Higher Education: Who Else Should Pay?

October 14, 2010

A recent report from the Independent Review of Higher Education Funding and Student Finance in Britain says higher education should be paid for by those that benefit from it: graduates, says Mark Harrison, a professor at the University of Warwick (U.K.) and a research fellow at the Hoover Institution.

It looks like a no-brainer, says Harrison, yet lots of people are showing signs of moral outrage.

A question the critics seldom address is:  Who else should pay for the degree?  The taxpayer is usually implied.  But here's the problem: tax-financed higher education involves a lot of poor-to-rich redistribution.

Today's students are a large chunk of tomorrow's wealthy.  Today's taxpayers, in contrast, extend well into the ranks of the poor.  

  • In the United Kingdom, you start paying income tax at an annual income of just £6,475 ($10,250).
  • Under the report's proposals, student loan repayments won't kick in until annual income reaches £21,000 ($33,265).
  • If the graduate's income doesn't make it to that height, the person pays nothing.

The private net present value of a degree, according to the report, is at least £100,000 (about $158,000).  If you include the "social contribution" from today's taxpayer, then it's a little more.  For the sake of argument, let it be £120,000 ($190,000).

Critics put the likely burden of student "debt" under the proposed arrangements at "well over £40,000 ($63,600)."

That sounds bad, but £120,000 minus £40,000 would still leave around £80,000 ($120,840) to enjoy, says Harrison.

Source: Mark Harrison, "Higher Education: Who Else Should Pay?" Mark Harrison's Blog, October 13, 2010.

For text:

http://blogs.warwick.ac.uk/markharrison/entry/who_else_should/

For report:

http://hereview.independent.gov.uk/hereview/report/

 

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