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Tuition mixes

That students share in the burden of paying for their tertiary education is not all that uncommon.

Times Higher Education puts up this graph, from the OECD’s 2015 Education at a Glance report, showing the proportion of private expenditure on tertiary education.


The OECD average has around 30% covered privately. NZ’s figures, as usual, aren’t in the OECD table. But the last numbers I’d seen on it had it around 16% in 2010 – already at the very low end of the table. Eyeballing it, we’d be between Sweden and Slovenia.

And so I get a bit puzzled.

Labour’s pushing for zero tuition fees here, which would push us further out as an outlier on this one. When Oliver suggested that might not be such a great idea, Chris Trotter launched into an attack suggesting that only wild neoliberal Business Roundtable types could oppose free tuition. I guess the neoliberal Business Roundtable takeover of the world must have been successful then, or at least looking at the table above.

I’ve got a lot of sympathy for some of Trotter’s other observations, though he gets the causes wrong. For example:

Nothing here about the pernicious consequences for both academic rigor and student achievement of turning tertiary education into a commodity. Fully enmeshed in the market economy, university “providers” cannot afford to risk alienating their fee-paying “clients” by holding them to the sort of rigorous academic standards that characterised my tertiary education. If it comes to a choice between jettisoning standards or jettisoning students, the commercially-driven university will sacrifice its standards every time.

Think through just what this means.

I expect university participation rates were on the order of 10% or less when Trotter went through. Now, close to 50% of 18-19 year olds are in tertiary education. Participation among 20-29 year olds was seventh out of 29 countries in 2007 (the last year there reported).

The old system very generously supported a very small number of kids to go to university, which they then paid back with very high marginal tax rates after graduation and for the rest of their lives – if they earned enough. It would have been a joy to teach in that era: participation was restricted by students’ having to pass tough exams.

The new system less generously (per student) supports a massive number of kids to go to university, which they then pay back with income-contingent student loans – a good chunk of the value of which is written off immediately because the government doesn’t charge interest. When the loan is paid off, the student no longer faces the higher tax rate.

Is it better to have an extra 12% tacked onto a 33% top marginal tax rate (at worst – more likely that you’re starting in the 17.5 – 30% range) until your tuition’s paid off? Or to go back to free tuition but a top marginal tax rate of 60% like in the early 80s?*

I’m not saying that free tuition would push top rates up anywhere near that much, but it’s darned hard to see how the present deal isn’t far far better for students. If temporary loan repayments of 12% of income are crippling, bit hard for me to see how income tax rates almost double what they are now wouldn’t be even more crippling.

As for ultimate causes of the change in university approach, it isn’t tuition. It’s the policy decision that more students should complete tertiary. Whether this is achieved with bums-on-seats government funding, or market-rate tuition fees, the incentive effect is the same. It has nothing to do with whether the bill is paid publicly or privately but rather with that the university expects to get more money when it accommodates more students and less money when it doesn’t, and the government’s prepared to pay for a substantial portion of New Zealand youths to go through university.

It would be perfectly feasible to shift back to a smaller, elitist system. The government would just need to knock back the number of students funded under the universities’ investment plans to maybe a fifth of what they’re currently at, with block funding certainty for long periods not strongly tied to student numbers. The universities could never make up the balance on tuition fees and so you’d be left with a much smaller cohort attending. The remaining academics could go back to teaching to the 10%, which most would prefer to do anyway.

The whole Times Higher Ed piece is a nice nuanced discussion of who benefits from tertiary education and who should pay for it. They conclude it should be a mix of public and private, since there are benefits to both. And, if anything, the split in NZ could have a greater private contribution. If the split here is like that abroad, with private benefits being north of 50% of the benefits, and students here are paying less than 20% of the cost, well….

* Average wage and salary income for earners in 1982 was $24,700. The top marginal tax rate of 60% kicked in at $22,000. Even if you earned about half the average salary as a fresh grad, the marginal tax rate was 48% if you earned $12,601 – with no potential for abatement when you’d paid off the value of your education.


About Eric Crampton (88 Articles)
I'm Head of Research with the New Zealand Initiative.

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