Financing Higher Education a contributory education scheme

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Document de treball de l IEB 2013 34,FINANCING HIGHER EDUCATION A CONTRIBUTORY SCHEME. David Flacher Hugo Harari Kermadec L onard Moulin,Documents de Treball de l IEB 2013 34. FINANCING HIGHER EDUCATION,A CONTRIBUTORY SCHEME,David Flacher Hugo Harari Kermadec L onard Moulin. The Barcelona Institute of Economics IEB is a research centre at the University of. Barcelona which specializes in the field of applied economics Through the IEB. Foundation several private institutions Applus Abertis Ajuntament de Barcelona. Diputaci de Barcelona Gas Natural and La Caixa support several research programs. Postal Address,Institut d Economia de Barcelona,Facultat d Economia i Empresa. Universitat de Barcelona,C Tinent Coronel Valenzuela 1 11.
08034 Barcelona Spain,Tel 34 93 403 46 46,Fax 34 93 403 98 32. ieb ub edu,http www ieb ub edu, The IEB working papers represent ongoing research that is circulated to encourage. discussion and has not undergone a peer review process Any opinions expressed here. are those of the author s and not those of IEB,Documents de Treball de l IEB 2013 34. FINANCING HIGHER EDUCATION,A CONTRIBUTORY SCHEME,David Flacher Hugo Harari Kermadec L onard Moulin. ABSTRACT In this paper we study the higher education financing based on the. classical contributory versus self funded pension funding scheme We provide a brief. discussion of how a system based on student debt can be seen funded and why it fails to. ensure equity and efficiency and funding for the longer term We also define a. contributory financing scheme for higher education based on income tax and social. security contributions and study its strengths and weaknesses By contributory we mean. a scheme that ensures free access to university providing for students expenses and the. costs of research and teaching We show that such a system would be efficient and. equitable and we discuss under what conditions it would be efficient We show also that. it would prevent polarization in the higher education system We conclude with an. implementation of our contributory financing scheme in the case of France it increases. university funding by 5bn and provides 19bn for students expenditure and illustrate. the effect of such a scheme on some typical households. JEL Codes H81 I21 I22 I24, Keywords Universal Autonomy Allowance contributory scheme funded education.
scheme financing higher education equity efficiency. David Flacher Hugo Harari Kermadec L onard Moulin, CEPN CNRS UMR 7234 IDHE CNRS UMR 8533 CEPN CNRS UMR 7234. Universit Paris 13 ENS Cachan Universit Paris 13, 99 avenue Jean Bastiste 61 avenue du Pr sident 99 avenue Jean Bastiste. Cl ment Wilson Cl ment, 93430 Villetaneuse France 94235 Cachan Cedex France 93430 Villetaneuse France. E mail david flacher fr E mail hugo harari ens cachan fr E mail leonard moulin ens cachan org. 1 Introduction, Higher education underwent a deep transformation in the 1990 s that has resulted in national. and international education market The Bologna process combined with regional standards for. cycle lengths Bachelor Master PhD and credit transfer opened a European space for higher. education In France since the LRU law on liberty and responsibility of universities published 10. August 2007 and associated reforms universities are progressively entering the field of competition. and being invited to ensure self funding This kind of financial autonomy is already present in. some of the OECD countries where a substantial part of the funding for higher education comes. from tuition fees Under this system each student is invited to invest financially in her human. capital by takingon a debt if need be in order to produce a return on this investment in the labour. market We referto such financing schemes a self funded system for higher education. Following the correspondence with pension scheme systems and discussions we propose a con. tributory funding system for higher education and compare these schemes in relation to their effi. ciency equity and ability to fund higher education Of course as in the case of pension schemes. this raises the deeper issue of the relative efficiency of a market based system versus a socialized. system based on inter generational solidarity and public service In this sense it is a political. issue since it involves two different perspectives on education as a source of future income or as. a social good It is an issue that is receiving great attention in the media in the recent years. large increases in tuition fees have led to student demonstrations in many countries England. has increased its tuition fees ceiling from 3 300 to 9 000 and has increased students borrowing. capacity the Canadian state of Quebec has seen a major social movement against the project of. a progressive increases in tuition fees from CDN2 168 to CDN3 793 In France Universit Paris. IX Dauphine and Sciences Po two public institutions have imposed high fees. In this paper we summarize the main arguments in favour of at funded system and its limits. Section 2 In Section 3 we define the theoretical bases of a contributory system and study its. pro and cons Section 4 proposes a costing of this system for France. 2 Funded education scheme, In an article on the relevance of increases in tuition fees Flacher et al 2012 develop a critical.
