http://www.economist.com/node/17257835UNIVERSITY tuition fees are political dynamite. Tony Blair’s government first introduced upfront charges for students in Britain in 1998; they were replaced in England in 2004 with a scheme under which fees rose, but students could borrow the cost from the state and repay it once they were earning. That move proved even more contentious in Parliament than Mr Blair’s decision to wage war on Iraq. A new proposal for graduates to pay even more for the education they have enjoyed could open a rift in the Conservative-Liberal Democrat coalition government.
Demand for higher education is booming around the world; to help increase the supply, many countries, including Germany, Ireland and Spain, have begun charging students, as America has long done. In England (Scotland and Wales have separate regimes) a student beginning his studies this year must contribute £3,290 ($5,200) towards the annual cost of his education. The actual average cost is around £7,000: the state partially plugs the gap, and also lends students the money to pay their fees and living expenses. These loans currently carry no interest in real terms, and graduates do not begin repaying them until they are earning £15,000 a year or more.
This largesse meant that simply letting universities expand to meet demand was unaffordable, even before the coalition set out to squeeze Britain’s fiscal deficit and public spending. The previous Labour government recognised the unsustainability of the arrangements it had designed, and in November 2009 commissioned an independent review of the system, headed by Lord Browne, a former boss of BP. On October 12th he published his report. Predictably, it caused an uproar.
Lord Browne called for universities to be allowed to charge whatever they like for their courses—though other parts of his plan might limit the fees at most institutions to around £6,000 a year. He suggested that those who wanted to charge more than that figure should give a rising proportion of the excess to the state. For example, universities charging £7,000 a year would hand over £400; the contribution would rise to £4,500 for those pricing themselves at £12,000 (less than the average actual cost of teaching medicine and dentistry), leaving the university with just £7,500. Diminishing the returns from increasing fees would reduce the incentive to hike them, not least as students might be reluctant to pay stratospheric fees if they knew a big chunk would go to the Treasury.
To help ensure that the resulting debts would not oppress the less well-off, Lord Browne also recommended that the income threshold at which loan repayments begin should be lifted to £21,000; and that the debts of graduates beneath that level should not accrue any interest in real terms. He suggested that loans for living costs should continue, alongside non-repayable maintenance grants for students from poor families. But he believes that one of the main reasons too few suitably qualified students from poorer backgrounds get to the best universities is that they are badly advised by their teachers, and wants every school to provide well-informed careers guidance to its pupils.
If cheap loans to students were retained to cover increased fees, these plans would be cripplingly expensive. To reduce the burden on the state, Lord Browne proposed that, when a graduate does earn more than £21,000, he should pay interest on his debt at the same rate as the government borrows the money; and that the debt should not be written off until 30 years after graduation, up from 25.
Now for the hard part
According to Lord Browne, these reforms would shift the costs of higher education away from low-earning graduates and towards their higher-earning classmates (see chart). Roughly the top 40% of earners would pay back all the money that the government had forked out on their behalf; the lowest earners would pay less than they do under the present system.
But the main winner would be the exchequer, according to an analysis by Lorraine Dearden and Haroon Chowdry of the Institute for Fiscal Studies. They agree that better-paid graduates would pay more, and poorly paid graduates less. However, universities would also lose out, should the direct subsidy to institutions be removed for most subjects, as the report envisages (and as may well happen), because the graduate contributions would only partially compensate.
Before the general election in May, all three main political parties said they would examine Lord Browne’s suggestions. But enacting them could prove tricky and embarrassing—because the Lib Dems promised eventually to abolish tuition fees in their manifesto, and have secured the right to abstain from any vote on legislation arising from the review. Responding to its publication, Vince Cable, the Lib Dem business secretary who is responsible for universities, repeatedly hinted that annual fees could be limited to £7,000, as he tried to persuade his party to rethink its stance. “In this current economic climate,” he said, opposition to fees “is simply no longer feasible”. He was frank about the exigencies of coalition: “The roads to Westminster are covered with the skid marks of political parties changing direction.”
So far the Lib Dem mutiny is muted, compared to the rebellion unleashed when Mr Blair reneged on his party’s pledge not to raise the tuition fee in 2004. Just one backbencher, Greg Mulholland, told Mr Cable that he would stick to his earlier pledge to vote against any rise in fees. A big part of the explanation for the calm is that a third of Lib Dems MPs hold government posts. There may well be too few rebels on the backbenches to prevent the relevant legislation passing. (Some senior Lib Dems always thought the party’s policy was mistaken, and are glad to use the cover of the coalition to ditch it.)
The government can console itself that Labour has its own splits on the issue. Many Labour MPs have in the past favoured a “graduate tax”, including Ed Miliband, their leader, who has consistently criticised the idea of higher fees. However, Alan Johnson, who was higher education minister in 2004, and is now shadow chancellor of the exchequer, has opposed a graduate tax.
Although the Lib Dems may win some concessions, many of Lord Browne’s recommendations have a strong chance of becoming reality. One thing seems certain: as universities await the cuts to their central funding for teaching that the chancellor is expected to announce on October 20th, as part of the government’s spending review, graduates will be asked to pick up most of the tab.
I'm not really sure if the increasing trend of raising tuition fees all over the world is a good idea.
