Access, Equity, Capacity: Financing Higher Education

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Access, Equity, Capacity Financing Higher
Education

• International Forum for Education 2020
• Baoyan Cheng
• February 27, 2009

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Daisen-in Temple ???
Soen Ozeki????
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Soen Ozeki

• Each Day In Life is TrainingTraining For
  MyselfThough Failure is PossibleLiving Each
  MomentEqual to AnythingReady for EverythingI
  am Alive - I am This MomentMy Future Is Here and
  NowFor if I cannot Endure TodayWhen and Where
  Will I ?

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Outline

• Globalization
• Neoliberalism
• Milton Friedman
• Bankruptcy of neoliberalism
• Cost-recovery policy (cost-sharing)
• Financial aid policies student loan programs in
  the US, Australia and China

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Globalization

• The reduction and removal of barriers between
  national borders in order to facilitate the flow
  of goods, capital, services and labor (United
  Nations, 2002).
• Thomas Friedman (New York Times columnist
  Pulitzer Prize winner)
• The World Is Flat (2005)

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Some criticisms of globalization

• Increasing inequality
• Weakening cultural diversity
• Advancing corporate interests at the expense of
  the well-being of ordinary citizens
• Documentary
• The Other Side of Outsourcing (2004)

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Neoliberalism

• Invisible hand decentralization and
  privatization free market and free trade
• Implication
• Reduction of government subsidies in public
  service

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Milton Friedman (1912-2006)1976 Nobel Prize
winner, leader of Chicago School of Economics.

• Friedman the economist, the entrepreneur and the
  popularizer of free-market doctrine. (Paul
  Krugman, 2008 Nobel Prize winner).
• Consider the following three propositions Money
  does not matter. It does matter. Money is all
  that matters. It is all too easy to slip from the
  second proposition to the third. And in their
  zeal and exuberance, Friedman and his followers
  had too often done just that (James Tobin, 1981
  Nobel Prize winner in Economics)

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Neolibralism and Education

• Milton Friedman The Role of Government in
  Education (Capitalism and Freedom, 1962)
• Milton Friedman Market competition is the answer
  to solving educational problems.
• Video clip from the 1980 PBS TV series Free to
  Choose produced by Milton Friedman

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Globalization and Its Discontents

• Pierre Bourdieu (1930-2002 French sociologist)
• Firing Back Against the Tyranny of the Market
  (2003)
• Joseph Stiglitz (2001 Nobel Prize Winner)
• Making Globalization Work (2006)
• Paul Krugman (2008 Nobel Prize Winner)
• The Conscience of a Liberal (2007)

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Firing Back Against the Tyranny of the
Market

• Globalization is the imposition on the entire
  world of the neoliberal tyranny of the market and
  the undisputed rule of the economy and of
  economic powers, within which the United States
  occupies a dominant position.
• -- Pierre
  Bourdieu

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Making Globalization Work

• My research on the economics of information
  showed that whenever information is imperfect, in
  particular when there are information asymmetries
  where some individuals know something that
  others do not (in other words, always) the
  reason that the invisible hand seems invisible is
  that it is not there. Without appropriate
  government regulation and intervention, markets
  do not lead to economic efficiency.
  -- Joseph Stiglitz

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Making Globalization Work

• Unchecked by competition to win the hearts
  and minds of those in the Third World, the
  advanced industrial countries actually created a
  global trade regime that helped their special
  corporate and financial interests, and hurt the
  poorest countries of the world.
• -- Joseph Stiglitz

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The Conscience of a Liberal

• Can we save the economy, bring universal health
  care to America, and make this a fundamentally
  more democratic nation? Yes, we can. The new
  New Deal starts now.
• ---- Paul Krugman

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Neoliberalism and its bankrupcy

• Death of Milton Friedman (2006)
• Current financial crisis
• Bank nationalization prescription given by
  Nouriel Roubini (New York University professor
  Doctor Doom who first predicted the economic
  collapse)
• More government involvement in public sector
  Obamas stimulus plan of 787 billion targets
  education and health care.
• We are All Socialists Now, Comrades (Newsweek,
  Feb. 2009)

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Restoring the ideals of public higher education
in a market-driven era

• Neoliberal approach An erosion of higher
  educations long-standing commitment to advancing
  public priorities
• ?Access to higher education is limited to those
  who can pay the cost of tuition
• ?more government involvement in funding higher
  education is needed
• ?more financial assistance to low-income students
• CONCLUSION Necessity for financial aid

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Tuition increase in the US

• Increase of college tuition
• Reason 1 rising cost of providing higher
  educational services
• Reason 2 falling subsidies from government

