“Study now, pay later”

The UK parliament has recently voted for the introduction of student fees as a way to fund the expansion in higher education. Could this be a model for other European countries to follow?
Economics Department

Click for graph

University funding is hitting the headlines across Europe. In January the UK government only narrowly won a parliamentary vote to reform funding of higher education, after the prime minister, Tony Blair, put his “authority on the line”. Other European leaders will have been watching closely, as they also plan to revamp their higher education systems.

In Germany the government has already caused a political outcry by calling for universities to be able to charge fees and for the establishment of elite universities. In France, the government is searching for ways to improve university funding in response to a situation summed up by Le Monde as “La grande misère des universités françaises” (The desperate poverty of French universities). Similar complaints about overcrowded and rundown universities are common in Italy.

Underachievement and under-funding are damaging the competitiveness and performance of higher education in several European countries. Addressing these problems was at the heart of the UK initiative. There was broad agreement that change was inevitable, particularly as maintaining a skilled and educated workforce is vital for economic growth. The controversial question was over who should provide the money.

The total amount countries spend on higher education varies widely across the OECD. Those countries that spend more than 2% of GDP on higher education – Canada, Korea, New Zealand and the United States – are able to do so because they raise a substantial share of funding from students, donations and other non-government sources. By comparison, the major European countries spend about 1% of GDP and rely much more heavily on government funding, while the contribution of individual tuition fees is small or negligible. This partly reflects funding arrangements that were designed for a different era when only a small share of young people aspired to go to university.

However, over the last two decades student intake has climbed rapidly while competing demands on government expenditure have squeezed spending on higher education. Exceptions are Sweden, Finland and Denmark where expenditure on higher education is over 1.5% of GDP and is almost entirely publicly funded. However, tax rates in these Nordic countries are already high and public expenditure is likely to come under increasing pressure as their populations age. Thus even in these countries there is a case for reforms that enable universities to be less reliant on public funding, though it is less pressing than in the major European countries where such reforms may be essential to remedy current under-funding.

Greater financial contributions from students should be an important part of these reforms. The reforms in the United Kingdom will enable universities to charge fees of up to £3,000 per year. These fees should not only help provide more resources, but are a fairer basis for funding higher education too. After all, while the economy as a whole, including its businesses, needs skills to thrive, it is the students themselves who benefit most from higher education. In France, Germany and the United Kingdom, those with a university degree earn, on average, between 60% and 80% more than those without post-compulsory education and are also at a much lower risk of being unemployed.

Nevertheless an important concern is that high up-front tuition fees might affect access to education, particularly for lower income groups. The UK’s solution is to “study now, pay later”, thus allowing students to defer the payment of all fees until after they have graduated. Indeed, they will only be required to repay installments or “graduate contributions” when their annual income exceeds £15,000, so providing a form of insurance against the graduate becoming unemployed or finding only a lower-paid job.

Moreover, students from the lowest income backgrounds will be exempt from paying the first £1,125 of their fees and will be eligible for generous maintenance grants to cover living costs. Similar schemes have run for more than a decade in both Australia and New Zealand, and have not compromised access among less well-off students.

In New Zealand, since the introduction of student loans in 1992, participation in tertiary education has almost doubled, and the number of young people entering it is today the highest in the OECD. Moreover, the share of students from Maori and Pacific ethnic groups increased from 9% in 1990 to 24% in 2001. Australia introduced fees in 1989 and they have had little effect on the socio-economic mix of students.

Fostering wider access to higher education probably depends more on investments in early childhood and compulsory schooling. Much of the rise in education spending in the UK since 1997 has gone into nursery and compulsory education, with notable improvements in schools in more disadvantaged areas. For example, the number of schools where less than two out of three students reach the expected standard for 11-year-olds has been halved since 1996. Building on these improvements, while expanding higher education based on contributions from those who benefit from it, is the most effective way to improve equity in education.

One of the more controversial aspects of the UK reforms is that fees will vary both across different courses and universities. The intention is to provide a means by which the most successful institutions and courses can attract more funding. Experience from abroad suggests fees to study the arts may be lower than, say, for medicine, science and law.

