Governments should beware the politics of tuition fees

Last year, I received an unexpected cheque from the taxman. The reason? I had successfully paid off the last of my student loan and as a result I had overpaid on my tax return. (UK students’ tuition fees are deducted at source alongside their taxes if they are salaried employees, or when they fill out their tax returns if they are self-employed.)

I thought long and hard about what a milestone this was, my good fortune in being able to do this while still doing a job I love and how I could best use this windfall to invest in my future, before going out and buying a PlayStation 5.

One criticism of Joe Biden’s plans to cancel $10,000 of student loan debt for low to middle income graduates is that American graduates will, like me, think about their windfall, and then go out and stoke some good old-fashioned inflationary consumer demand. But it is possible, of course, that extrapolating from the behaviour of one affluent UK graduate to millions of American graduates on low and middle incomes is not particularly helpful.

The more useful political lesson runs the other way. Biden’s plan is what happens in a democracy once graduate voters become sufficiently numerous and electorally important that they can do what voters have almost always done: lobby for financial relief.

That has implications well outside the US. In France, for example, private universities charge flat three-figure registration fees to domestic students, while in England, graduates effectively pay an additional form of income tax until either they have paid off their tuition fees or for 30 years after graduation.

The American model manages to combines most of the downsides of French-style flat fees and large UK-style debt balances, without any of the mitigating factors in either system. French students can choose to study at state institutions and apply for scholarships at private universities, while repayments from English graduates are automatically deducted alongside their salaries and are contingent on the ability to repay. Some US graduates are saddled with mortgage-style loans in which they face the same monthly payment when they graduate, whether their first job is serving coffees or on a trading floor, and not all can switch to income-contingent loans.

But in all three countries, attempts to increase fees on students are the subject of fierce political resistance by students and the young, while proving a handy way for states to magic up extra revenue for higher education and to keep debt off the books. (Until a 2018 ruling by the UK’s Office for National Statistics, successive British governments were able to pretend that all tuition fee expenditure was private, despite the fact a large chunk of it will never be repaid by the borrower.)

In policy terms, tuition fees have been a stunning success. In the UK, they have effectively allowed a stealth increase in income tax on most middle and high income workers. And across the developed world, the appetite for university degrees has proved to be astonishingly price-resistant: ever-increasing tuition fees have gone hand-in-hand with ever-larger numbers of students.

But the policy has come with a cost. The UK model is a better deal for middle and lower-income graduates than the US one, but it still represents a considerable increase in the de facto tax burden. One irony of the politics of tuition fees is that an NHS consultant complaining about paying the additional rate of income tax sounds rightwing, but doing the same about their tuition fees is considered cool and progressive. But the impact of both policies is identical: they make practising medicine abroad or in the private sector more attractive than continuing to work in public healthcare in the UK.

The fees model also has knock-on consequences for academic freedom. Campus politics has always had illiberal elements, but it is easier to ignore student demands to sack a professor or rewrite a course syllabus when individuals do not influence a university’s bottom line.

As graduates become more numerous in Europe, what you might term the “Biden tipping point” inevitably makes tuition fees a less attractive policy option. As indebted graduates become more numerous, they become politically powerful enough that tuition fees cease to be a clever way of stealthily increasing income tax, and become every bit as politically painful as openly raising it.

Tuition fees, then, are becoming a lot like the degrees they pay for: an attractive option for those considering them, but one with upfront and long-term costs that governments may decide in the end aren’t worth the candle.

stephen.bush@ft.com



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