Free education

#WhoMustPay?

There is no such thing as free education.  The question is rather: where should the costs be met?  Should they be by the individual learner, supported by a system of bursaries and loans?  Should they be by the state, through the tax system? Should the charge be directly to the private sector, as the beneficiary of an educated workforce?   #WhoMustPay?

Given South Africa’s toxic combination of racially-defined income inequality, high unemployment and slow economic growth, any reasonably competent enquiry must conclude that the state must play a major role through the right combination of public policy, taxation and redistribution.  The difficulty lies in getting from this evident truth to an equitable and sustainable set of solutions.

This is the task of the Commission of Inquiry, created by the President’s Proclamation No 1 of 2016, which has until mid-October to report.  Along the way the three commissioners have to investigate the feasibility of “fee free” higher education and training, taking account of the “multiple facets of financial sustainability” as well as the extent of “institutional independence and autonomy which should occur vis a vis the financial funding model”.  What are the broad issues that the Commission will need to consider?

A starting point is the particular – and peculiar – quality of education as both a “private benefit” and a “public good”.

At the collective level, we all benefit from the extent and quality of education, whether seen as a human right, a matter of social justice or in utilitarian terms, as an economic advantage.  In terms of rights, the availability of education to all provides equality of opportunity.  In terms of economics, increasing participation in all aspects of post-compulsory education increases economic competitiveness and growth, putting more money in the fiscus for health, schooling, housing, welfare and other aspects of public services and infrastructure.

But education is also a private benefit.  Everywhere, universities are gateways to the professions, making individuals wealthy.  Colleges provide training and expertise for industry and services.  Many have the advantage of the “graduate premium”; the return in lifetime earnings as a multiple of the cost of obtaining the enabling qualification.  Many unlock their competences, allowing them to achieve their ultimate ambitions and objectives, whether or not these are financially rewarded. Individuals with higher education qualifications can often chose what they want to do and where they would like to live.

Because education is simultaneously a public good and a private benefit, simple market models do not work.  This is evident in the failure of reforms to student funding in the United Kingdom.  Back in 2010, the newly elected coalition government went for a market model, removing almost all teaching subsidies and tripling student fees to a maximum of £9000 a year (about R200 000 at current exchange rates and about four times the level of fees at South African universities).  To enable potential students to take on significant personal debt, the government turbocharged the student loan system.  Investing in education was likened to contributing to a pension, or buying a house; part of the capital accumulated within the household, each imagined as small and successful business.

The argument, then, was that education is an overwhelmingly private benefit, bought and sold like another service. Student customers would shop by quality, looking for a return in terms of high salaries after graduation, and forcing lesser-ranked universities to charge lower fees to make up their numbers.  The government’s model anticipated an average fee level, across all universities, of about £6000 a year.

But this didn’t happen. Students didn’t behave like customers. They turned out to have far more complex motivations than a coldly calculated return on investment.  Universities were not punished for their positions in the league tables and within a year almost all had been able to raise their fees to the maximum of £9000 without suffering a decline in registrations. Because this resulted in a far higher than anticipated call on the state loan book than had been anticipated, Her Majesty’s Treasury got an actuarial migraine that has still not gone away. The public rage against the Liberal Democrats – the minority party in the coalition that had promised to abolish fees in its manifesto – was unrelenting and cost them dearly in the 2015 election.  Justice Heher and his colleagues on South Africa’s Commission of Inquiry could start with the British model as an example of failure.

Our problem in South Africa, and the unstoppable momentum behind #FeesMustFall, is that we currently have the worst approaches to both of these key aspects of education.

Today, a place at university is unaffordable to a broad swathe of low to middle income households. Any household that earns more than about R180 000 a year is considered too “wealthy” to qualify for a state loan through the National Student Financial Aid Scheme (NSFAS).  And a household needs to earn more than R500 000 a year before tax to be able to afford the fees and associated costs of supporting a single student at university.  Consequently, considered from the perspective of a large majority of potential students, our system looks and feels like a particularly draconian version of a neo-liberal, private benefit philosophy.  Students must find upfront fees and the majority of their living costs. In particular, they must clear their debt before they can qualify and try to get the benefits from their investment through employment.  Even Britain’s neo-Thatcherite model doesn’t go this far;  in the UK, everyone qualifies for a loan, there are no upfront fees and loan repayments only kick in with employment, and are repaid as a proportion of earnings.  South Africa’s students understand this, and they are in rebellion.

