Are English university students right to be upset about high fees?

Since the British Labour Party did unexpectedly well in last month’s UK elections, on the back of strong support from young people in particular, university fees have turned into a big issue there. The Australian‘s High Wired column hints that this ‘international narrative’ might arrive on our shores.

Both free and high-fee higher education systems can perform reasonably well on measures such as levels of educational attainment. The chart below has lagged fee data to capture the time 25-34 year olds went to university, but the broad patterns are evident. People living in high fee countries tend to have relatively high rates of holding university qualifications. Low attainment countries have low or zero fees, but there is also a cluster of low or zero fee countries with high attainment.

There are many country-level complexities in this analysis (for example, German low attainment may not be a problem given the structure of their economy and strong vocational system). But generally the cost of high attainment has to be met with high taxes or high fees.

In most countries, these alternatives fit into coherent packages: in high tax countries, the government pays all or most of the costs of education, as well as other social benefits and services. In low tax countries, the government subsidises education and other social benefits and services, but there is also substantial private payment.

A high tax/high fees combination would not work very well, as people would have too little disposable income to buy education, etc. services they need. A low tax/low fees system would not work very well either, as there would be too little combined tax and private revenue to finance a high-quality, high-attainment system.

The trouble in England is that they now have a combination of high current taxes/future taxes and very high fees. Most universities charge £9,000 a year regardless of course, or about $15,000. The highest annual student contribution in Australia in 2017 is less than $11,000, and many students pay just over $6,000.

Note: The chart uses government spending rather than current taxes to measure the longer-term tax burden.

All this would be difficult enough for English graduates, but they are also getting poor financial outcomes. Even five years after completing their degrees, graduates in many disciplines have median earnings of £25,000 a year or less ($42,000 or less). Earnings of recent graduate cohorts are lower than those of earlier cohorts in real terms.

We are waiting for a couple of big ABS data releases later this year to investigate Australian graduate financial outcomes thoroughly, but nothing released recently suggests things are that bad in Australia. The median income for bachelor degree holders here aged 20-24 (so typically 0-3 years out) is over $50,000 a year.

Cutting English fees could easily lead to lower quality and/or reduced student numbers, given the British government is still, like our own, struggling with deficits.

But the change to £9,000 fees in 2012 does seem to have created an anomaly in the English tax-welfare trade off, exacerbated by declining graduate incomes. Many disciplines now only receive subsidies via the student loan scheme. In countries with a big state, like the UK, graduates could reasonably expect more educational support for their tax payments than they are getting. The mismatch between the expectations created by the British tax-welfare system and the realities of student and graduate finances is contributing to big generational differences in voting patterns.

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