8 September 2017
by Bruce Chapman

Should there be ‘free’ higher education?

Professor Bruce Chapman discusses the economic case for students/graduates being charged tuition fees.

In the UK’s recent General Election, Labour leader Jeremy Corbyn did much better than expected. During the campaign Mr Corbyn came close to implying that a UK Labour government would be likely to abolish university fees (introduced in 1998, and sharply increased in 2012) and might go a fair way to reducing the large debts of recent graduates.

While statements from Mr Corbyn since the election cast some doubt on what Labour’s policy actually is, the ‘free higher education’ issue is out and about in media and political circles. This article poses the questions: what is the meaning of ‘free higher education’?; what is the economic case for students/graduates being charged tuition fees?; and, if tuition fees are to be charged, how should this be done in order to ensure the access of the poor?

The contemporary higher education debate in the UK is reminiscent of the controversy in Australia in 1989 when the ALP in government introduced the Higher Education Contribution Scheme, thus ending 15 years of tuition-free universities. There is a chilling familiarity across time and space.

What exactly is ‘free’ higher education? This is trivial for economists because it is the essence of our craft that there is no such thing as ‘free’ higher education or, indeed, free anything. If higher education services magically dropped out of the sky with no apparent resourcing costs then who could be against this? It would be great if there could also be free food, free health, free housing, free Willy, free love, free all other things.

Moreover, if ‘free’ was everywhere there would be no need for economists hanging around with their misery and dour insistence that there are trade-offs to be made with all public policy decisions. A world devoid of economists, how good would that be?

Sadly, this is fantasy. The provision of higher education uses resources that could produce other things, so universities can’t be ‘free’. What ‘free’ actually means is a zero cost to be paid by students and graduates. And if it is free to the users, this then must mean financed by government; that is, all taxpayers.

Recognising this truth changes the nature of the question to: ‘should university services be financed entirely by taxpayers and involve no specific contribution from the users of the system, students and graduates?’ This then is to pose the question: ‘who benefits from university education?’

There are two likely possibilities, society generally, and the graduates themselves. For the first it is recognised that there are indeed social benefits in the higher education process, and this justifies a subsidy, it’s just that nobody knows how big the subsidy should be.

But with respect to the private labour market, it turns out to be pretty easy to ask and find out if people with a university education fare relatively well in the labour market on average.

The answer is unambiguous: undertaking higher education delivers healthy returns to most participants, maybe as much on average as $1.5 million more than non-graduates over a typical lifetime. It doesn’t take much imagination to get this, at an extreme just think, for example, about professional incomes – such as those of lawyers, accountants, doctors, academics and dentists – and compare these to non-graduate incomes – such as those of retail workers, factory workers, unskilled labourers and most hospitality workers.

Basic economics suggests that she who benefits should be she who pays, so that markets operate efficiently. Perhaps more importantly, there is a really big point in this issue related to social justice, and it is the key point always raised by economists in the context of ‘free’ higher education.

This is that if there are no charges paid by graduates, then there are subsidies going from all taxpayers (read, including all taxpayers without a university education) to those who are on average lifetime advantaged (read, most graduates). In other words, advocating ‘free’ universities is equivalent to supporting financial assistance going from the poor to the privileged.

This inescapable conclusion is a bit weird, isn’t it? Doesn’t it imply that the so-called ‘progressive’ argument for ‘free’ higher education is seriously misplaced, that is, in distributional terms, incorrect? Doesn’t it mean that those on the left of politics advocating charge-free universities are in effect arguing for a policy that discriminates against those who would never get the chance of a university education?

Yes, it does mean these things, and the point was recognised clearly by Karl Marx (A Critique of the Gotha Programme, 1875) who wrote: ‘If in some states… higher education institutions are also “free”, that only means in fact defraying the cost of education of the upper classes from the general tax receipts’. 

The Karl Marx position, which is also shared by the vast majority of economists in both the UK and Australia, underlay a critical motivation for the introduction of HECS in Australia in 1989. This was that the no-charge Australian university system, which began in 1974, was regressive; in distributional terms, unfair. This didn’t stop the opponents of the re-introduction of tuition, those on the political left, from doing their best to stop the 1989 reform.

This doesn’t mean that governments should just allow universities to charge fees. This is because allowing tuition to be charged might well stop the participation of prospective students without the money to pay them.

This is where student loan systems, such as HECS, come in. With HECS no student needs to find money to pay tuition to enrol, which really matters to the poor since they can’t afford it; the payments come later and only when there is sufficient personal income to make this fairly easy.

Emerging now in the UK is a debate about the meaning, and consequences, of so-called ‘free’ higher education. This is pertinent to our own public policy history in Australia with respect to the re-introduction of university charges almost 30 years ago.

This blog was written for the Australian Financial Review.