Such variable charges may be more efficient to the extent that they better reflect both the relative costs of courses and the relative incomes which graduates will earn later. But it raises some thorny questions about whether certain courses judged important for growth, for instance, should be subsidised.

The New Zealand government, for example, is considering re-orienting public funding in order to encourage more students to sign up for courses in engineering, mathematic and computer science. Similarly there may be a case for supporting students intending to follow careers in key public services, such as teaching or health, which are expanding rapidly in the UK. But even in such cases it is preferable that any subsidy be explicit and targeted, rather than implicit because a uniform fee is imposed across all courses. While the UK reforms to higher education funding are an important step in the right direction, adding initially about 0.2% of GDP, expenditure levels will still fall well short of those in the United States. Higher education will therefore still face serious challenges and continue to rely on funding from stretched government resources.

Nevertheless, the UK graduate contribution scheme, following the previous experience of “study now, pay later” funding schemes in Australia and New Zealand, could be a role model for other countries in Europe. Such an approach is the fairest way to strengthen their higher education systems for today’s global knowledge-driven economy.

References

OECD (2004), Economic Survey of the United Kingdom, January. The part of the Survey addressing higher education funding together with further reading recommendations is available on the Survey homepage: www.oecd.org/eco/country_survey/unitedkingdom

©OECD Observer, No. 242, March 2004




Economic data

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive print editions delivered to you directly


