Sunday, December 12, 2010

University Fees: Cui bono? (Who benefits?)

Who are the real winners re the new University fees and funding arrangements, compared to, say, an income-tax based system of funding on which graduates are funded from general taxation (like we used to have)?

As the Ancient Romans used to ask: "Cui bono?" or "Who benefits?" Here's Cicero:

The famous Lucius Cassius, whom the Roman people used to regard as a very honest and wise judge, was in the habit of asking, time and again, 'To whose benefit?'

My suggestions, in this case, are:

(1) The banks who will be administering the complex loan system and making money from the huge debts graduates will accumulate at the start of their careers. These banks will have been talking behind the scenes with Govt. Ministers about how precisely they'll do this and what profits they might expect to make.

(ii) The very rich. When things are funded by general taxation, the rich pay more. When they are funded by fees and loans, they pay very much less. The bulk of the cost is pushed downwards towards the middle classes.

(iii) The upper middle classes, whose children, while already having a marked advantage in terms of university admission because they have been privately educated and primed for Oxbridge, will now face far less stiff competition for places at those elite universities (because the plebs will have been put off by the fees and debt). I imagine the parents of little Gideons and Lucindas up and down the country are currently rubbing their hands with glee at the massive boost their offspring's life chances have just received c/o posh boys Cameron, Osborne and Clegg.

The losers would seem to be everyone else, or rather, our children. Am I wrong?

As Cicero realized, sometimes, when you really want to understand what people are up to and why, you do better not to listen to their various arguments and rhetoric but simply to ask: "Cui bono?"

27 comments:

Anonymous said...

Given that people only pay their fees back after they're earning over a certain amount, and cease paying again if their earnings drop back below this level, isn't the tuition fee far more like another form of income tax (at least for the vast majority whose parents aren't going to just pay their fees for them) than a normal debt? That being the case, why is it that tutition fees are seen as so onerous for poor children whereas, say, increasing income tax rather than tuition fees isn't?

Stephen Law said...

Nice attempt to change the subject. I didn't mention the poor. Indeed, help for the poor is the "progressive" red herring that the Tories are cleverly using to obscure the points raised above. Like I say, let's keep our attention fixed on this for a moment: cui bono?

Tony Lloyd said...

Am I wrong?

Yep, 'fraid so:

1. There will be administration and profits to make out of administration. But "the banks" lust for large loans (to anyone) comes from the margin they can make on the loan. Borrow at 2%, lend at 5%, and you make 3% margin: the bigger the loan the bigger the margin. But whoever administers this will be making money on an admin fee only. The "public purse" stumps up the cash and is entitled to the margin. It costs the same amount to administer a £30k debt as a £10k debt so the profits for administrating it shouldn't be materially higher. Now, having been involved in Public-Private-"Partnerships" very little would surprise me about the total incompetence of the civil service in doing these deals but they shouldn't give out any more profit just because of the size of the loans.

2. There are plenty of things to spend money on (police, primary and secondary education, infrastructure, sorting out why we grind to a halt as soon as it gets a bit chilly etc.) and plenty of things we could save money on (Trident, policing such "terrorist activities" such as tweeting, owning books or chemistry sets etc). We could also vary taxes, should capital gains be taxed at the marginal rate of income tax? (an increase), should we take anyone on the minimum wage out of tax? (a decrease).

We could have higher taxation with the higher loans. We could have lower taxation with the loans. So the "increase tax" or "charge for education" dichotomy isn't there.

Don't get me wrong. I'm not saying all this fees stuff is great. But I don't think it's as bad as all that. I've got a 17 year old who should be going to university soon. What I tell him is:

a. It's not real debt! Real debt is when you're, say 30, and the alarm wakes you up and you think "I don't want to do this any more. I want to be a Lion Tamer. But I can't. I have to go to work because I have to pay the mortgage."

