Who should pay for Higher Education

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Economics 6th form conference17 March 2008

• Who should pay for Higher Education?
• Stefania Lovo
• s.lovo_at_sussex.ac.uk

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Outline

• Earnings differentials
• Participation and social class
• Alternative ways of funding higher education
• The effects of the 2006 changes

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Wage premium 1993-1999

• Men Women
• Arts -4.3 17.4
• Social Sciences 7.4 24.0
• Economics 26.8 39.3
• Maths 25.7 38.6
• Engineering 21.9 30.3
• Source Conlon and Chevalier (2002), quoted by
  Aston and Bekhradnia, Graduate supply and demand,
  HEPI, 2003. Data are from the labour force survey
  and the earnings premium is against those who
  state their highest qualification as 2 or more
  GCE A-levels.

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Lifetime age profiles
Source Gavan Conlon, presentation to UUK, 2006
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Participation and social class
From Behkradnia, Widening participation and fair
access, HEPI, 2003
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Funding options

• Why should the government intervene?
• Access for everybody
• Benefits for the society
• Methods to finance education
• Income tax
• Graduate tax
• Fees up-front or deferred

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Discussion

• What is the impact of different funding methods
  on
• Enrolment
• Social class composition
• Quality of education

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The 2006 reform

• Fees increased to 3000 per year, not
  means-tested
• No up-front fees paid through student loans,
  after graduate starts earning
• The student loans system has a subsidised
  interest rate equal to the inflation rate
• Means-tested government and university grants to
  students from poorer families

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(No Transcript)
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Discussion

• Will HE become more socially exclusive?
• Will student behaviour change?
• The evidence from 2006 and 2007 shows no
  significant changes in either direction.

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The effects of top-up fees on public finances

• Additional income for universities 1.4b
• Cost of interest subsidy on fee loans 700m
• (Source Bekhradnia, HE Bill and statement, HEPI,
  2004)

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What have you learnt about economics today?

• Economics concepts
• Opportunity cost
• Incentives
• Wage premium
• Externalities