Should_Higher_Education_Be_Free_

Introduction Education has been the driving force behind the development of the human race and of the world. Education at all levels used to be free and provided by the government in the past in the UK. During the 80s and 90s, there was an increase in the number of students taking up higher education and a decrease in the funding that universities received. It became apparent that this way of public investment through the grant system was not supportable and a new way of funding had to be developed. This led to the introduction of education reform act 1988 which strengthened central planning of higher education and introduced Britain’s first large scale student loan scheme. In 1998, the newly elected labour government, with the help of the Dearing report, introduced flat tuition fees of £1,000 to be paid upfront (not covered by a loan), which would be income-tested so that students from poor backgrounds did not pay. The maintenance grant were abolished and replaced by a loan. In the year 2006/7 a variable tuition fee of £3,000 was introduced, loans were extended to cover fees and grants were restored. (Barr and Crawford, 2005) In the following essay arguments will be presented on why education should not be free to the students with the relevant economic theories presented and analysed. The essay will conclude with how the higher education should be funded. Why education should not be free. One of the main reasons why free higher education would not work is because it would not be practical from an economic point of view. Yes, it used to be free in the 50s and 60s. It was possible then because there were lot fewer students than there are right now. Making higher education free would rapidly increase the demand. The UK is not geared up to satisfy that kind of demand and the resources will prove to be scarce. Scarcity is the excess of human wants over what can actually be produced. Because of scarcity, various choices have to be made between alternatives. (Sloman and Hinde, 2007, p.p 20) When the demand goes up, in the short term this demand will have to met by the existing resources i.e. universities enrolling more students than they can handle. This will lead to the inefficient functioning of the universities, which will harm the university’s reputation as well as significantly decrease the quality of education on offer for the students. A good example of this is the NHS. In the longer term, with the population increasing, technological changes, rising expectation and more people wanting to gain education for free, the demand for higher education would further rise and hence rationing will have to be done. Due to the limited nature of resources (scarcity), choices will have to be made. The government will either have to: 1. Increase the resources significantly, by developing more universities, employing more teachers and so on. 2. Limit the number of places available to obtain higher education. Whichever choice the government makes, it has to carefully analyse the opportunity cost of the choice. The opportunity cost of an action is the best alternative foregone. Of all the things you choose not to do – the alternatives forgone – the best one is the opportunity cost of the action you choose. (Parkin, Powell and Matthews, 1998, p.p. 45) Whenever we make a choice, there is a sacrifice involved. This sacrifice is the opportunity cost. If the government decides to increase the resources significantly to meet the demand, then more money, labour, building, teachers, books and other various resources will need to be invested. To invest more resources towards education, those resources will have to taken from somewhere else (as resources are scarce). This is where we come across the law of increasing opportunity cost. The law of increasing opportunity cost states that the opportunity cost increases as more of a certain product is produced. This means that if we want to produce more of a certain product then we have to sacrifice increasing amounts of another product in an economy. The rationale behind this is that economic resources are not completely adaptable to alternative uses. (http://www.theshortrun.com/classroom/glossary/macro/opportunitycosts.html) The opportunity cost of investing more resources towards higher education would be the loss of investment towards other public sector fields like NHS, housing, transport, defence etc. As more resources are invested towards higher education, increasing amounts of resources will be deprived from other important public sector field. This situation can be better explained by looking at a diagram of the production possibility curve. A production possibility curve is a graphical representation of the alternative combinations of the amounts of two goods or services that an economy can produce by transferring resources from one good or service to the other. This curve helps in determining what quantity of a non-essential good or a service an economy can afford to produce without jeopardizing the required production of an essential good or service. It shows the trade-off between two goods or services. (http://www.businessdictionary.com/definition/production-possibility-curve.html) From the above diagram we can see that if higher education is to be increased from A1 to A2, then there has to be a decrease in the amount of all the other goods (NHS, housing, defence). In other words there has to be a trade-off. We can see the law of increasing opportunity cost in effect in the above diagram. The more the amount of higher education the economy decides to produce, the lesser will be the amount of all the other goods, it can provide. The government has to act rationally and look into the opportunity cost of both the choices discussed above and analyze the cost and benefits of that choice. Only when the benefits are greater than the cost, the choice should be made. Some may argue that providing higher education free at point of use has a lot of benefits like 1. It would ensure that everybody has equal access. 2. University education gives benefits to the rest of the society. 3. Students won’t have to take on part time jobs to pay the tuition fees and hence will be able to concentrate more on studies. 4. Students won’t have financial stress later on in their life (http://www.economicshelp.org/2007/10/why-university-education-should-be-free.html) The costs however are much greater than the benefits. If the government decides to invest more resources to make higher education free, then as discussed above the cost would be 1. Significant loss of investment in other public sectors. 2. Providing things free usually cause inefficiency. Resources will be misused. If universities have to raise finance themselves then they might be more efficient in allocation of resource. 