When you take out an HP agreement on a car you agree to pay £x each month. Or else. When you take out a student loan you agree to pay £x if you can afford it (an anyone earning twice the minimum wage can afford some repayment).

b. You cannot miss out on university just because it will cost you money later because it's worth every fucking penny! I'd be back tomorrow if it weren't for my real debt (see "(a)"), oh, and paying for the kids.

c. I then drop hints about how brilliant Warwick is. That his Dad met his Mum there, that his Uncle (Mum's side) and Aunt (Dad's side) went there due to his Mum and Dad's ravings about how good it was. The said Aunt met another Uncle there etc. (Of course, really, I just want an excuse to go back)

Rafael Zanatta said...

I think that's the point, Stephen. Analysing the whole
situation from the outside (here in Brazil), it makes perfect sense with
this new kind of capitalism that is being set up, the "bankocracy".

I think British students were betrayed by the Liberal-Democrats, because
they believe in a fake discourse of progress. Now the whole world (not only the
British) can see what they are up to.

I feel sorry the students. In Brazil, the government is trying to
increase the access to the middle-class and the poor to public education. It seems
that things are going the other way around out there. And some few are going to benefit a lot from this.

Anonymous said...

Well, Stephen, you claimed that poor people would be put off from applying, and when you said that "our children" would be the losers, you seemed to be referring to children from poor and lower-middle-class backgrounds. Furthermore, your entire series of posts on the matter seems to centre around the idea that the poor and middle classes will suffer from tuition fee changes, whereas the rich will be better off. Given all this, I don't think it inappropriate to raise the issue of whether poor or middle-class children will, in fact, be worse off under the government's proposals than under your proposals to fund tertiary education from income tax.

Seer Travis Truman said...

I agree, Stephen.

In a Truth-based society, children would not need to pay for education. Why should a 23 year old child need a loan to learn how to work for his insane society?

Why should a child get a different educational level and quality just because of his pot-luck (or lack thereof) of his parents financial status?

It all goes back to the malevolent and deranged family unit mythology. Society fascistly imposes this malevolent and insane dictate : "You must live in the life-style of your biological creators."

Seer Travis Truman said...

I think I should add :

Any funding from the government should come from the govenrments various capabilities to earn money. Why should I pay extortion-dues ("taxes") for someone else's services?

that a major problem is not so much that you must pay your way, but really with the extortion level fees being charged for this education.

These costs are inflated in such a way as to enforce and promote the societal class system by blocking poorer students from being able to get high-paying jobs even if they have the talents.

wombat said...

Maybe society as a whole also benefits.

In an earlier post it was pointed out that (arguably) it does not pay in simple economic terms to be a graduate these days. Does this not indicate that we have too many graduates chasing "graduate level" jobs and too many people wasting their time on degrees which wont bring them any (financial) benefit. Reducing the supply of University places may therefore help both sections of the population. University degrees are currently mis-priced. Funding through any sort of taxation, lottery funds or whatever is not ultimately going to help the economy if it results in either too many or too few graduates of the right sort. Charging higher fees might be better at determining the optimal number of graduate level qualifications than central government (of any political persuasion) which lets face it hasn't had such success allocating other resources.

Now I realize this is a narrow economic line of argument and ignores the wider benefits that education brings but since discussion has concentrated on the finance benefits it seems relevant.

On the wider points perhaps the question should be is there a more effective way of delivering those benefits? i.e. critical thinking at an earlier age in the school system etc.

hemiola said...

Once a student is not going to be likely to pay the debt off, capping the fees leads to no gain or relief for them. So why not make the fees £50k, or£100k, or £200k ... , and make the paying back arrangements such that anyone on the average wage pays no more (or even a lot less) than at present.

Then the rich would pay more and the super-rich a lot more ... and you could even redesign the scheme as a form of income tax without all the student loan administration ...

Who benefits? Over a certain level of fees, clearly the rich, exponentially.

Tim Stephenson said...

