Economist: Link institution-specific fees to pay

February 18, 2010

An economist at the University of Oxford has called for tuition fees to be tailored to specific institutions according to the expected earnings of their graduates.

Under proposals tabled by Neil Shephard, research director at the Oxford-Man Institute of Quantitative Finance, a university-specific deferred fee would supplement the state tuition fee of £3,225 a year.

This would be paid to the university either upfront or once graduates' income had exceeded a defined threshold and any loans covering their state tuition and maintenance had been paid off.

In a submission to the Independent Review of Higher Education Funding and Student Finance, led by Lord Browne of Madingley, Professor Shephard says: "Economic theory suggests that fees should vary according to the private benefit each student will receive from their education at a particular university.

"This is impossible to estimate when they are students ... However, we have an excellent measure of their realised private benefit: their earnings path."

An institution-specific fee of £3,300 a year for three years would earn universities about £6,400 per student, Professor Shephard estimates, given that only graduates in the "upper half of lifetime graduate earners" would repay all the cash.

"Poorer graduates pay nothing," he says. "Of course, the universities that gain most are those with graduates with high lifetime earnings, but that is how it should be: they are the universities that produce graduates most able to pay."

Under the proposals, payments from students above the standard £3,225 fee would be free from state control, allowing universities more autonomy.

"At no point would the state pay the university ... this kind of extension of the national scheme would have no fiscal implications at all for the state and no financial implications for any university that does not introduce them," he says.

Either the Student Loans Company or agents of the university would be responsible for collection of the institution-specific fees, he suggests.

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