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2HigherEducation©OxfordUniversityPress,2005.Allrightsreserved.Chapter14:HighereducationBarr:EconomicsoftheWelfareState:4e2HigherEducation©OxfordUniversityPress,2005.Allrightsreserved.Organizationofthechapter1.Introduction2.Aims3.Methods4.AssessmentofUKhighereducation5.Reform6.Conclusion2HigherEducation©OxfordUniversityPress,2005.Allrightsreserved.1.IntroductionThischapter,onuniversityeducation,andthepreviousone,aboutschooleducation,aretwins•Ch.13setoutthestrongcaseforpublicfundingandpublicproductionofschooleducation•Usingthesametheory,thischapterconcludesthatthefundingofuniversitiesshouldbesharedbetweenthetaxpayerandtherecipient,andthatproductionandallocationshouldbesubstantiallythroughmarketforces2HigherEducation©OxfordUniversityPress,2005.Allrightsreserved.2.Aims•Primaryobjectives–Totransmit•Knowledgeandskills•Attitudesandvalues–Topromote•Intellectualfreedomanddiversity•Thepursuitofknowledgeforitsownsake•Instrumentalobjectives•Efficiency•Equity2HigherEducation©OxfordUniversityPress,2005.Allrightsreserved.3.Methods3.1.Theoreticalargumentsforintervention1:Efficiency2HigherEducation©OxfordUniversityPress,2005.Allrightsreserved.1)Highereducation•Perfectinformation•Whyconsumersovereigntyisusefulinhighereducation•Whyproducersovereigntyisessential•Perfectcompetition:•Studentscanliveawayfromhome•Distancelearning•Externalities,intermsof•Growth•Thetransmissionofvalues•However,alsosubstantialprivatebenefits2HigherEducation©OxfordUniversityPress,2005.Allrightsreserved.2)Capitalmarkets2HigherEducation©OxfordUniversityPress,2005.Allrightsreserved.Whystudentloans?•Thereisacollisionworldwidebetween:•Theneedformassinvestmentinhumancapital•Fiscalconstraintsinthefaceofdemographicpressuresandinternationalcompetition•Fundinghighereducationentirelythroughthetaxsystemis:•Unaffordableforfiscalreasons•Inefficient,giventheprivatebenefitstorecipients•Regressive,sincehighereducationisconsumedmainlybypeoplefrombetter-offbackgrounds2HigherEducation©OxfordUniversityPress,2005.Allrightsreserved.Whattypeofloan?•Mortgageloans:monthlyrepaymentsof£X/month•Income-contingentloans:repaymentsofx%ofmonthlyearningstilltheloanhasbeenpaidoff•Graduatetax:paymentsofx%ofearningsuntil(say)retirement2HigherEducation©OxfordUniversityPress,2005.Allrightsreserved.Income-contingentloans•Income-contingentloansare•Efficient•Equitable•Theyarecompatiblewith•Thebenefitprinciple•Theability-to-payprinciple•Thesocialinsuranceprinciple,i.e.studentloansareformofinversepension2HigherEducation©OxfordUniversityPress,2005.Allrightsreserved.3.2.Theoreticalargumentsforintervention2:Equity•Apersonmightnotapplytouniversitybecause:•Hehasnotthoughtofit•Hehasleftschoolat16•Heisdebtaverse•Thusthestatehasasignificantroleinthreestrategicwaystopromoteaccess•Improvinginformation•Providingfinancialassistance•Improvingschooleducation2HigherEducation©OxfordUniversityPress,2005.Allrightsreserved.3.3.Typesofintervention•Schoolsanduniversities:twoverydifferentstrategies.Ishighereducationmorelikefoodormorelikehealthcare?•Threeimportantgradients•Age.Asstudentsgetoldertheybecomebetterinformed.Thusauniversitystudentisgenerallybetter-informedthananyoneelseabouthisorherneeds•Diversity.Therearestrongargumentsforhomogeneityinwhatschoolsoffer.Thehigheruptheeducationalscale,thegreaterthedesirabilityofdiversityofsubjectmatter•Socio-economicstatus.Thereisasignificantgradientinaccesstohigh-qualityschoolingandtoinformationaboutthebenefitsofadegree;thusitismainlypeoplefrombetter-offbackgroundswhogotouniversity2HigherEducation©OxfordUniversityPress,2005.Allrightsreserved.Lessonsfromeconomictheory•Thedaysofcentralplanningaregone•Thecostsofhighereducationshouldbesharedbetweentaxpayerandrecipient•Well-designedstudentloanshaveessentialcharacteristics•Income-contingentrepayments•Largeenoughtocovertuitionfeesandrealisticlivingcosts•Arationalinterestrate•Governmenthasanimportantcontinuingrole2HigherEducation©OxfordUniversityPress,2005.Allrightsreserved.Whatroleforgovernment?Theargumentformarketforcesdoesnotruleoutacontinuingimportantroleforgovernment•Continuingtaxpayersubsidiesjustifiedbyexternalbenefits•Promotingaccess•Ensuringqualityassurance•Settingincentives•Organisingstudentloans2HigherEducation©OxfordUniversityPress,2005.Allrightsreserved.4.AssessmentofUKhighereducation2HigherEducation©OxfordUniversityPress,2005.Allrightsreserved.4.1.Institutions•Thumbnailhistory•Until1990,tuitionfeeswerepaidfromtaxation,andlivingexpensesbyamixtureoftax-fundedgrantand,forbetter-offfamilies,aparentalcontribution•1990-1998:taxfundingoftuitionfeescontinued,butastudentloancoveredpartoflivingcosts,alongsideasmallersystemofgrantsandparentalcontributions•In1998afixedtuitionfeewasintroduced,fromwhichpoorpeoplewereexempt;grantswereabolishedandlivingcostsfinancedbyamixtureofloanandparentalcontributions.Thusthereweretuitionfeesbutnomarketforces•Under2004legislation,grantswillreturnin2005;from2006,universitieswillbeallowedsomevariationinthefeestheycharge,thusstrengtheningmarketforces2HigherEducation©OxfordUniversityPress,2005.Allrigh