3. If higher education is free then it might encourage people to go to university without particularly wanting to go. They might not have the right motivation. If students pay, they have the right motivation and the drop out ratio will decrease as well. (http://www.economicshelp.org/blog/economics/should-university-education-be-free/) As important as education might be, other public sectors like housing, NHS, defence etc are equally important for the economy. Depriving resources to the other public sectors and putting it towards higher education will not be possible in the UK especially in these financially troublesome times. The opportunity cost of this choice is simply too high. A lot of resources will be needed to satisfy the demand created if higher education is free. The government will end up investing more and more resources to satisfy this ever increasing demand, depriving other public sectors of important resources and we will end up with the situation that NHS is facing right now. If the government decides to go for the second option i.e. limit the number of places to obtain higher education then only the academically excellent students will be able to gain higher education and the rest of the population will be stuck without higher education. This will not certainly help towards achieving the 50 percent target of all 18 to 30 years-olds to participate in higher education by 2010. (http://www.guardian.co.uk/education/2007/mar/28/highereducation.students) Hence higher education should not be free for students as it is not economically practical. How higher education should be funded. After the variable tuition fees of £3,000 were introduced in 2006, a lot of people expected the demand for higher education to go down. On the contrary the demand has been rising. By the end of March 2007 there had been 5.2 % more applicants across the UK compared with March 2006, at 446765, according to admissions service UCAS. (http://news.bbc.co.uk/1/hi/education/6592043.stm) Education is a necessity. A small rise in the cost will not have a significant effect on the demand for higher education as suggested by the figures above. The demand for higher education is fairly inelastic. For the students, the rise in tuition fees might be a significant cost, however the benefit that they will get are much higher than the cost. With greater skills, the students are more likely to get higher paid jobs. Along with the private benefits to individuals, there are social benefits as well. Higher education has positive externalities. This means that the social benefits of higher education are greater than private benefits. For e.g. with a degree in medicine you could be a doctor and treat people, with a degree in economics or history, you could be a teacher and impart your knowledge. Education also increases economic growth. With more people getting educated, there will be less crime, less burden on NHS and less reliance on the benefit system. As benefits to the society is greater than private benefit, the government should very least subsidise the higher education. (http://www.economicshelp.org/blog/economics/should-university-education-be-free/) UK has for many years has been a major destination and provider for quality education. However in recent times it has fallen behind other developed nations like Sweden, Iceland and Portugal. The UK spends just 0.9 percent of its GDP on higher education, which is less than the 1 percent average spent by other OECD member countries. Between 2000 and 2007 UK’s graduation rate has increased from 37% to 39%, however the increase in other developed countries have been much higher. For e.g. graduation rate for Portugal rose from 18% in 1995 to 39% in 2007. These figures show that there is much catch up to do. Higher education in the UK is in serious need of more investment, if it is to compete with other developed nations, raise its graduation rate and decrease the proportion of “Neets” (teenagers not in employment, education or training) which is 8% of 15-19 year olds in 2007 compared to an OECD average of 4.8%. (http://www.timeshighereducation.co.uk/story.asp'storycode=408075 , http://education.icnetwork.co.uk/national-student-news/2009/09/10/uk-falls-behind-other-countries-as-more-head-to-univeristy-111036-24657764/) From the above two paragraphs we can see that the government have a big incentive to invest more in the higher education system. Investing a bit more in higher education in the long term would be beneficial to the economy as there are a lot of social benefits. Also looking at the figures we can see that the UK is spending less than the average spent by other OECD member countries and the graduation rate in comparison to other countries has not increased much. This serves as another incentive to the government to invest more in higher education. However, the government should not only be the one to bear the cost. The students should bear the cost as well. The three parties that benefit from higher education are the government, students and businesses. Hence all of them should be the main contributor. The existing fees structure of variable fees of £3000 should stay, as this is a reasonable contribution from the student’s side. However the widely anticipated rise on tuition fees in the coming year should not occur. As charging more than £3000 would be unfair on the students and would create more debt for the students and hence more pressure and stress. It would also reduce the demand of pupils wanting to get into higher education and the government’s target of 50 percent of aged 18-30 into higher education would not be met. The government should spend a bigger proportion of the GDP on higher education as it is spending below the 1 percent average spent by other OECD member countries. The universities could also charge higher tuition fees for the international student to create more funds. The government and universities should work together and develop relationships with the corporate sector and offer better incentives to them to create more sponsorships and endowments. The education market can’t work like a normal market mainly because the public does not have enough information. The public does not have enough information to make decision about what to study, where to study, why to study, how much help is available etc. The government should distribute more information regarding higher education along with the different types of loans and grants that are available. Most students don’t know what kind of help exists. Conclusion Making higher education free might be a noble thought and make sense to a lot of people; however from economic point of view it is not feasible as a lot of resources and capital will have to taken from other important public sector fields and applied to higher education. Even if more resources are invested towards higher education, there is no certainty that it will function well. The ever increasing demand for free education will always overwhelm the resources. We have seen this happen with the NHS, where year by year more and more resources are ploughed into it, without significant improvements. The higher education system is in need of more funding. This funding should come from the three parties that benefit from the graduates: the government, the graduates and the businesses. The government should follow the examples of other OECD member countries and invest a slightly bigger proportion of the GDP towards education, the students should contribute the current amount of variable tuition fees and businesses should contribute funds to the universities in the form of sponsorships and endowments. Type of reference: Details of reference: Book Barr, N. and Crawford, I. (2005) Financing Higher Education: Answers From The UK, Oxon:Routledge Sloman, J. And Hinde, K. (2007) Economics For Business,4th edition, England: Pearson Education Limited Parkin, M., Powell, M. And Matthews, K. 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