Innovative Funding for Higher
Education
·
Policy is easy, its implementations is difficult.
·
There is a growing importance of Higher Education
around the world. Today higher
education is vital for nation’s economic growth and also vital for promoting
core human values.
·
I would like to mention three lessons what we have learnt for economic theories. These are not ideological but rooted largely in the
economics of information. While
talking about higher education the argument apply equally to whole of tertiary education
A. Lessons from Economic Theories
I. The days of central planning of higher education
have gone. Central planning for higher education is no longer feasible. Earlier it was
possible when the number of institutions were low. With the explosion of the
number of institutions all around the world, with a great increase in the
number of students, and a massive increase in the diversity of subject matter,
it is certainly too complicated. So there is being a problem in central
planning hence it is not desirable.
Now economic text book says planning is a good thing. Is it? The theory says
competition is a good thing, where you have well informed students. Then I
would argue that really we need quality assurance, but subject to that
consumers of higher education by and large are how well informed? The model of
the well informed consumer applies for higher education, and therefore
competition is useful. Hence competition helps students.
II.
Graduates
(not Students) should contribute to the cost of their Education. Higher
education has social benefits. That means tax payers subsidy can be justified
in efficiency growth, but there are also as we know very significant private
beneficiaries of individual perseverance of higher education and therefore it
is right that they should pay.
III.
There should be a well designed students loans with
core characteristics. There are three main characteristics.
i. The Income contingent repayments which
are calculated in terms of percentage of graduates subsequent earnings, because
it increases efficiency to repay and reduces uncertainty. It can be justified
in terms of equity, and promote access since it has built-in insurance against
inability to pay. Hence it’s a genuine loan with least interest;
ii.
The loans
provided should ideally be large enough to cover the entire tuition fee and if
possible living costs as well; and
iii.
There is an
issue of how much interest rate to be charged – it shouldn’t be Zero interest
rate, it shouldn’t be the normal interest rate which the banks normally charge,
but it should be something like government’s cost of long term borrowing range.
B.
Lessons learnt from developed countries
i.
Fees: Fees
relax the supply side constraints- it brings in more money to increase
quantity and improve quality. On the other hand when you bring in more money
you should not bring in without any restriction which was done in
ii.
Student’s support - Lessons about Loans.
a. Its true
that income contingent loans works and they do not harm access for example –
e.g.(
b. Interest
subsidies are expensive -don’t go
there, it’s a big mistake – e.g (Aus,
c. Positive
real interest rates are politically feasible (as in
iii.
Strategy for
a.
Variable fee structure where the fees varies across the universities. The
variable fess structure has double benefit. This brings in more money for the
university, and they also increase the strength, competition, and also improve
the effectiveness of university in terms of quality. Paradoxically variable
fees are fairer than the so called highly subsidized / free higher
education. The problem with highly subsidizing higher education is that the tax
of the poor people is paid for the middle class students to go up and become
rich.
b.
It’s a Student support - in which a good loan scheme is provided so that
higher education becomes almost free to the students - (because it is the graduate students who
make repayments ); and
c.
Active measurement to promote access. Access can not be promoted by simply subsidizing
higher education. Access fails much earlier when students fail to complete
secondary education. If you are serious about access then you have to take into
account seriously and do things much earlier by improving quality of school
education and providing access by adopting many other means at this stage
itself. If you adopt this strategy
rightly, it becomes a progressive strategy. It is not a pro-market right wing
strategy. It is actually a splendidly suggestious leftwing strategy – which is
genuinely social and progressive.
C.
Implementations
The Problem: Fiscal pressures
make loans attractive to Ministries of Finance. Any one can give an amount to
the students; the difficulty is in getting it back. Hence measures to be taken
i. A country should not embark on a loan scheme
without
a.
A reliable method
of identifying individuals;
b.
the capacity to maintain records of amounts borrowed,
cumulative borrowing & interest charges, and the value of each person’s
repayments;
c.
the capacity to collect repayments; and
d.
the capacity to track the income of each borrower for income-contingent loans or for deferment of
conventional repayments.
ii.
Hence it is important to establish a loan
administration. For that you need
a.
enough time for getting from the passage of legislation
to the delivery of loans to the first cohort of borrowers;
b.
Strong political sponsorship to make sure that the
policy happens as proposed;
c.
Clear ownership, e.g. (the education department.);
d.
Continuing political support (the introduction of a
loan system is not an event, but a process);
e.
Enough people with the necessary skills, legislative
preparation, IT development, and effective project management
iii. Running a
loan scheme is quite difficult. For students taking loan it is important to:
a.
Ensure their identity reliably;
b.
Provide them with information about their entitlement,
c.
Ensure the size of the loan to which they are
entitled, which will require information about what degree, what university,
and perhaps their family income;
d.
Ensure that they actually turns up at the relevant
university
iv.
While at
university, it is necessary to
a.
Establish that one continues its studies; and
b.
Keep track of the dates and amounts of further
borrowing
v.
After the student
has left university, its necessary to
a.
Track them through changes of identity and address;
b.
Collect repayments, if necessary liaising with the tax
authorities;
c.
Collect repayments from people who are outside the
country;
d.
Ensure that any concessions on repayment are granted;
e.
Pursue delinquent repayments;
f.
Answer queries;
g.
Record repayments and calculate the outstanding
balance, including interest charges;
h.
Keep the borrower notified of the balance of his/her
loan; and
i.
Cause the collection of repayments to cease once the
loan has been repaid
vi.
What can go wrong?
a.
Papers may be lost;
b.
If it’s a electronic system it may crash;
c.
Scanning of details may go wrong, mistakes may happen;
d.
How far the frequency of inquiries are take up and
answered etc-etc
vii.
Myth in the Implementation:
a.
It is incorrect to argue that it is easier to collect
conventional loan repayments than income-contingent repayments because private lenders require either security for a loan or
a guarantee.
b.
Government
guarantees are problematical because of Incentive structure inimical to
effective collection and of the classification problem.
c.
Mortgage
repayments require a capacity to implement an income test.
d.
Its also a myth
that pprivate
mortgage-type loans work for housing, but are the wrong model for human capital
What I
suggest is to have, is a regulated market for Public Institutions and
Private institutions set aside a number of seats to be given at fee cap level
for which loans are available for e.g.-(50% fee cap and 50% seats free left to
the concerned institutions) and Students apply to the institutions and courses
of their choice.
Hence there is a continuing important and huge role
for the government to provide taxpayer support for higher education, and to
regulate the system a fees cap ensuring that there is effective quality
assurance. It’s also important to set incentives, e.g. larger subsidies for
certain subjects and ensure that there is a good loan scheme.
Lastly need is to adopt and strengthen favourable
policies to promote access
This is not a neo-liberal approach. It’s a pro students approach. It will improve Access, Competitiveness, Quality and Effectiveness