Universities suffer under free-tuition regimes

A recent University World News article reported on the funding freeze to universities in New Zealand and said it appeared to be a direct consequence of the country’s new free-tuition policy in higher education.

This is bad news for New Zealand as the cut has occurred at the very beginning of the free-tuition programme when free tuition has only been awarded to first-year students for one year.

With the programme’s expansion planned to be completed in 2020, resulting in free-tuition higher education for all, there is no doubt that New Zealand’s universities could face a further freeze and even cuts in the future.

A zero-sum game

The financing of higher education is a zero-sum game. Institutions need a lot of money to function. Their budget comes from a careful balance between government funding, tuition fees paid by students and their families and third parties like businesses and philanthropists. When governments reduce or abolish tuition fees, they reduce or abolish a stable and reliable source of funding for institutions.

While governments might not always have enough funding to fund higher education – which leads to freezes and cuts – history tells us that there will always be students ready to pay for their higher education. Philanthropy and businesses are harder stakeholders to count on for regular income and significant input.

What is happening in New Zealand is by no means a first in the world of free-tuition higher education. When governments decide on a free-tuition policy, they become the sole reliable payer of the cost of educating students. But they also get to decide how much educating a student should cost through the budget they award to institutions.

At the same time, in most countries around the globe the number of students is rising, as is the cost of higher education. Introducing free-tuition policies therefore relies on the unrealistic expectation that governments will be able not only to fund higher education budgets but also regularly and consistently increase those budgets.

Quality or access?

The reality is that funding in free-tuition countries has often not been on par with expectations or what institutions need. This is also true of countries where tuition fees are low and regulated. Governments in these cases are left with two options.

The first option is to keep universities operating but on a comparatively smaller budget. This leads to underfunding of universities as in Germany or in Argentina. In Germany, the free-tuition system is accompanied by chronic underfunding, long time-to-degree and high drop-out rates. In Argentina, academic staff are underpaid and mostly work part-time only, while student drop-out is extremely high.

In these cases, the quality of public higher education – in particular teaching quality – is sacrificed to the idea of free-tuition higher education.

The second option for governments which try to sustain free-tuition higher education is to control the size of the public sector. In most countries – the only exception known to this author is Chile – free-tuition policies only apply to public institutions. By controlling the size of its institutions or the size of the places it subsidises in these institutions, governments have the opportunity to control their higher education expenses.

The government of Brazil chose the second option with a small, highly selective public sector, while tuition-free countries with dual-track schemes like Russia have chosen the first option. The main issue with size restriction is no longer quality but access, with restrictions often based on merit, thus favouring students from higher socio-economic backgrounds.

Other workarounds include increasing non-tuition fees to inject some money into the budget. However, in most cases around the world, except maybe Ireland, the level of these fees is quite limited, thus only providing institutions’ budgets with little relief.

The (un)sustainability of free-tuition systems

The case of New-Zealand teaches us that free-tuition higher education policies are doomed to generate issues, often as soon as they are implemented. The reality is that governments do not have an infinite pool of cash with which to fund higher education and the money to replace tuition fees will be limited.

In the short-term, higher education institutions in newly free countries will probably suffer from funding freezes as well as cuts. In the long run, they might have to choose between the quality of their system and open access. The ultimate solution might be to bring back tuition fees, if it is a conceivable political solution.

For New Zealand, the situation is even more complicated. The system New Zealand is replacing with free-tuition is what is currently seen as the best solution to higher education financing: income-contingent loans. In New Zealand, going back to income-contingent loans would be considered a step backwards, while in many countries it is seen as the future. Difficult times lie ahead for New Zealand.