Who gets the higher education grant?

The Irish Independent has an interesting piece on the socio-economic background of higher education grant recipients. In particular it documents how a significant number from professional & employer backgrounds receive the grants, more in fact than from semi- & unskilled backgrounds.

Irish Policy Options for New Student Contributions in Higher Education

Readers may or may not be aware of this report to the Irish Minister for Education and Science: "Policy Options for New Student Contributions in Higher Education". The report dates from July 2009 but I have just found it on the website of the recently re-branded Department of Education and Skills. It is not clear whether this report is connected to the National Strategy for Higher Education in Ireland, recently discussed by Kevin on this blog.

In any event, the report outlines a number of issues in it summary, which are relevant to the potential introduction of a student contribution in Ireland. These include:

(i) Affordability considerations: "It is proposed that the level of any new student contribution should be related to current fee levels for Irish/EU students who do not qualify for free fees."

(ii) Top-up Fees: "Consideration could also be given to providing for a premium or ‘top-up’ range within which individual institutions would be free to increase charges for particular programmes. This would allow individual institutions to incentivise participation on particular programmes or to generate additional revenue according to their ability to compete for students. Such an arrangement could have the benefits of promoting competition and quality within the system."

(iii) Transition: "In transitioning to new fee arrangements, it would be important to avoid any potential for immediate shortfalls in institutional budgets by pitching fees at levels that do not match current ‘free fee’ contribution rates."

(iv) Collection of loan repayments: "The involvement of the national tax collection agency has been identified as being a critical success factor for a number of income contingent student loan facility models that operate internationally... It is recognised, however, that there are significant operational pressures on the Revenue Commissioners in the current Irish context which would limit their capacity to take on a role of direct collection agent for an income contingent loan scheme."

(v) Public finance: "In the current economic circumstances, it would be important that the introduction of a student loan facility would be designed to minimise any impact on the General Government Balance (GGB) or on General Government Debt (GGD)."

(vi) Upfront payment and tax relief: "In the context of any introduction of a loan system, continuing tax relief for students who pay fees upfront would amount to a form of discount for upfront payment. From an equity perspective, this would need to be factored into any consideration of the appropriate rate of surcharge on those availing of a loan rather than paying upfront."

(vii) Communicating complex issues: "Any policy change in this area will impact on significant numbers of students or potential students. A number of the options being considered are complex in nature and would give rise to very significant demands for information and clarification. An information strategy will need to be in place to communicate the details of any changes and to provide user friendly access to relevant detail on how the changes impact on individuals."

Deferred fees for universities:a UK proposal

The issue of university fees and financial support for students is both complex and divisive. The need for some original but well-thought-through ideas has never been greater. The UK is also re-assessing its system of student financing. A recent proposal by Neil Shephard (Oxford University) is worth looking at. Its recommendations are below:

1. Make student financial support available to cover all tuition and a modest cost of living.
2. Allow graduates to repay according to earnings with protection for poorer graduates.
3. Call HEFCE teaching grants “scholarships” and make students aware of their value.
4. Cap the level of funded fees plus HEFCE grant at the current level.
5. Allow universities to charge deferred fees.

• When they are paid the money goes to the student’s university not to the state. These
• fees have no fiscal implications.
• Bring some of the cash flow from deferred fees forward by working with a bank.

6. In the long-run move to making the cost of living support simpler by

• Providing more realistic cost of living support for all students.
• Removing means-tested university bursaries for cost of living expenses.
• Removing means-tested grants to students provided by the state.

Income Contingent Student Loans

The High level Strategy Group, chaired by Colin Hunt, is due (over-due, in fact) to report on a strategy for Higher Education in Ireland. One issue that may be confronted is the question of the re-introduction of fees. Rather than a return to the old system a more likely scenario is some form of income contingent loan. The Strategy Group lacks any expertise in the economics of education, as far as I can see, and it is unclear that they consulted anyone with such expertise. The paper below would be a good start though.
Income Contingent Loans for Higher Education: international reforms
Bruce Chapman
Handbook of the Economics of Education, vol 2, chap 25
It is well known that higher education financing involves uncertainty and risk with respect to students' future economic fortunes, and an unwillingness of banks to provide loans because of the absence of collateral. It follows that without government intervention there will be both socially sub-optimal and regressive outcomes with respect to the provision of higher education. The historically most common response to this market failure – a government guarantee to repay student loans to banks in the event of default – is associated with significant problems.

