College News

How to fund our education – graduate tax over student loans

Lack of Funding
We are facing a crisis in funding third level education.
 
We need to increase our current higher level funding by 50% over the next decade, from €2bn to €3bn.
 
Participation in higher education is currently 56%. Even if this level does not go up, enrolments will increase by one third by 2028 due to population growth.
 
Our education system is also worse than average in terms of spending per student compared to the EU.
 
This has recently been reflected in university rankings. Where Trinity and UCD were ranked in the top 100 universities in the world in 2010 (43rd and 89th respectively), Trinity is now placed 174thand UCD is 174th. 
 
The Importance of Higher Education
There is a growing risk that our quality of education will fall even further if we do not make a significant investment in it.
 
This is something we should worry about, especially when you consider the many ways in which higher education improves our society.
 
Having a highly skilled workforce attracts foreign companies to invest in our country and encourages businesses to stay, increasing the number of available jobs.
 
Education nurtures culture and civic engagement and generates research which improves our society.
 
University can make an important contribution to maintaining our democracy by teaching students skills of critical reasoning, debate and the evaluation of ideas, as well as generally increasing our knowledge of the world around us.
 
Additionally, there is a huge personal benefit to us personally when we engage in higher education, including enhancing social mobility, increasing our skills and knowledge and improving our financial wellbeing. 
 
Graduates earn on average 75% more over a lifetime and currently hold one half of all jobs although they only make just over on third of the population of working age. 
 
According to the OECD, taking into account the direct cost to the state of putting someone through university, including lost earnings for the years they are studying, they still make a 25% return on average on their investment. 
 
Talk to any investor and they will tell you those levels of returns are generally only seen on Ponzi schemes.
 
For all of these reasons we should take funding seriously.
 
Students Loans vs Graduate Tax
The question then becomes how we fund our third level education system.
 
The Expert Group on Future Funding for Higher Education suggests that we implement a study now, pay later scheme such as a student loans system or graduate tax.
 
While I would love if we could provide higher education absolutely free of charge, recent circumstances have shown that it is not possible in practice.
 
If the Labour party, part of the same Government that introduced free higher level education back in 1995/1996, could increase the student contribution to €3,000, then we should be aware that the funding is just not there.
 
However, I believe that system should come in the form of a graduate tax rather than student loans which the Government have suggested.
 
The costs of setting up and administering a loans system are substantial. 
 
It may also encourage graduates to emigrate in order to escape their debt, which does not follow them to another country. We see this happening in the UK where at least £40 in every £100 of loans has to be written off.
 
We are also seeing an increasing problem, especially in the US, where graduates are leaving education with a crippling level of debt. This debt is counted against them when they attempt to get loans or mortgages, incurs penalty fees when it is not paid, and can never been written off even if you become bankrupt.
 
While a graduate tax would have some of the same problems as a student loans system, in that there will be a time lag before money is collected and that it costs money to collect it, it is administratively simpler.
 
The rate of tax is proportionate to your earnings and suggested rates are quite low; the scheme proposed by the National Union of Students in the UK includes rates of between 0.3% for the lowest earners and 2.5% for top earners, starting on after students earn above a certain amount. 
 
This is compared to the 9% students pay on average of their incomes under student loan schemes. 
 
Repayments would be interest free.  Unlike the student loan scheme there would be no personal debt after you’ve left university which could deter potential students.
 
There is also less of a temptation to emigrate under this system.
 
Most people don’t consider future income tax ‘debt’ and there are very few people who emigrate in order to take advantage of lower tax elsewhere.
 
The government in turn won’t have to pay grants except for maintenance fees since university would be free at the point of entry, lightening administrative costs in this area. 
 
Importantly, it takes into account a student’s future earnings rather than their parents’ income. This eliminates the problem we currently have under our means tested system in which an individual’s parents may either be unable or unwilling to pay for university even if they can afford it. 
 
A graduate tax would also raise more money than our system of registration fees as graduates will pay back the full cost of their degrees over time. 
 
Depending on whether the system is capped it could also mean that students repay their fees many times over, raising significant revenue for investment in education. 
 
If we believe that higher education is important then we should be willing to put our money where our mouth is.