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Average Published tuition for Undergraduates by
Type and Control of Institution, 2008-09 (Source
College Board)
Tuition
Sector 2008-09 2007-08 change change
Public Two-Year 2,402 2,294 108 4.7
Public Four-Year In-State 6,585 6,191 394 6.4
Public Four-Year Out-of-State 17,452 16,586 866 5.2
Private Not-for-Profit Four-Year 25,143 23,745 1,398 5.9
For-profit 13,046 12,489 557 4.5
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Average Published Tuition and Fees in Constant
(2008) Dollars, 1978-79 to 2008-09 (Source
College Board)
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Total Educational Costs per Full-Time Equivalent
Student by Carnegie Classification in Constant
(2005) Dollars, 1995-96, 2000-01, and 2005-06
(Source College Board)
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Total Net Tuition and Fee Revenues as a
Percentage of Total Educational Costs by Carnegie
Classification, 1995-96, 2001-02, and 2005-06
(Source College Board)
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Cost-recovery policy in developing countries

• Rationale
• Improved efficiency optimal use of resources
• Enhanced equity
• Public vs. private returns to education

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Case of China

• i. Expansion of higher education
• In 1980, 1.66 million enrollment
• In 2004, 20 million enrollment largest in the
  world
• ii. Tuition-charging policy (1989 and 1997)
• In 2003, 5,000-6,000 Yuan (600-720) tuition and
  fees,
• 2,622 Yuan (320) of per capita annual net income
  for rural households
• 8,472 Yuan (1,020) of per capita annual
  disposable income for urban households
• iii. Necessity of financial aid

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Types of loans

• Mortgage-type student loans
• fixed repayment rate of interest and fixed
  repayment period
• Example US (the Stafford loan program)
• Income-contingent type
• Pay a certain proportion of future income
• Example Australia (Higher Education Contribution
  Scheme)

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Government-subsidized Loan Program
1999 policy 2004 policy
Eligibility Full-time, needy students at public higher education institutions Same as 1999 policy, but sets the quota of 20 of total enrollment at each institution
Interest charged to student Prevailing commercial rate 50 subsidized while students are at school 100 subsidized by government while students are at school
Maximum amount 6,000 Yuan (720) per year Same as 1999 policy
Repayment terms Starts by the end of the 1st year and ends within 4 years after graduation Starts by the end of the 2nd year and ends within 6 years after graduation
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Effect of the loan program findings from my
research

• The loan program enables needy students to spend
  ?528 more on food on average for one academic
  year, to work 26 hours less on average for one
  academic year, but does not have much effect on
  students expenditure on educational resources or
  their psychological well-being (e.g. anxiety
  level).

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Case of America Major Federal Loan Programs
Program Year Terms (current)
Perkins 1958 Originally known as National Defense Student Loan Program 1986 changed to Perkins provide low-interest (5 percent interest rate) to undergraduate, graduate and first-professional students with exceptional financial need
Stafford 1965 Originally known as Guaranteed Student Loans can be subsidized or unsubsidized limits are 2,625 for first-year students, 3,500 for second-year students, and 5,500 for those who have completed two years of study
PLUS (Parent Loans for Undergraduate Students 1981 Unsubsidized restricted to parents require no financial need test interest rate is the lesser of 3.25 percentages points above the bond equivalent of the one-year T-bill rate or 12 percent payments of at least the interest cost begin within sixty days of the issuance of loans
SLS (Supplemental Loans for Students) 1981 Unsubsidized limited to financially independent undergraduate, graduate and first-professional students replaced by the Stafford Unsubsidized Loan Program in 1992
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Grants vs. Loans, Growth and Percent Share of
Total Aid, 1963-64 to 2002-03 (Source College
Board)
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Research findings on the effect of financial aid
on college access/enrollment

• Studies on the effect of prices on enrollment
• Studies on the effect of grant aid on enrollment
• Studies on the effect of loans on enrollment

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The issues of default and debt burden

• Characteristics of defaulters and reasons for
  defaulting
• Appropriate level of debt and the effect of debt
  on student borrowers

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Case of Australia

• Historical background
• Commonwealth involvement
• Post-WWII expansion

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Higher Education Contribution Scheme (HECS)

• The idea of income contingency
• Design of HECS, the most successful
  income-contingent loan program
• Impact of HECS on college access/enrollment
• Reasons for its success in Australia

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Issues to consider for developing countries in
loan program design

• Issue 1 Conventional loans or Income-contingent
  loans?
• Issue 2 Should the government provide guarantees
  for loans?
• Issue 3 How to reduce default?
• Issue 4 Should loan interest be subsidized by
  the government?
• Issue 5 How to determine eligibility?

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A short presentation Option 1

• On financial aid policies
• in your country/region
• What is the historical context of
  tuition-charging policies?
• Are there financial aid policies in place?
• How effective do you think those financial aid
  policies are?
• How do you think those policies can be improved?
• What are the effects of the current economic
  crisis on those policies?

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A short presentation Option 2

• On the impact of globalization
• on your country/region
• What is your understanding/definition of
  globalization?
• Do you think globalization is a good or bad
  thing?
• How has globalization affected the educational
  system/practice in your country/region?
• What do you think of the current economic crisis
  from the perspective of globalization?