A case for means-tested fees

Since 2016, places as diverse as Chile, Ontario, New Brunswick, New York, South Africa, Italy and Japan have taken up variants of an interesting policy – an up-front tuition fee from which students from poorer families may be excluded.

This was, of course, the policy that England had between 1998 and 2006. The key difference is that in most of these countries, loans are offered to at least some students to enable them to pay the fee. In our new paper for the Higher Education Policy Institute, my colleague Robert Burroughs and I document the sudden spread of means-tested tuition fees around the world. From an English perspective, it is interesting to see why these jurisdictions are choosing this path, and what England gave up by moving to a system which ignored parental income after 2006.

A unique system

England’s current system – very high fees which can vary in the very long run based on lifetime earnings – is unique. Australia and New Zealand have fee deferral systems which are often described in similar terms but have two very big differences. First, the amounts owed at the end of a period of study are much smaller, which means most people pay them off in a reasonable period of time. Second, they are both supplemented by means-tested maintenance grants, where the means-testing includes a test of parental income.

In the rest of the world’s fee-paying countries, there are fees on the one hand, and systems of grants or tuition waivers on the other which offset the fees in different ways. Sometimes the offsets are universal (ie, not income-tested) such as Germany’s rather generous set of tax write-offs for education, or when governments or institutions provide free tuition based on academic merit (which remains the case in most of the ex-socialist countries of central and Eastern Europe). But more often, the offset is based on ability to pay, a calculation which in most countries very definitely includes family income.

Arguments against

There are three significant arguments against means-testing tuition fees. The first (not particularly substantial) one is that means-testing is costly – although one struggles to recall anyone claiming cost as a reason when means-tested fees and means-tested grants were abandoned in England. In Chile, for instance, the new means-tested tuition system is entirely integrated with the tax system – when the family files its taxes and receives its assessment, it knows whether family members are eligible for free tuition.

The second argument is that means-testing programmes lack political buy-in and stability compared to universal ones, that “programmes for the poor make for poor programmes”. This is possibly true in some places, though by no means universally so. In fact, the emergence of means-tested fee systems in many parts of the world in recent years demonstrates that political coalitions can form in favour of quite generous means-tested programs. And in any event, this would be an odd argument in England where students only see and believe the fee subsidies when they kick in thirty years later.

The third argument is perhaps the most philosophical one: why should we consider parental income once students reach the age of majority? Fundamentally, it is this principle of upholding the independence of tertiary education students from their families which underpins both the Scandinavian and English fee systems.

Senseless positions

But from an access or social equity point of view, this position makes no sense. There are enormous differences in how young people from low and high-income families approach HE from academic, cultural, and financial perspectives. If you go the Scandinavian route and implement free fees for all, you are giving massive windfall gains to the rich. If you go the English route and hide all of the subsidies, you are placing massive barriers in the path of the poor. It is true that the English experience shows that providing everyone with loans to cover tuition can go some way to improving access, but it still doesn’t go far enough.

International evidence shows that elasticity of demand for HE is greater among low-income youth than it is among middle and high-income ones, likely due to different perceptions (rational or otherwise) about the cost-benefit of HE. So to equalise chances, it is necessary to systematically put a lower net price on education for poor students than for richer ones. And given that poorer students tend also to have the most difficulty navigating complicated financial information, the easiest way to send a pro-access message to lower-income students is to simply say “it’s free”.

This is the answer

And that, in a nutshell, is the case for means-tested fees. Universities need fees to thrive and should be allowed to keep them. But a policy of undifferentiated fees poses a barrier to expanding participation to lower-income students – and while loans go a long way to helping these students, accompanying them with fee waivers or grants is still a better solution. The policy which achieves all this and communicates its benefits in the clearest and most succinct way is targeted free tuition.

When England pioneered this approach in the late 1990s, it coincided with a time which saw some of the largest gains in access ever for low-income and disadvantaged students. As the Augar review rumbles on, maybe it’s time to reconsider the policy’s merits – just as countries across the world are discovering them.

2 responses to “A case for means-tested fees

  1. The English tuition fee system is already means tested in a very real and meaningful way. I would argue that the current system is an even fairer way of means testing because it’s based on the incomes of the people who will have to pay rather than their parents – only the very richest families will be able to pay their child’s university fees for them. Plus it neatly sidesteps issues like parents who refuse to support their children, families with more than one child going to university etc.

    In my opinion it’s a problem of how the system is perceived, not the way it works. The “loans” framing means that people not paying back the full amount is seen as a problem, evidence of how low-income graduates are disadvantaged, rather than an advantage. I don’t think those complaints would have happened if the exact same system was called a tax with a maximum cap.

    Yes, the system has its flaws, especially the above-inflation interest rate that means graduates with the highest incomes pay back less than mid-income graduates. But in general it’s much fairer than giving some people crushing debt that they can’t get out of (you’re not going to have means tested fees AND income-contingent loans) while others graduate debt-free just because of how much their parents earned.

  2. Sure, it’s a question of how a system really works – which can be highly affected by the way people (parents and potential students) think it works. In the German tuition fee experiment of the late 0’ies a lot of states offered certain subsidies to fee payers, but this became intransparent and students often only found out that they didn’t have to pay the fee *after* they were matriculated – when the decision making process (to go or not to go) was over. So, predictability of the system is vital.

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