Saturday, 12 April 2014

Why Tuition Fees May Be Too *Low* Not Too High

Aaagh…. Labour MP Harriet Harman on BBC1's Question Time two nights ago said her party wants more people to go to university, and she'd like tuition fees lowered so that it encouraged more people to go on to further education. She never bothered to consider whether too many people might go to university at a reduced rate, and that the lower fees might increase demand to an unhealthy or unmanageable level. As for the fact that however much you increase demand you will not increase the universities' capacity for more students than they can take....nope, there wasn't even a mention of that. This has been brewing for a few weeks now, after the Northampton University vice-chancellor Nick Petford warned that tuition fees for British students could reach as much as £20,000. The key to this issue is to ensure that neither supply nor demand are being artificially stimulated. This is something that a great many politicians seem to be missing.

At their most expensive, tuition fees are currently at the top level of £9000 - which basically amounts to a loan from the government which is paid back when the graduate earns more than £21,000 per year. Instead of worrying too much about rising tuition fees, what should be considered is that putting up tuition fees might actually be a good thing for the country overall. There's no doubt that higher education brings about huge financial benefits to the county*, but there's also no doubt that having too many graduates devalues graduation in the labour market, and that in a state of diminishing returns the financial benefits would no longer bring about such efficiency.
When Liberal Democrat leaders like Charles Kennedy, Ming Campbell and Nick Clegg argued for tuition fees to be scrapped they showed themselves to be incompetent at economics. When in the coalition government Nick Clegg and Vince Cable reneged on their promise not to raise tuition fees they incurred lots of criticism, which is ironic because it was a rare example of them a) picking the right policy, and b) having the wherewithal to change their mind when they saw (with a little help from their bedfellows) that the preposterous proposals they had promised were risible.
If scrapping tuition fees is ludicrous, then what is the right price to charge a student? The answer is simple: students should be charged exactly what it costs to obtain a degree - no more and no less - and fees (prices) should match demand, whereby the right number of people are getting degrees. How do we know what the right number is? This is down to utilitarian efficiency, which is measured in terms of what we might call practical economic utility. What is meant by 'efficient' here is that an efficient transaction occurs when the overall increase in utility is greater than the overall decrease in utility. There is a lot of complex analysis we could attach to that, but not in any way that matters much here. Suffice to say, the key to this is price signals.
When fees are too low, people will study even though the cost of going to university is greater than the benefits of a university education. When fees are too high, people will be put off studying, which means there'll be too few university graduates. A few of the low-fee protagonists have argued that a decline in applicants would be evidence that the fees are too high. It would not be, as I'll explain in a moment; it would be evidence of less educational waste, with those no longer doing degrees being the people for whom the cost of going to university is greater than the benefits of a university education.
Of course, the standard argument in favour of subsidised higher education is that higher education confers benefits on others as well as on the main beneficiary, so it must be good for society if it is subsidised. I think this view is wrong. Deodorant, mouthwash, shampoo and washed clothes each confers benefits on others as well as on the main beneficiary, but no one is arguing for deodorant, mouthwash, shampoo and washing powder to be subsidised. Here's the key reason why - to take washed clothes as one example - when you wash your clothes you enjoy the benefits of clean and fresh clothes, but so do others too - your not smelling, your looking smarter, and your being a generally more pleasant person to be around are benefits that do not need subsidising, because you'd willingly buy washing powder yourself to ensure such things happen. The same is true of avoiding bad breath and greasy hair - the government doesn't need to subsidise mouthwash (or toothpaste) and shampoo because it knows you'll willingly pay for them yourself in order to feel fresh and at the same time be socially acceptable
This is what higher education is like - the benefits and rewards that are obtained (increased employment opportunities, higher earnings, being more highly educated, higher social status, academic prestige, greater knowledge, better conversations, and greater opportunities) certainly extend beyond the person doing the degree, but they are benefits and rewards that people feel are worth having without the need for a subsidy. That's why a heavy education subsidy only encourages inefficient numbers of students, and why a system that charges people the cost of their degree won't discourage people with real promise and potential from entering higher education.
For those reasons - unusual as it is - the government has its policy just about spot on with tuition fees. It loans to those who need it, and it only asks for payment when the post-graduate can afford to repay with a small proportion of their earnings, which means smart people from poorer backgrounds need not be put off from further education. To have no tuition fees would be to spread the cost of people's higher education amongst the rest of the taxpayers - and quite why anyone thinks they should foot the bill is beyond me.
Another good thing about the government's policy is that it also avoids too much of a market mechanism in higher education, which, if too money-centred can be a bad thing. Consider why. Suppose Oxford and Cambridge had hiked up admission fees to attract the elite. Such a policy goes against the thing they should value most - academic credentials. If you are an employer looking to employ an Oxford graduate, who would you prefer; one who got in on scholastic merit, or one who got in because of a privileged financial background? The value of attending Oxford depends largely on the university's reputation, which is built primarily on prior academic excellence of former students. By having applicant quality as the measure of admission, the average student quality can be increased, which then further increases the prestige, which then increases the allure for high-quality future applicants.
A system that neatly balances the admission quantity between talented young people that can pay (and do), and talented people that can't pay and are helped along the way, is a system that is just about right. It is inevitably true that being from a privileged high achieving background does confer advantages on young people that young people from working class backgrounds do not enjoy. This upsets lots of people - but it should not. Privilege mostly comes (either directly or indirectly) from high achievement. Therefore if you want to argue that that is a bad thing, you are arguing that a world in which achievement engenders advantage is a bad thing, which amounts to devaluing merit-based advantages - and to do that is to make a mockery of applying skills and working hard in general.
* The economic benefits of university students are thought to be worth about 59 billion to the economy – see the report here:
** Photos courtesy of the bbc and