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The perennial issue of funding third level has raised its ugly head, again. For non-locals, the situation is, first we spend rather little on tertiary education overall, by OECD standards (1.2% of GDP, compared with a median of 1.5% of GDP), and most of our universities are in significant financial difficulty. Third level fees were abolished, for Irish citizens, in 1996, with the stated aim of improving access to third level for students from poorer families. Over the las few years universities have raised student registration fees, originally intended to cover student services, from around €300 to around €1500, and it is now proposed to double this fee.

The effects of the earlier abolition of fees have recently been analysed, and the author (Kevin Denny from UCD) concluded that the abolition of fees had no effect on access for poorer students because :-

1. There was (& still is) excess demand for places: there is a shortage of places not students.
2. The fee reduction benefitted well-off students, low income ones would have been exempt.
3. Most importantly: the paper shows that it’s how students do in the Leaving that matters. The fact that the low income kids do worse in the Leaving is why they are less likely to progress. Changing fees didn’t change that.

Kevin Denny Behavioural economics blog May 2010

In the light of this, and our rolling financial crisis, its being suggested that we double ‘registration fees’ to €3000 for everyone (FF), bring in a graduate contribution, based closely on the Australian HECS, for new graduates earning above a certain level (FG), and do nothing much (Labour). I have reservations about all of these.

The FF proposal is to further increase the already stratospheric ‘registration fees’ which pay for ‘student services’, like library books. This will hit families just above the income threshold for grants very hard, and is not likely to raise much money. It currently brings in €60 million (this is my guess, 80,000 students, half of whom pay, €1,500 each), so doubling it would get you €120 million, while the HEA, which largely funds the third level sector, spent €1.5 billion in 2007.

The Labour proposal neither addresses the real funding crisis in third level, nor does it do anything to f ix the holes in our budget deficit, so I’ll leave it at that.

The FG proposal is more interesting. Its based closely on the Australian HECS system. In brief, they propose that new graduates should pay back one third of the cost of their education in stages, through the PRSI system, once they reach certain earning thresholds. Existing graduates would make no contribution. This is intended to raise about a quarter of the costs of third level education (€500m out of €1.8 billion).

I can see some problems with this. First, it’s not enough.The amount they propose to raise will not fix the problems of the third level sector. Second it will take a long time, up to ten years, before any substantial sums of money are raised, as the graduates have to get jobs, and move up their pay scales. Third, it’s not fair, the burden of funding third level falls on current and future undergraduates, and those who had free education, from 1996 to 2010, pay nothing. Fourth, the system will be very complex to administer, as an individual will have to have an individual account, which is paid down over time. Both the UK and the Australian experience suggest that this will be very expensive, and cause a range of social problems. Both countries fare poorly in the recent report on Global Higher Education Rankings 2010 – Affordability and Accessibility in Comparative Perspective.

Is there another way? Let us adopt the basic idea that those who benefit from higher education should pay for it, and those who do not, should not. The economic return to higher education accrues both to the individual graduate and to the society as a whole, so there is a case for subsidy to higher education. However, the salary gap between graduates and non-graduates is significant, so graduates ought to pay more for higher education than non-graduates. One way to achieve this is to levy graduates. It’s not too hard to identify graduates. Many jobs are entirely graduate. Also, graduates do not become non-graduates, so it is only necessary to record the graduate status once. A flat levy, of 1% or less, on all graduates, from Irish universities, or elsewhere, whose total income is above a modest level, could pay for third level education. Such a levy could easily be collected through the tax system, and would bring in the money quickly.

Worth considering?