviare or baked beans; 5) The current zero real rate of interest that graduates pay on their loans is needlessly expensive (for the tax-payer) and quite perverse ie there is an incentive for students from affluent backgrounds to borrow money (they don't need to finance their  studies) cheaply, invest it and make a profit; 6) Paying for higher education out of general taxation is distributionally regressive. 
There is no such thing as a free education. Somebody has to pay. I got my university education without paying anything  up front. Of course I've subsequently paid for some of  it through general taxation but so have my mates who left school at 16, got jobs in the car factories and as engineering apprentices and never entered a university classroom. It's not obvious to me what positive externality they gained from subsidizing my taste for contemplating the finer points of  Althusser's interpretation of Marx. They didn't expect me to subsidize out of general taxation their Friday night exercises in the appreciation of M&B ("a pint of the Midlands") or Watney's "Red Barrel". Yes, there is positive spill over to everybody from having educated people around. But there are also large private benefits that, for whatever reason, generate higher salaries. And there is also a pure consumption aspect of higher education - its fun to read poetry, master mathematics, figure out how the world works. It's also fun to watch football and go to rock-concerts but generally we don't expect the tax payer to subsidize it.
We could argue about the details of my points 1) though 6) but my guess is that there is a reasonable degree of agreement about the scope of the current problem. If that is the case then the only question is how to design a funding system that is politically feasible and delivers other objectives ie produces the cash when the universities need it, is equitable (between all members of society) etc.
As far as I can see there are only 3 basic strategies available: 1) Public funding of everything (including maintenance) through general taxation; 2) A graduate tax ie payroll deduction  3) A fee and loan system  (such as proposed by Browne). As far as I'm aware  no major political parties advocate going back to 1). 2) has some support but I'm persuaded that it cannot deliver what is required.  Firstly a graduate tax will not deliver money to the universities now. Secondly it will go into the general Treasury pot and be distributed through the usual rough and tumble of the budget negotiations. You would have to be an optimist to believe that higher education would be able to fight off the predations of other government departments. Thirdly it would uncouple what students pay from the actual cost of what they receive. 3) as formulated in the Browne proposals could be re-described  (it might be politically helpful) as a hypothecated graduate-tax with a fixed term (debts are forgiven after 30 years), allowance for payment holidays (you don't pay back anything if your income drops below a threshold) and, crucially, no up front payments. As Nick Barr quite rightly points out, under Browne students pay nothing, it is the graduates who pay and only when they are earning above the threshold. Like him, I'm completely baffled as to why commentators believe that potential students (especially those from poorer backgrounds) will be deterred from higher education because of fears about debt. There seems to be scant evidence that graduates from poorer backgrounds are loath to take out mortgages or rack up credit card debt both of which are much more scary. If you lose your job or get sick you still have to pay your mortgage and your VISA bill, your student loan repayment however will be suspended. The impact of  student debt on your credit rating is also likely to be negligible. If you think about student loan repayments in relation to the total burden of  taxation throughout the individual's lifetime it amounts to a trivial proportion.
So, as you by now can probably guess, I believe that something like the Browne proposal are the way to go. Student protests are, of course, entirely understandable. Students have been sitting at a heavily subsidized lunch table and as graduates they will have to pick up a lot more of the tab. It's not nice to have goodies taken away from you. You get used to them. You feel you are entitled to them.  It feels unfair. That doesn't however mean that it is sensible or is in fact fair to continue to pretend that the lunch was and should always be free. The anguish of the Lib Dem backbenchers should be seen for what it is - not as a concern for the genuinely needy but a concern about the electoral support of the middle two-thirds whose sons and daughters have traditionally gone to university on the cheap (and by the way have had no qualms about forking out the fees for the private secondary education  or  takng on an expensive mortgatge for a house near a good state school that has got them into Oxford, Cambridge, UCL, Bristol etc etc.).

More to follow on other aspects of Browne...

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