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Still fees-ible? The future and funding of higher education in England

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Bruce Chapman and Lorraine Dearden's slides.

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Still fees-ible? The future and funding of higher education in England

  1. 1. Still fees-ible? The future and funding of higher education in England Bruce Chapman, Professor of Economics,Australian National University Lorraine Dearden, Research Fellow, Institute for Fiscal Studies Andrew Adonis, Chairman, National Infrastructure Commission Bill Rammell,Vice-Chancellor of the University of Bedfordshire David Willetts, Executive Chair, Resolution Foundation Chair Heather Stewart, Joint Political Editor,The Guardian @resfoundation #feesdebate Wifi: 2QAG_guest p: W3lc0m3!! 1
  2. 2. The Baby and the Bathwater: a view from Down Under Bruce Chapman College of Business and Economics Australian National University, and Centre for Global Higher Education Still fees-ible? The future and funding of higher education in England
  3. 3. Outline • Motivation and theory • The importance of ICL in an international context • Some tentative reflections on the English debate • The plea from a convict colony
  4. 4. 1 Motivation and Theory (i) The case for a tuition charge (see Marx, K.) (ii) The need for a student loan system (iii) Time-based versus ICL (iv) With ICL there is consumption smoothing and default protection (v) To stress: the UK has this right
  5. 5. “ If … higher education institutions are also “free”, that only means in fact defraying the cost of education of the bourgeoisie from the general tax receipts..” Karl Marx, Critique of the Gotha Program, 1875
  6. 6. 2 The importance of ICL in an international context (i) “Free” higher education in Western Europe is generally regressive and unfair (ii) Time-based loans systems have major problems for debtors: consumption hardship and default in all these countries (iii) Repayment burdens in non-ICL countries can be horrendous: examples from the US and Colombia (iv) The UK ICL is great insurance
  7. 7. TBRL
  8. 8. ICL
  9. 9. 3 Some tentative reflections on the English debate • It’s so complicated! • Tuition charges are extremely high in an international context • The interest rate regime is hard to understand and likely poor policy with compounding interest rates • But the essence is good economics
  10. 10. 4 The plea from a convict colony (i) Recognise the equity case for a tuition charge: “Free” is highly regressive (ii) Value the English ICL template: it is correct and fair (iii)Working on design issues within the template is the way forward (iv) Babies matter, bathwater can be easily changed
  11. 11. Still fees-ible? The future and funding of higher education in England Bruce Chapman, Professor of Economics,Australian National University Lorraine Dearden, Research Fellow, Institute for Fiscal Studies Andrew Adonis, Chairman, National Infrastructure Commission Bill Rammell,Vice-Chancellor of the University of Bedfordshire David Willetts, Executive Chair, Resolution Foundation Chair Heather Stewart, Joint Political Editor,The Guardian @resfoundation #feesdebate Wifi: 2QAG_guest p: W3lc0m3!! 12
  12. 12. Lorraine Dearden UK Higher Education Finance
  13. 13. Key Findings Recent reforms have resulted in: • reduced long run costs to government • saved the government money at a cost to high earning graduates • have increased university funding by around 25%, but the largest increases have been in low-cost subjects • Student ‘debt’ being highest for those from poorest backgrounds
  14. 14. Government cost of providing Higher Education £0 £2 £4 £6 £8 £10 £12 £14 £16 £18 £20 Upfront cost Long-run cost Contribution to deficit Costpercohort (Billions,2017prices) 2011 system 2012 system 2017 system Source: Table 2.3 of “Higher Education Funding in England: Past, Present and Options for the Future” Recent reforms have not reduced the upfront government outlay, but they have reduced the long-run cost due to increased graduate contributions. The largest impact was on reducing the deficit as student loans are not included in deficit spending
  15. 15. Reforms have significantly increased the repayments on high earnings graduates with a smaller impact on lower earners £0 £20,000 £40,000 £60,000 £80,000 £100,000 Averageexpectedlifetime repayments (2017prices,notdiscounted) Decile of graduate earnings Sources: Figure 3.3 of “Higher Education Funding in England: Past, Present and Options for the Future” 2011 system 2017 system
  16. 16. Reforms since 2011 have increased in funding by around 25%, but there were larger increases for low cost subjects 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Band A Band B Band C Band D Impactofreformssince2011 onuniversityfundingper student Subject cost group Source: Table 4.1 of “Higher Education Funding in England: Past, Present and Options for the Future” The growth in tuition fee income increased funding for all subjects, but low cost subjects (with no laboratory element) which are less dependant on teaching grants benefited the most
  17. 17. £0 £10,000 £20,000 £30,000 £40,000 £50,000 £60,000 £70,000 Poorest 2 3 4 5 6 7 8 9 Richest Average Decile of parental income 2011 system 2012 system 2017 system Source: Table 3.1 of “Higher Education Funding in England: Past, Present and Options for the Future” Reforms have mean poorest students have largest debts
  18. 18. General Comments 1. Income contingent loans are not like normal loans and a lot of the negative headlines based on misunderstanding as system too complicated • Higher interest rates do not increase repayments (cf normal loans) but increase duration for highest earners and reduce taxpayer costs ‒ Are high compared to market rates – problem for finances if high earning graduates pay back early (government loses money) • Compound interest applied during HE not understood – bad press • Poorest students having highest debt not good economics and likely to affect participation • Universities can charge maximum fees as neither they, nor the student, bear the cost if student fails/does poorly in labour market – not cartel but rational behaviour
  19. 19. 2. Some decisions regarding HE funding appear to be driven by government accounting rules rather than long terms costs and benefits • Abolishing maintenance grants and reducing teaching grants saves money in the long- run but reduces deficit spending significantly more and likely to impact on participation • The decision to sell the student loan should be based on the long-run value for money not government accounting rules. 3. During 1990s when ‘free’ HE and participation was increasing • There was a significant decline in HE funding per student • HEIs in Scotland and Ireland grappling with this problem at the moment • For best SES outcomes HE needs to be free at point of access but not ‘free’ 4. Policy impact on post-18 education decisions is not neutral as the same student finance is not available for FE courses/other education routes • Highly likely bad choices being made by students because of this
  20. 20. Still fees-ible? The future and funding of higher education in England Bruce Chapman, Professor of Economics,Australian National University Lorraine Dearden, Research Fellow, Institute for Fiscal Studies Andrew Adonis, Chairman, National Infrastructure Commission Bill Rammell,Vice-Chancellor of the University of Bedfordshire David Willetts, Executive Chair, Resolution Foundation Chair Heather Stewart, Joint Political Editor,The Guardian @resfoundation #feesdebate Wifi: 2QAG_guest p: W3lc0m3!! 21

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