/SELM2_wk3_Woodhall-Johnstone

Cost-Sharing, Public Funding, and Higher Educational Equity* Financing Higher Education Seminar Marseilles, France Jan 24-25, 2011 Bruce Johnstone & Maureen Woodhall

Context for Higher Education Finance 1. Greatly increasing importance & demand 2. High & annually increasing per-student costs 3. Magnified (in most countries) by increasing enrollment demand 4. Resulting high and continuing increase in revenue needs (considerably exceeding rate of inflation) 5. Limits on taxing capacity and great competition for available public funds 6. Imperative of supplementing tax revenue

Context for Need for Increased Equity in Access to Higher Education 1. Participation all countries disproportionately middle & upper classes 2. Also disproportionate by dominant ethnic, linguistic, & regional (sometimes gender) 3. Access goal: minimize inter-generational transmission of participation & life success 4. Disproportionate participation begins early 5. Universityâ€&#x;s ability to alter is limited

Supplementing Public Revenue 1. Cost-Sharing (parents and/or students) 2. University & faculty entrepreneurship 3. Philanthropy

Cost-Sharing 

A Statement of fact: that costs are shared  taxpayers, parents & students

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A worldwide policy shift:  from taxpayers to parents and /or students

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For revenue supplementation, cost sharing:  Provides more revenue to core instruction  Is generally more sustainable  Does not distract faculty from instruction

Forms of Cost-sharing 1.

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Lessen subsidization of food and lodging Implement tuition fees for all Implement fee (not called tuition) for all or most Implement tuition fees for some (dual track) Sharply increase tuition fees (where existing) Freeze financial aid (diminish real value over time) Shift financial aid from direct subsidies (low or no fees or stipends / bursaries) to loans 8. Increase recovery of loans (increase interest) 9. Encourage demand absorbing private sector

Rationales for Cost sharing 1. Greater equity 2. Greater efficiency 3. Simple need for revenue

Lessons for successful implementation of cost-sharing 1. Expect opposition from students and much of the academic staff 2. Have support of vice chancellors / presidents 3. Have financial aid / student loans in sufficient amount first 4. Reduce cost of living subsidies before implementing or sharply increasing tuition fees 5. Assure that difficult decisions and “pain� is felt by management and faculty (as well as by students)

Lessons (continued) 6. Make certain that universities and (especially) students seen to benefit 7. Consider phasing in tuition fee increase 8. Begin with small increase but anticipate small yearly increases 9. Attempt to establish above in law as principle 10.Establish independent body to recommend yearly increases)

Country Experience: Sources 

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D Bruce Johnstone & Pamela N Marcucci (2010) Financing Higher Education Worldwide: Who Pays?

Who Should Pay? John Hopkins University Press Pedro N Teixeira, D Bruce Johnstone et al, (2006) Cost-sharing and Accessibility in Higher Education: A Fairer Deal? Springer Maureen Woodhall (2007) Funding Higher Education: The Contribution of Economic Thinking to Debate & Policy Development, World Bank

Country Experience: Europe 1 

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Zero or minimal tuition fees in public institutions in several countries (eg. France, Sweden) but fees for registration & student services Up-front tuition fees charged in public institutions in several countries (eg. Spain, Netherlands) Private institutions charge up-front fees, and several countries (eg. Portugal) saw rapid expansion of private sector in 1990s and 2000s

Country Experience: Europe 2 

Ireland published report, January 2011, on National Strategy for Higher Education to 2030.

Recommended that increasing student numbers and diminishing resources require a “radically different approach to funding”, including wider cost sharing: “The funding base for higher education must be

broadened through the reform of student financing, including a new form of direct student contribution based on an upfront fee with a deferred payment facility. + Reformed grant support for disadvantaged students”

Country Experience: MENA 

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No tuition fees in Morocco, although indirect cost-sharing introduced through declining real value of student stipends Up-front tuition fees in Turkey, but minimal Dual –track fees in Egypt (higher fees for courses taught in English or French) Significant private sector, charging up-front tuition fees in Egypt

Lessons from experience 1 

HE finance reform, particularly the question of tuition fees is highly politically charged 

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France “HE...remains an extremely sensitive topic in French politics. The student riots of 1968 still remain a warning for many politicians” Morocco “ The unwillingness of the Moroccan government to implement tuition fees in spite of unmet HE revenue needs is, of course, political”

Country Experience: UK 

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1980s: Student grant system “one of the most generous in the Western World” (Johnstone) 1990: “Top-up” fees and student loans 1997: Dearing Committee recommended greater cost-sharing. Government introduced means-tested up-front fees of £1,000 a year, maintenance grants abolished, replaced by loans 2001 Scotland abolished up-front fees, replaced by “Graduate contribution” of £2,000, payable after graduation

UK: HE funding 2 

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2004: „up-front fees‟ abolished in England; universities could charge deferred fees of £3,000 a year, collected after graduation on an incomecontingent basis; means tested grants + loans for maintenance. Scotland and Wales introduced variations.

“Cost-sharing, particularly the issue of tuition fees, has become politically sensitive & highly controversial” (Woodhall 2007)

UK: HE funding 3 

2009: Before election, Lord Browne asked to review funding of HE and propose reforms. Report (2010) recommended greater cost-sharing: “The case for reform consists of 

Increasing participation, Improving quality and

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Creating a sustainable solution for funding”.

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2010: Government proposals, broadly following Browne recommendations, narrowly passed.

UK: HE funding reform for 2012 

New system (from 2012)  All universities can charge up to £6,000 a year. Not upfront fee, but paid after graduation, if graduate earns more than £21,000 a year (payable through income tax system)  In exceptional cases, university can charge up to £9,000 a year, but must spend some of the extra money on widening participation & ensuring fair access  Loan repayment system will be more progressive, with variable interest rates  New National Scholarships Programme for poorest students and increase in means-tested maintenance grants

Lessons from UK experience 1 

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Policies on tuition fees and grants/loans now different in England, Scotland & Wales, after devolution. Public debates revealed widespread misunderstanding of economic concepts Final outcomes reflected political factors, rather than economic reasoning. In 2010 university tuition fees seen as a „test‟ of the viability of the Coalition Decision to abolish student grants in 1997, at the same time as big increase in fees, had a damaging effect on access; reintroduction of means-tested grants in 2004 was welcomed In 2012 higher fees will replace, not supplement public funding, which increased opposition by faculty

Lessons from UK experience 2 

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Public misunderstanding of variable fees, income-contingent loans & graduate tax, private benefits of HE & implications of expansion & transformation of „elite‟ to „mass‟ HE system Fear that „debt aversion‟ will discourage participation of lowincome students Perceptions of „equity‟ often perverse: belief that „free‟ higher education is „fairer‟ than charging fees, despite evidence that it is regressive Opposition to fees in 2010-11 compounded by fear of effects of other public sector cuts, unemployment etc.