Wednesday, March 25, 2009

The Time Value of Exchequer Funding, and the Fees Debate

In an article in today's Irish Times, Sean Flynn reports that parents will get a discount of about 20 per cent for those who pay upfront – in order to generate funds for the exchequer in the short term. This is in the context an "income-contingent loan scheme" for financing higher education, a being considered by Minister for Education Batt O’Keeffe.
"At present, the State pays €350 million to the third-level system in lieu of fees each year. Sources say the plan to offer a discount of about 20 per cent for upfront payments could yield €70 million."

The article doesn't say, but I assume that 'paying upfront' means paying fees at the start of each academic year, rather than paying fees for an entire course at the start of the course. A question that parents with cash may ask themselves at the start of each academic year is "Can I earn 20 percent (risk-free) on this lump-sum over the next year?". I would be very surprised if anyone answered yes to this question (even in boom times), so it seems like a highly-loaded incentive scheme, in relation to the time value of exchequer funding.

In relation to the wider debate on the financing of higher education, Richard Layte, Selina McCoy and Philip J O'Connell (from the ESRI) have an article in last Friday's Irish Independent which argues that college fees are a minor part of the story (if the objective is to increase participation by low-income students). They mention the importance of investment in early childhood education (as discussed by Prof. James Heckman in the lecture linked below), the eligibility of and level of maintenance grants (mentioned recently on the blog here) and the need for quality Access programmes at third-level (which relates to one of Geary's evaluation projects).

6 comments:

Martin Ryan said...

Sarah Carey has an article in yesterday's Irish Times discussing how fee re-introduction can combat social inequality:

http://www.irishtimes.com/newspaper/opinion/2009/0325/1224243368573.html

Martin Ryan said...

2009/0325/1224243368573.html

Martin Ryan said...

I would like to get people's opinion on the anti-fee argument that "the beneficiaries of higher education will pay more into the Exchequer because they will earn higher wages" i.e the progressive taxation argument.

We need to be aware of at least four facts related to this particular argument:

(i) The debate about fee re-introduction is happening during a recession, where there is tremendous pressure on the public finances

(ii) The higher education system has been under-funded in recent years and is now undergoing a chronic funding-crisis

(iii) There is no guranatee that revenue from fee re-introduction will always go towards the higher education system

(iv) Second-level schooling was made free in Ireland by Donogh O'Malley in 1968 (and this has been widely applauded).

Here is the tax schedule:

http://www.revenue.ie/en/tax/it/leaflets/it1.html#section3

And here is a Wiki article on the concept of progressive taxation:

http://en.wikipedia.org/wiki/Progressive_tax

So what is it about higher education that we think so different from second-level education? Comments would be appreciated.

Martin Ryan said...

End of tax schedule URL:

leaflets/it1.html#section3

Martin Ryan said...

There is also scope here to talk about the non-private returns to education - in other words, externalities, as well as higher tax revenues. But I think economists are more comfortable with hard figures on higher tax revenues. The latter is discussed here by Philip Trostel from the University of Maine (who visited Geary for a seminar last year):

http://www.bos.frb.org/commdev/c&b/2008/spring/Trostel

Martin Ryan said...

spring/Trostel_invest_in_higher_ed.pdf