Income contingent loans offer a possible solution. Since the late 1980s ICLs have been adopted in, or recommended for, a significant and growing number of countries, and it is this important international policy reform that has motivated the chapter.

An ICL provides students with finance for tuition and/or income support, its critical and defining characteristic being that the collection of the debt depends on the borrowers' future capacity to pay. ICL have two major insurance advantages for borrowers over more typical arrangements: default protection and consumption smoothing.

With reference to countries with both successful and unsuccessful ICL, the chapter illustrates that the operational and design features of such schemes are of fundamental importance with respect to their potential efficacy. It also seems to be the case that in many institutional and political environments there is not yet the administrative sophistication to make ICLs viable, although for reasons documented this is unlikely to be the case for the vast majority of OECD countries.

For one country, Australia, there is now a significant amount of research into the consequences of an ICL, and the evidence is explored in some detail. The investigation into the Australian experience helps in the development of a research agenda.

What did abolishing university fees in Ireland do?

This is the abstract for a working paper of mine just released by the Geary Institute (& the UCD Economics School), a less technical summary is at the end.
Abstract:
University tuition fees for undergraduates were abolished in Ireland in 1996. This paper examines the effect of this reform on the socio-economic gradient (SES) to determine whether the reform was successful in achieving its objective of promoting educational equality. It finds that the reform clearly did not have that effect. It is also shown that the university/SES gradient can be explained by differential performance at second level which also explains the gap between the sexes. Students from white collar backgrounds do significantly better in their final second level exams than the children of blue-collar workers. The results are very similar to recent findings for the UK. I also find that certain demographic characteristics have large negative effects on school performance i.e. having a disabled or deceased parent. The results show that the effect of SES on school performance is generally stronger for those at the lower end of the conditional distribution of academic attainment.

http://www.ucd.ie/geary/static/publications/workingpapers/gearywp201026.pdf

Non-technical summary

1. The paper shows how the abolition of university fees in 1995/96 did not help the chances of poorer children getting into university.

2. The paper also explains why this is the case:

• There was (& still is) excess demand for places: there is a shortage of places not students.
• The fee reduction benefitted well-off students, low income ones would have been exempt.
• Most importantly: the paper shows that it’s how students do in the Leaving that matters. The fact that the low income kids do worse in the Leaving is why they are less likely to progress. Changing fees didn’t change that.

3. The paper documents precisely how students from better off backgrounds do better in the Leaving.

• If your father is a professional, count on getting about 90 points more than if your father is a manual worker.
• If your father is “other white collar” count on getting about 50 points more.
• If your father is unemployed that “costs” you about 30 points.

4. The paper also shows

• That it’s the difference in Leaving Cert performance that explains why girls are more likely to progress to university
• That if a student’s father is disabled that their points are about 50 points lower
• That if one of their parents is deceased that their points are about 40 points lower.

5. A clear policy implication of this paper is that attempts to tackle inequalities in university access that do not address these performance differences at the Leaving Certificate won’t solve the problem.

Evidence on the effect of educational finances on participation

The possibility of reform to the financing of third level education seems somewhat higher than usual. This summary of a recent report from the IFS analyses recent reforms in the UK is well worth looking at.
Amongst their conclusions are
"The reforms had no overall impact on HE participation at age 18 or 19 in England. But grants, fees and loans do impact on participation and in different ways: a £1000 increase in fees has a negative impact on participation of around 4.4 percentage points (compared to an age 18/19 participation rate of around 1 in 5). This outweighs the positive impact of a £1000 increase in loans (3.2 percentage points) or grants (2.1 percentage points). Thus, increasing fees without increasing loans and/or grants by the same value or more, will result in a negative impact on participation."

AND

"Finally, our research shows that the most important cause of low attendance at university by young people from low income backgrounds is not the cost attending university. More important is the typically very low attainment of children from poor backgrounds throughout their schooling careers."

http://www.ifs.org.uk/pr/fees_review.pdf