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Government Failure: Tuition Fees for Higher Education - Activity
This Activity is designed to investigate the effects of government intervention in markets and to assess the impact of such intervention.
The main reason for government intervention in any market is to correct a perceived market failure. This market failure may be due to the lack of provision of a good or service, too much provision or some form of perceived inequality or inefficiency.
Students outside university. © Stock.Xchng
In intervening in the market, the government is seeking to correct the problem that has been identified generally using some form of subsidy, tax, regulation, direct provision or other method. In so doing, the market failure may be partly corrected but may also have an impact on other related and non-related markets.
The problems surrounding so called government failure stem from a number of key areas:
- Lack of knowledge about what the public wants
- Lack of knowledge about the relative costs and benefits of a policy
- The distortion of markets, the price signal and incentives
- So called 'rent seeking' where the interests of powerful minority lobbyists get precedence over more pressing but less powerfully supported issues
All these factors are present in the case study below. The issue is very topical and highly relevant to all in education.
The main issues are as follows:
- The government want to boost the number of young people staying on to full time higher education to 50%. Such a policy could be seen as being part of a wider 'supply side policy'.
- There has already been a massive increase in the number of students going to university.
- There is a distinction between the education provided by the 'new universities' (former polytechnics) and the 'traditional universities' - the distinction may be based on prejudice, ignorance or plain snobbishness but for employers that distinction is a very real one.
- Graduates from the 'traditional universities' command higher salaries on completion of their course than those from the 'newer universities'. The demand for places at these universities is very high and such universities wish to have the flexibility to charge fees up to and possibly above £3,000 per year.
- The government recognises that there is a funding crisis in universities - the only way to fund universities is through general taxation or make those who go to university pay for the privilege.
- General taxation is seen as a subsidy to students - those who do not go to university have to subsidise those who go.
- Graduates earn far higher salaries than non graduates - in general the more education you get the higher your salary over the course of your lifetime - graduates therefore not only benefit from subsidy but also earn more than those who do not go to university - this is seen as being highly inequitable.
- Graduates could argue that in gaining an education they are more productive, flexible, creative, enterprising and efficient and provide significant benefits to society as a whole as a result of their education - it is only fair therefore that they should be subsidised at an early stage in their lives as they will pay it all back in kind throughout their productive lives.
- Opponents of top up tuition fees argue that it will deter students from attending university - especially those from poorer backgrounds; so instead of widening participation and access - a stated government aim - it will make universities even more the privilege of the middle and upper classes.
- The government points out that no student will be expected to pay fees up front and will only start paying back the debt when they get a job and start earning over £15,000 a year.
- In addition the government and supporters of tuition fees argue that there will still be a system of support for those from disadvantaged backgrounds and as such this will not be an issue.
- To counter this, opponents argue that it will possibly be those from the middle classes who will be caught in the middle of the financial problems that may be deterred - they are not rich enough to get support from parents but too wealthy to qualify for funding support.
Task
As you can see, it is quite a complex issue.
The following links will lead you to some facts and figures behind the arguments. Your task is to present a report outlining the case for and against the issue of top up tuition fees and to make a recommendation to the government on what course of action they should take.
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