What is the real cost when the user pays?

November 14, 2003

These are boom times worldwide for higher and further education.

In most advanced countries, the old distinctions between compulsory education at primary and secondary levels and post-compulsory education are breaking down. Most people - in countries such as the UK and New Zealand - will have some (and possibly repeated) experience of post-compulsory education. It is becoming, to all intents and purposes, comprehensive and near-universal.

Post-compulsory education is no longer seen as conferring a differential privilege on a small elite but rather as an important contributor to national well-being and success. So you might think that it could be viewed as worthy of community support and financing on the same basis as other parts of educational provision.

But not a bit of it. Paradoxically, increased demand for higher and further education and the increased recognition of its importance to society as a whole has coincided with an equally increased reluctance to fund it.

A cynic might conclude that free tertiary education funded from taxation was acceptable to the tax-paying classes as long as it was their offspring who benefited differentially from it. But now that others are getting in on the act, the middle class has become reluctant to subsidise it through taxes.

The truth may be a little less tendentious. The problem with tertiary education is that it is very expensive to deliver. Even so, it might still be thought that rich societies could see the provision of tertiary education to a greater number as a reward and obligation of greater affluence. These developments have, however, coincided with other changes, not least in political fashion. In most advanced countries, there has been a significant shift towards the notion that the market should allocate scarce resources and that those who seek particular services and benefits should pay for them.

New Zealand was one of the first countries (among those that had publicly funded tertiary education) to introduce the idea of "user pays" for higher and further education. A rightwing government introduced tuition fees at the beginning of the 1990s as a contribution from students (or their families) to the cost of providing tertiary education.

Over that decade, tuition fees rose steadily and inexorably, partly because the costs of provision also rose but, more particularly, as the result of a deliberate but unstated goal of government policy - to shift the cost burden away from the taxpayer and onto the private purse instead.

There were stops on the way. In 1994, a task force explored the proper balance between public and private funding and spent many happy hours debating whether tertiary education conferred a public or a private benefit. The conclusion was that the proper ratio was 75 per cent public and 25 per cent private and that the sources of funding should reflect this. But the 25 per cent limit to private contributions was quickly breached.

As tuition fees for undergraduates rose to an average of about NZ$3,500 (Pounds 1,310), (or more than 30 per cent of total tuition costs) the government sought to meet the obvious disincentive effect by putting in place a student-loan scheme. The scheme has grown to be a monster. Most students will owe tens of thousands of dollars by the time they graduate.

Half will not have paid off their loans by the time they are 40. Most will find it will inhibit their chances of obtaining a mortgage or other credit.

Many will emigrate in the hope that they will avoid their repayment obligations. By 2015, it is estimated that the outstanding student loan will be the New Zealand government's single biggest asset.

Today's Labour government in New Zealand has tried to mitigate some of these effects by controlling interest rates on loans and softening the repayment obligations. They also introduced a three-year "fee freeze" but have now allowed fees to rise again, albeit to controlled limits.

The lessons are mixed. The disincentive effects as a whole have been fewer than expected, in that participation rates have risen to near the top of Organisation for Economic Cooperation and Development countries over the past decade. But, in other respects, we can be less sanguine. Whatever the overall effect on participation, aversion to debt has deterred many students, as disappointing retention and completion rates show. The decision about to be made in the UK will be a watershed from which there will be no turning back.

Bryan Gould is vice-chancellor of Waikato University and was a member of the UK Labour Party's shadow cabinet until his defeat in the 1992 leadership contest.

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