analysis of a funded education scheme a financing scheme based mainly on individual investment. and tuition fees augmented by student debt where necessary In that article arguments in favour. of letting universities establish their tuition fees freely fall into three categories 1 free access. benefits the upper classes which are over represented among students and maximizes the private. returns to education 2 tuition fees are economically efficient since they induce self selection based. on students private information on their skills They are encouraged to exert effort and to choose. their education in order to make the investment profitable It urges education institutions to. become competitve as a result of market mechanisms and the expectation of students as consumers. Finally 3 tuition fees provide an opportunity for the financing requirements of the universities. in some countries including France to be met without putting weight or even reducing public. expenditure,These arguments have many and major limitations. 1 A financing scheme based on tuition fees cannot ensure equity of higher education defined. as the conjunction of the following characteristics a compensation principle equality of chances. to access minimum resources contribution equity among all beneficiaries progressive participa. tion from direct and indirect beneficiaries and a set of positive liberties allowing the success of. students from minorities or popular classes1 To compensate for the actual difference in tuition. fees would require large grants2 as well as a strong progressivity of the fees In addition monetary. transfers between institutions would be required to compensate unequal recruitment related to the. economic social and cultural contexts and different employment perspectives in order to prevent. a polarization of the higher education system that would reinforce social reproduction3 Finally. costs would have to be split according to individual and collective returns and taking into account. national fiscality, 2 Does increasing the tuition fees ceiling lead to a more efficient higher education system This. is not clear Firstly models that provide support for this view assume that each potential student. behaves like a good stastician computing her chances to earn more or less in the future according. to her estimation of her talents Gary Bobo and Trannoy 2005 p 201 our translation and. as a rational agent In practice students do not have access to sufficient information on eitheir. themselves or the universities or on the labour market and its potential evolutions Students. rationality therefore is strongly limited by both their access to information and their capacity to. rationally make use of it Secondly since Bourdieu s 1974 p 28 seminal work it is well know. that social background has a major impact on student choice and reinforces social reproduction. the fact that one has positive or negative odds to be to have or to do something predisposes by. predestining one to act in a way that fulfils these odds p 28 From this point of view behaviour. in the face of the need to go into differs greatly for different social backgrounds This is not only. because of the inexistence of this need for wealthy families but also because of debt aversion which. even in the presence of conditional reimbursement leads to a distortion of the choices unfavourable. to popular backgrounds Field 2009 Similar conclusions can be found in Boudon 1974 1994. and in the literature on relative risk aversion RRA 4 which assumes that reluctance to suffer a. drop in status is stronger than the desire for social ascent Therefore education ambition depends. on individual social background a conclusion empirically tested in Holm and Jaeger 2008 For. these reasons according to Flacher and Harari Kermadec Flacher et Harari Kermadec 2013. students from a popular social background suffer self depreciation bias leading to underestimation. of the private returns and in turn a reluctance to pay high tuition fees Also tuition fees may. discourage applications for public jobs which offer lower wages Field 2009 Finally competition. for ranking and means favours dominant institutions which could afford to off lower tuition fees. or provide grants to attract bright students including those from popular background and which. also earn high fees from wealthy students Conversely universities with lower initial reputation. or budgets becomes trapped into a vicious cycle where they attract only middle or lower skilled. less bankable students Winston 1999 Thus polarization of higher education according to both. See Flacher et al 2012 for a complete discussion on equity and on the pro and cons of the tuition fees more. If the correction of social inequalities is insufficient the high living costs during studies may induce some students. to abandon their studies to transfer to shorter less academic courses or take on paid work to the detriment of. their academic success, Leading universities can attract both rich students and donations This increased income can be used to improve. teaching and research quality as well as campus services It can finance social grants for exceptional students Thus. the attraction of the leading university is reinforced On the other hand lower ranked universities are unable to. compete for wealthier or more academically endowed students As a result inequality in the access to higher. education increase makes the system less equitable For Winston 1999 p 21 most high subsidy schools are also. high cost schools and the ranking of higher education insititutions is a cumulative process Winston 1999 p 27. See also Vinokur 2009, See Breen and Goldthorpe 1997 or Holm and Jaeger 2008. means and education levels can be expected from the liberalization of tuition fees. 3 More private funding does not necessarily provide more means for universities For example. public funding tends to reduce as tuition fees rise and especially because accompanying mechanisms. grants subsidized loans can be very expensive for public finances Moreover competition among. universities induces non educational spending marketing management see Vinokur 2009 p. 445 The results from limited experience of the introduction of tuition fees in some prestigious. institutions e g Sciences Po in France cannot be extrapolated since these institutions enjoy. favourable positions which by definition cannot be generalized whatever the accompanying. mechanisms, definition cannot be generalized whatever the accompanying mechanisms The literature.
on tuition fees often considers income contingent loans ICL as a way to prevent skilled but. financially poor students from dropping out of higher education for financial reasons In our view. ICL do not respond to the issues described above ICL modulate monthly repayments by income. or even postpone them if income is below a certain level Under some conditions debts can be. written off Nevertheless loans do not reduce the negative influence of rises in tuition fees They. do not cover both fees and living costs which discourages potential students from popular and. middle class backgrounds they also tend to compete in principle and for means with direct social. support since since their costs can be very high Chowdry et al 2012 ICL can hardly improve. either contributive equity or positive liberties since their only partially affects the debt burden. According to Kane 1994 the effect of reducing access to higher education caused by high. tuition fees can extend beyond the directly concerned generation In the face of these disadvan. tages of a funded education scheme based on tuition fees in the following we propose a theoretical. basis for a pay as you go financing scheme Similar to schemes that provide pensions such schemes. would be characterized by free access to education public funding of universities and universal. support for students costs of living financed through social welfare contributions from the em. ployment active population and retirees Such a financing scheme would ensure equity and with. appropriate conditions for entry to higher education efficiency and long run funding for higher. FINANCING HIGHER EDUCATION A CONTRIBUTORY SCHEME David Flacher Hugo Harari Kermadec L onard Moulin ABSTRACT In this paper we study the higher education financing based on the classical contributory versus self funded pension funding scheme We provide a brief

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