Grants v Tuition Fees

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Grants v Tuition Fees
Greenaway, D. and M. Haynes (2003) The simplest
measure of the private benefits to tertiary
education are higher salaries graduates receive
compared with non-graduates and it is
straightforward to estimate the additional income
earned by a graduate (over a non-graduate with
two A levels) over a working life. Several
sources report an average of the earnings premium
around 410,000.
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Grants v Tuition Fees
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Grants v Tuition Fees
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Grants v Tuition Fees

• Alternative Funding Options
• The social and private benefits to HE support the
  case for a continued mix of private and public
  funding but with a shift to the latter.
• Graduate Tax tax that applies only to
  graduates, implies deferred payment.
• Unlikely to deliver additional resources rapidly,
  unlikely to help with social exclusion, invariant
  to cost across degrees, collections can become
  part of general revenue.
• Vouchers the ones satisfying entry requirements
  receive voucher to use at university of their
  choice.
• Do not alter the funding going to higher
  education, universities would have to compete for
  students.

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Grants v Tuition Fees

• Differential Fees giving universities greater
  freedom in setting fees and retaining fee income.
• Students should make greater contributions due to
  the high rates of return, different universities
  have different cost structures. This would
  considerably increase funding. They can impact
  adversely on access.
• Income Contingent Loans can design schemes
  where education remain free at the point of
  consumption, loans are fully income contingent,
  should derive from non public sources. Fails to
  provide additional resources, and gives a subsidy
  to all students irrespective of need.
• On equity and efficiency grounds, the case for
  income contingent loans covering fees as well as
  maintenance, collected through the Inland Revenue
  and fully securitised, is compelling.

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Grants v Tuition Fees

• Primary aim since 60s has been to increase
  proportion of the cohort attending HE
  institutions.
• 1992 all HR institutions were granted university
  status.
• UK HE participation rate is higher than most OECD
  countries and drop-out rate is one of the lowest.
  Reasons
• Until recently government paid tuition costs and
  some students benefited from additional living
  costs grants.
• Degrees are more specialised and shorter
  (therefore the opportunity cost of participation
  in HE in UK has been lower than other European
  countries)
• There are high earnings returns.

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Grants v Tuition Fees

• Reasons for expansion
• Social improve intergenerational mobility
  (hasnt happen)
• Economic major growth in high-skill sector
  (demand for skills has grown at faster rate than
  supply)
• Funding changes
• 1998 - means tested tuition fee introduced
  maintenance grants phased out (completed in 1999)
  replaced by means-tested loans repayable on
  income-contingent basis
• 2003 top-up fees stop upfront fees access
  regulator
• The success depends
• Students attitudes towards debt upon graduation
• Their elasticity of demand for HE
• Uncertainty relating to future earnings upon
  graduation.

8
Dearden, L., Fitzsimons, E., Goodman, A. and
Kaplan, G. (2008). Higher education funding
reforms in England The distributional effects
and the shifting balance of costs. The Economic
Journal 118, F100-F125.
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They analyse the distributional effects of the
reforms by student parental income. This reveals
that the poorest students gain the most from the
reforms, due to generous increases in maintenance
grants and subsidies outweighing the total
increase in the costs of entering university and
that students from relatively well-off
backgrounds will typically face higher net costs
of HE.
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They then consider the distributional effects of
the reforms by graduate lifetime earnings and
find that relative to the system that was
replaced, graduates with the lowest lifetime
earnings can expect to see a reduction in the
cost of HE, while higher-earning graduates will
contribute more to the cost of their HE. In this
way, we find that the HE reforms do in fact
include a substantial insurance component.
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They conclude by taking a look at how the reforms
affect university funding and how they shift the
balance of funding for HE between the public
sector and the private sector. They find that
universities gain financially from the reforms,
both through additional taxpayer funding and
through contributions from graduates.