In funding higher education institutions, several issues need to be resolved. These include: whether to fund teaching and research together; whether research should be funded selectively; whether students and other private beneficiaries should contribute to costs and, if so, in what proportion; what form private contribution should take; and whether there should be limits on what institutions can charge, and how these should be determined.
All of these are highly relevant in determining both institutional and student behaviour.
Increasingly, research and teaching are funded separately, as they have been for many years in the major Anglophone systems. Also important, at least in systems where research is conducted alongside teaching, is the basis of the research funding.
Federal research in the US has always been allocated selectively, as has public research funding in Britain, Australia and New Zealand since the mid-1980s. More recently France, Germany and Japan are among countries that have begun to fund selectively by designating 'centres of excellence'.
In all cases the effect, if not the cause, has been to concentrate research funding in a limited subset of institutions. As well as gaining financial advantages, these institutions have obtained additional prestige that the national and international university rankings or 'league tables', based as they typically are on research performance and resources, have reinforced.
Cost sharing, where the costs of student education are shared between the state and the student-family, is increasingly accepted across the world although the path has not been a linear one. The reasons are both necessity (the rising costs to the state as systems expand) and equity (why should those who do not receive the direct benefits of higher education subsidise those who do?).
The issue is more what share of the costs should be borne by students-families and what proportion by the state through subsidies to institutions.
In this context, the full-fee approach that will apply in England after 2012 poses a direct threat to the ability of English higher education institutions to cross-subsidise courses, and thus offer a balanced curriculum and a wide range of offerings.
It also threatens the supply of public goods as the public good is reduced to the sum of individual student choices and private goods.
In most cases, the student contribution to the cost of teaching takes the form of a tuition fee ('tuition'). Tuition can be paid 'upfront' at the start of a course, possibly with a discount for 'early' payment, or via a loan, which may or may not be subsidised.
There is a considerable body of evidence that an income-contingent loan, where the level of repayment is subject to the borrower's economic circumstances at the time of repayment, is preferable to a mortgage-style loan where, short of bankruptcy, no such facility is available.
There is also the question of whether borrowers should repay only what they owe, perhaps after allowing for inflation, or whether they should pay a higher amount related to their subsequent earnings, a true 'graduate tax'.
Should fees be capped?
The final major issue is whether tuition should be capped.
Here the US case is instructive. The leading US institutions charge fees, before discounts, of $50,000 and more. These are way above the average OECD figure for expenditure per student of $9,148 (according to the latest available figures cited in a 2011 OECD report).
They are able to do this because of the absence of direct, valid, reliable and accessible information about student education that would enable proper comparisons to be made between courses and institutions such as would be found in a normal consumer market.
Instead, indirect or symbolic indicators, such as status and reputation, linked usually to institutional longevity and resourcing, come into play. These resources include, in the US, donations and endowments that can be used to market the institution and its staff and students more effectively.
Because most of the expensive institutions are private they are not subject to the same degree of accountability as public ones. Yet the latter are compelled to compete with them by raising tuition, something reinforced by declining levels of state appropriations for teaching. The result is the 'academic arms race' that so many commentators have described.
In England, there will be a fee cap of £9,000 (US$13,800) after 2012. However, the 166% increase in the present £3,375 fee can be expected to have the same impact as the 'race to the top' in the US.
There will be much greater resourcing differentials between institutions, leading to greater stratification both in institutions and in the socio-economic constituencies they serve. There will also be a reduction in institutional diversity as smaller specialist institutions are absorbed into larger comprehensive ones.
The effect on demand is harder to predict. The introduction of variable fees in the UK in 2006 had little effect on student numbers, which is consistent with what has happened in most countries where fees have been introduced.
However, there is clear evidence that students from backgrounds unfamiliar with higher education, including many older students, are likely to be affected by the higher charges. This will either put them off university altogether or seriously constrain their choice of institution or course, for example, by obliging them to study from home whereas previously they moved away to do so.
It would be nice to think that the more prestigious institutions will use the additional revenues to improve the quality of their educational offerings.
However, US experience suggests that much of the additional revenue leaks into activities like research, administration, marketing, branding, enrolments, student residences and athletics facilities. These are things that have at best an indirect impact on student learning, but are seen to make for greater institutional competitiveness.
Welcome to the brave new world of higher education funding.
* Roger Brown is professor of higher education policy at Liverpool Hope University in the UK.
'The brave new world' of higher education funding seems to consist only of the US and UK. Interesting how from within the Angloworld the rest of the world seems not to exit. This is yet another example of the Anglocentric viewpoint (and a restricted form of that) somehow being taken to represent the whole world.
I wish such writers would look outside their little box and see what the rest of the world is doing.
Christopher Lloyd, The University of New England, Australia
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