Tag Archives: Student loan

Lessons from the End of Free College in England

 

By Judith Scott-Clayton, Richard Murphy and Gill Wyness

This blog is based on a full-length article published at https://www.brookings.edu/research/lessons-from-the-end-of-free-college-in-england/

 

Earlier this month, New York became the first US state to offer all but its wealthiest residents free tuition at public four-year institutions in the state. This new ‘Excelsior Scholarship’ doesn’t make college completely free, nor is it without significant restrictions. Still, it demonstrates the growing strength of the free college movement in the United States.

The free college movement in the US is typically associated with liberal and progressive politics, and motivated by concerns about rising inequality and declining investments in public goods like education. Americans are thus sometimes surprised to hear the story of the end of free college in England was built upon very similar motivations.

Until 1998, full-time students in England could attend public universities completely free of charge.  Two decades later, most public universities in England now charge £9,250 – equivalent to about $11,380, or 18% more than the average sticker price of a U.S. public four-year institution.

Has this major restructuring of higher education finance over the last twenty years led the English system backwards or forwards in terms of improving quality, quantity, and equity in higher education?  We find that at a minimum, ending free college in England has not stood in the way of rising enrollments, and institutional resources per student (one measure of quality) have increased substantially since 1998. Moreover, after many years of widening inequality, socioeconomic gaps in college attainment appear to have stabilized or slightly declined.

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US Elections: messing with the small print won’t address the issue of student debt

by Richard Murphy

Higher education finance might be the last thing on America’s minds when they cast their votes on Tuesday. However, the fact that both candidates have set out plans to reform the US’ student loan repayment schemes is perhaps indicative of the importance of this issue in the US. The problem is, both candidates are just messing with the small print, and their plans which will do very little to help graduates struggling with student debt.

Trump intends to push for an income-driven repayment plan that would increase the level of the payments students have to make (by increasing the cap on payments from 10 to 12.5 percent of income) but reduce the repayment period to 15 years from its current period of 20-25 years (depending on the scheme). Meanwhile Clinton has endorsed the current plans, with the caveat that she aims to simplify the number of plans.

But will these proposals help students who are struggling with their loan repayment? The short answer is no.

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Choosing the type of income-contingent loan: risk-sharing versus risk-pooling

By Maria Racionero & Elena Del Rey, Centre for Economic Policy Research, Research School of Economics, Australian National University

There is a growing trend around the world towards increasing students’ contributions to the cost of higher education. One of the advantages is that, when students pay for their education, they do so in the country where they study. Relying on tuition fees to finance higher education can however be both inefficient and unfair, preventing access to higher education to liquidity constrained but academically deserving individuals. Even if loans are available, risk aversion can negatively affect participation. Income-contingent loans (ICLs) provide insurance against adverse labour market outcomes by making repayments dependent on the amount of income earned. In particular, no repayment is typically due when earnings are below a minimum income repayment threshold. Australia was the first country to implement in 1989 an ICL scheme to finance the cost of higher education, and other countries have since adopted similar schemes. These schemes have traditionally relied on general taxation to finance part of the cost of education, and most notably the cost of education of those unable to achieve the minimum income repayment threshold.

In Chapter 8 of “The Mobility of Students and the Highly Skilled: Implications for Education Financing and Economic Policy”, we explore the choice between two types of ICLs: one partly subsidised, often denominated risk-sharing ICL, where the cost of the education of the unsuccessful students falls on the taxpayer; and the other self-financed, often denominated risk-pooling ICL, where the cost of the education of the unsuccessful students falls on the successful graduates of the cohort. Our purpose is to capture the situation faced by governments, such as those in Australia or UK, considering switching from partly subsidised to mostly self-financed funding schemes, while still providing insurance through income contingent repayments.

We consider individuals who are risk-averse and differ in their ability to benefit from education and inherited wealth. We first compare the higher education participation achieved with each scheme. We then show how each individual’s preference over the schemes depends on her ability and wealth and characterise the majority voting outcome. We identify circumstances under which the self-financing ICL is supported by a majority, even if a proportion of those who always study regardless of the scheme in place – precisely those with relatively higher wealth and ability – prefer the subsidised to the self-financed ICL.

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Who pays for free higher education? The case of Scotland

By Lucy Hunter Blackburn

Student debt is not really an issue in Scotland.  This common belief is based on the country’s well-known policy of free tuition. It is pretty much true, for Scots whose families can cover their living costs in cash or kind.  The picture is different, however, for those whose starting point is less privileged. Indeed, Scotland is an instructive case for what happens when fees become the whole focus of political debate about student debt and “ability to pay”.

Lucy Hunter Fig 1

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Is our HE system too complicated?

Now that we have reached the 50th anniversary of the Robbins report, which paved the way for the mass expansion of the UK higher education system, it is worth examining whether our system of university finance has evolved accordingly.

In terms of finance, we’ve come a long way from the days of Robbins. Back in 1963, the system consisted largely of maintenance grants for poor students. There were none of the tuition fee loans, maintenance loans or bursaries that are such important aspects of today’s system. While we can argue about whether asking students to contribute to their education is a good or bad thing, there’s no doubt about the increasing complexity that the introduction of these aspects of finance has brought. Continue reading →