6 July 2017

Abolish university fees for the top students


By some reckonings, 2017 was the third general election in a row in which tuition fees were a big issue. There now seems to be a semi-serious consideration, once again, of whether any alternative system to the one we’ve used since the late 1990s (combining tuition fees and student loans for around 40-45 per cent of each cohort becoming students) might be feasible.

I’ve always taken the view that the current system was importantly flawed. Indeed, I wrote about it for the IoD and Independent in 1997 and the Bow Group in 2004. To see why, and see how the current system might be improved, we must first begin by understanding why government is involved in higher education at all.

There are three proper reasons:

1  The Externality Argument – Higher education delivers benefits to society as a whole in addition to those benefits experienced by the student herself.  That means a pure market is likely to under-provide higher education (fewer people will go than is best for society).

2 The Liquidity Argument – People will gain the most from higher education if they attend when relatively young, when their minds are most flexible and they have longer post-education to reap its rewards.  But early in life people will not have been able to establish a track record with banks and other lenders, and so may find it difficult to obtain loans against their future human capital improvements.

3 The Glory Argument – Once we had kings, dukes, and other Great Men of the past who acted as benefactors and promoters of art and research and other goods provided through universities. Modern governments tend to tax away much of the surplus wealth that Great Men used in this way (for other socially important programmes such as health and income support). That means there would be a loss from reduced philanthropy if the government did not at least replace the philanthropy of these Great Men.

Higher education obviously provides other important social functions, but these are not good reasons for government intervention in it. For example, one of the main purposes of higher education is as a “consumption good” — the university life, with its freedom of thought, bonding experiences and general fun is a great thing to be part of. But things we enjoy doing and benefit from are usually best paid for by us, not the government.

Similarly, much is made of the benefits of education in preparing students for working life in a modern economy — that it is an investment with a high personal return. In which case, people will be more than willing to invest and government intervention will not be needed.

No, the Externality, Liquidity and Glory arguments are the key ones. They can, of course, be disputed. How convincing is the Liquidity argument, really, for example? I suspect people would find it fairly easy to borrow privately to fund education if the state did not lend to them and if financial markets were healthy (the latter possibly still not being so, post-2007).

I’m not so sure the Externality argument applies to all courses and all students, rather to the more gifted. My sense is that the Glory argument is and always has been the key one for all but the most gifted.

So in my 2004 report, I suggested the following structure, which I stand by:

•       The top 10 per cent of A-level-age performers receive national scholarships covering their fees and maintenance (regardless of parental income).

•       2 per cent of scholarships are reserved for the universities themselves to assign to worthy cases outside the top 10 per cent.

•       The next 23 per cent receive “soft” student loans to cover their fees and maintenance.

•       Scholarships and loans might potentially be restricted to approved courses.

•       Other students pay the full cost of higher education.

•       Universities have freedom over fees, except to scholarship students.

•       There is no cap on student numbers.

Under this system, poor but gifted students would receive full funding and maintenance. There would be no means testing. Outside the top 10-12 per cent of students, all that the state would really be doing would be addressing liquidity issues. There would be state support only for the top 35 per cent of students.

We can afford to fund higher education to a much greater extent, but only if we do so by focusing that funding on a much smaller group of students — the most gifted being the most appropriate group to focus upon.

That does not mean that only 35 per cent of students would attend. Others would doubtless attend, funding themselves from parental resources, private sector loans or extra jobs.

If more preferred to work for a while before commencing university, perhaps obtaining steady jobs, houses and families earlier in life, that would be their choice and not necessarily a bad thing.

State intervention in higher education has its place, but we will get the most glory and the most externalities for our society if we focus state support upon the most gifted.

Andrew Lilico is an economist and political writer