This private benefit feel to South Africa’s current student funding regime is in stark contrast with what is required in a country with one of the highest levels of income inequality in the world; a skewed household income distribution that coincides with continuing racial injustice.  There are all sorts of ways of defining and describing this.  One is to allocate all households to quintiles, based on estimates of their overall income.  The vast majority of education assets, from quality indicators in basic education to National Senior Certificate results to access to higher education, are concentrated in the top two quintiles.  This is evidently wrong in terms of human rights and social justice.  It’s also bad and dangerous for free-market advocates and those whose only motivation is to stay rich and safe; no country can do well if three fifths of its population are poor, alienated and increasingly angry.

Assuming that the overwhelming case for education as a public good cannot be disregarded, what comes next for the Commission?

There are two key requirements in the 14 January proclamation.  The first is that the Commission considers the viability of “fee-free” education and training and the “multiple facets of financial sustainability” that would follow from this.  The second is that the commissioners advise on the the extent of “institutional independence and autonomy which should occur vis a vis the financial funding model”.  Each has its own complexity and downstream implications.

If the Commission assumes that there can be no new money coming into the Treasury, then will it argue that full teaching subsidies should take priority over other national priorities, such as improvements to the health service, or provision of housing and service delivery, or investments in basic education? Alternatively, if the Commission’s answer to the financial sustainability conundrum is that more public money must be raised, should this come from an increase in Company Tax, on the grounds that the private sector is a major beneficiary of publicly-funded education and training?  Should the funds come from an increase in the marginal rate of income tax?  Or should financial sustainability come from a hypothecated graduate tax, as a way of paying back from  private benefits and to the continuing public good?  Each of these is a viable option; each needs to be carefully modelled.

It’s also significant the Commission’s brief is limited to the consideration of fees.  This means that its unlikely that Justice Heher and his colleagues will have anything to say about student living costs when they report in October.  But, for many families, student costs of living are the “other half” of the problem; fee-free education will be of no use if there’s no money for accommodation, food and the basic requisites for learning.  Consequently, it’s important that there is an effective and parallel process of reform for NSFAS, because NSFAS must be able to provide bursaries and loans for living costs in a fee-free education system.

The second plank of the Commission’s work – the relationship between the financing of education and institutional autonomy – is likely to exercise university administrators as much as the current costs of education disturb families across the country.

Again, Britain in 2010 is a useful mirror. The market ideal of the coalition government was that student customers would be attracted to highly ranked universities where they would be prepared to pay top price.  This would in turn allow these universities to expand, offering more and more student places, growing revenues and expanding their market share, rather like a successful retail business.  In this model, there need be no limit to student numbers, as long as state is able to recover an acceptable proportion of student loans.  A fee-free system is the polar opposite of this.  When the state is paying all the costs of learning and teaching through direct subsidies to the universities, there must be strong central control of student numbers because otherwise the government has no viable way of predicting and managing its expenditure.

Giving the Department of Higher Education and Training more control over the allocation of fully-funded student places to individual institutions will raise a host of additional issues.  Should, for example, the state be able to pursue the objectives of the National Development Plan by allocating more places in selected subject areas (and the Humanities always loose out in these arguments, everywhere)?  How will the costs of capital expenditure for teaching facilities be met, given the very different needs across South Africa’s campuses?  How would the department respond to the continuing need of long disadvantaged institutions, or to new universities?

Whatever the recommendations that are made in October, the outcome cannot be a compromise. Simply freezing fee increases again for 2017 will destroy universities because of the inexorable march of inflation, while continuing to exclude large numbers of potential students, and continuing to subsidize wealthy households. #FeesMustFall leads directly to #WhoMustPay?

The Heher Commission is set to have a busy year.

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