Online edition
Previous editions

Don't miss

  • "Countries that are home to high proportions of immigrants tend to have better integration outcomes”, according to the OECD Indicators of Immigrant Integration 2015, released on 2 July 2015. Read more on The Guardian.
  • The People’s Republic of China decided to enhance longstanding collaboration with the OECD and to join the OECD Development Centre, in a historic visit by Chinese Premier Li Keqiang on 1 July to the OECD in Paris.
  • In order to face global warming, Asia needs at least $40 billion per year, derived from both the public and private sector. Read how to bridge the climate financing gap on the Asian Bank of Development's website.
  • One dollar in aid for trade generates eight dollars in extra trade for all developing countries and 20 dollars for low-income countries. Read OECD Secretary General's post on the newly released Aid for Trade at a glance 2015.
  • In the US, many part-time workers were left behind by the economic recovery. The vast majority of the nation’s 26 million part-time workers receive no benefits beyond their paychecks and almost one-third say their financial condition is flat out poor. A Market Watch article.
  • Where in the world are you most likely to be working too much—or napping? Read the results on Quartz.
  • Catherine Mann, OECD Chief Economist, explains on Bloomberg why "too much bank lending can slow economic growth".
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .
  • Come va la vita in Italia? How's life in Italy? The OECD Better Life Index is an interactive online platform in seven languages that goes beyond GDP by offering important insights into measuring well-being and quality of life. Try it for yourself!
  • Millions of refugees have been condemned to a life of misery in the worst displacement crisis since the second world war, according to Amnesty International. Read more on The Guardian.
  • What does it mean to live on less than US$2 a day? Xavier Godinot, Delegate for International Affairs of ATD 4th World and René Locqueneux, a member of this NGO, gave an insightful presentation on the topic based on their field experience, at the 2015 OECD Forum.
  • How to jump-start slack investment to drive global growth and jobs dominated discussions at the annual OECD Ministerial Council Meeting, chaired by the Netherlands, which ended 4 June.
  • The IMF calls for a decisive energy subsidy reform in order to use the freed resources to meet critical public spending needs and to reduce pollution ahead of the Paris climate change summit.
  • More than 35 million young people, aged 16-29, across OECD countries are neither employed nor in education or training according to the newly released OECD Skills Outlook.
  • Have a look at these posters representing a world without fundamental rights at work – including child labour, forced labour and inequality. Read more about this ILO image competition here.
  • Rising inequality threatens social cohesion and growth. Income inequality has reached historical highs in most OECD countries and is still rising.
  • Time to vote! As the dust settles after the UK general election, let’s remember that voting at the ballot box is not an innate right enjoyed by everyone. Indeed, although the number of democracies across the world has spiked from 48 in 1989 up to 95 today, billions of people are still living in non-democratic, authoritarian regimes.
  • How can we achieve a zero-carbon future? A new World Bank report provides a few insights.
  • Today alcohol causes more deaths worldwide than HIV/AIDS, violence and tuberculosis combined. In order to reduce damages to health, the OECD recommends that regular drinkers reduce their consumption by one unit a week, that is, a small glass of wine for example. In addition, increasing prices, regulating advertising, effectively treating drinking problems together with stricter police enforcement would greatly contribute to reducing damages done to individuals and society.
  • video alcohol
  • Africa vs profit shifting African countries heavily rely on the income generated by multinationals’ taxation, which can represent as much as 88% of a country’s tax base. Little wonder Africa is involved in the OECD’s initiative to address tax base erosion caused by profit shifting, known as BEPS. The need to strengthen inter-governmental co-operation to curb cross-border tax losses was reaffirmed at the Africa Tax Administration Forum (ATAF) in Sandton on 21 April 2015.
  • Africa v. profit shifting
  • Rana Plaza
  • Wal-Mart, Other Retailers Sued over Bangladesh Factory Collapse Two years after the April 24, 2013, Bangladeshi factory collapse in the capital of Dhaka, the victims' families filed a lawsuit in U.S. federal court in Washington against Wal-Mart Stores Inc and other U.S.-based companies that sourced out their products from the Rana factory. Read more on Telesur's website.
  • Today, after three years of drought, California is in the midst of a full-blown political and environmental crisis, with restrictions imposed across the state, reports the Financial Times.
  • Lack of water holding back Asian growth In Asia, the world’s most dynamic region with the fastest economic growth, 75% of countries face serious water shortages.
  • ADB water
  • Why is the gap between rich and poor growing despite rises in GDP? Do benefits help? Does aid work? (The Guardian)
  • Greek finance minister Yanis Varoufakis expressed its scepticism towards the Eurozone’s institutions and gave ideas for ways forward. "Greece must become reformable again", Yanis Varoufakis said.
  • Business brief: Israel's water
  • #OECD360: Your country in figures.
  • How to ensure transparency in public procurement? Read Cobus de Swardt's article on OECD Insights.
  • Asia to maintain a strong 6.3% growth rate in 2015 and 2016, according to the Asian Development Bank
  • After three decades of extraordinary economic development, China is shifting to a slower and more sustainable growth path, according to the OECD's latest Economic Survey of China.
  • In pursuit of the American Dream
  • Iceland's strong recovery stems from the good use of its natural resources, the energy sector and tourism according to Peter Dohlman, IMF Mission Chief for Iceland.
  • cyclone
  • Government representatives and experts from around the world are gathering in Japan this week to develop a post-2015 framework for global disaster risk reduction. The World Bank and the Global Facility for Disaster Reduction and Recovery (GFDRR) will share expertise at the conference.
  • Switzerland’s recent moves towards greater tax transparency were welcomed by the Global Forum on Transparency and Exchange of Information for Tax Purposes, based at the OECD, as a boost to international efforts to end tax evasion. Work will continue with Switzerland, notably on implementation, in 2015.
  • Help bridge the gap between business integrity policies & practices:participate in this new OECD survey by clicking on the image.
  • What can we do to promote better literacy skills for all? Read Andreas Schleicher's latest blog on oecdeducationtoday.
  • Secretary General Angel Gurría describes the Programme for International Student Assessment (PISA) as a useful tool to enhance educational systems but states that improving a country's ranking should not be a goal per se. Article in Spanish by El País.
  • pisa
  • [VIDEO] Although many countries have made great progress in narrowing gender gaps in education, new challenges are looming.
  • Tim Harcourt Video
  • G20 and Australia: Bestselling economist Tim Harcourt speaks to the BBC about how Australia has gone from "Down Under to Down Wonder".

Most Popular Articles

Poll

What issue are you most concerned about in 2015?

Euro crisis
Unemployment
Global warming
International conflict
Other

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2015