Stephen, you are a teacher of philosophy in a university and earn a good living doing this. Your career opportunities are no doubt linked to the number of people choosing to study philosophy for 3 years and so if you are worried about tuition fees putting people off (they shouldn't be if they are really committed and rational about it) advocating funding arts courses through income tax rather than tuition fees seems to suggest that you have someone closer to homes interests at heart. cui bono?

Stephen Law said...

Tim

Well you are quite right to ask the same question of me, of course. Though as a matter of fact I would still favour a tax-based system even if I weren't working in the sector, much as I do favour a tax based system for funding all sorts of other social goods. I consistently vote for and support policies that don't much benefit me much if at all, but would cost me quite a bit financially as 40% rate tax payer. So the suggestion that I only support this policy because it benefits me and my mates would be very hard to make stick. But when we turn to the Tory party, can you think of many examples where they've pushed for policy changes that will result in a significant increase in financial cost to the very rich and/or big business (proportionally greater than the cost to other social classes)? Can you think of any?

Stephen Law said...

PS When you have a debt and you die, the balance is taken out of your estate before anyone else gets to inherit it.

Does this apply to these new loans, do you know?

If so, then those who keep saying, "Oh it's not a real loan, you never have to pay it back unless you earn more than such and such", might like to think again.

Someone on 21k will never pay their loan back in their lifetime, but if they own a house, say, then I guess that won't now be passed on to their children, if it's really a loan we are talking about? I'd be glad to know what the policy is on this - anyone know?

Tony Lloyd said...

"When you have a debt and you die, the balance is taken out of your estate before anyone else gets to inherit it.

Does this apply to these new loans, do you know?"

Good point. I can't find out. I know that student loans will get written off after a certain amount of time. So re-payable on death but not on survival seems a bit unfair.

If not, though, then the student loan repayment is even more a (personalised) tax on income rather than a debt. (Debts are claimable on your wealth, not just your income).

Another thing would be what happens if you move abroad when you still have a loan to pay off.

Does anyone know that?

Time for me to Google!

Stephen Law said...

If the debt is canceled on death, then I guess we will be seeing an awful lot of very mature students signing up for degrees! A retiree on 20k can do a degree for free, in effect. Or will there be a "no degrees for those over a certain age" rule introduced?

Tony Lloyd said...

I've emailed the Department about the repayment-on-death/emigration queries.

I suppose we can expect a reply by the time my son graduates!

Stephen Law said...

Good - thanks. I imagine the policy for the time being will be that the debt is canceled on death, but we'll see.

How loans to the aged are dealt with, I don't know. But if loans are to be compulsory (unlike now), but unavailable to the aged, then we have effectively just banned the aged from attending university.

anataboga said...

"When you have a debt and you die, the balance is taken out of your estate before anyone else gets to inherit it.

Does this apply to these new loans, do you know?"

They are written off on death!

"Student loans" are not normal loans as you would get from a high street lender. The terms for the loan and in particular payback are incredibly favourable in comparison and are written off on either death or after a number of years.

The last episode of Radio 4's "More or Less" (still available on iPlayer and BBC listen again) was about the real facts of student loans, their repayment and whether the average student is going to be better off under the new system than the old one. The conclusion certainly surprised me. Definitely worth a listen: http://www.bbc.co.uk/programmes/b00wdkf9

Stephen Law said...

Will listen, thanks.

Stephen Law said...

30 years seems to be the figure.

Stephen Law said...

Interesting. It looks very like much like a graduate tax. My "cui bono" point remains entirely valid, however. The very wealthy pay significantly less than they would on an income tax based system. So the "progressive" label continues to be very misleading. It's "progressive" up to the rich at which point it becomes very unprogressive indeed.

Stephen Law said...

If you want "progressive" why not just have an income tax based system? Which is genuinely progressive, rather than targeting the middle classes and leaving the very wealthy very considerably better off? I just don't understand why income tax based systems are considered so unthinkable.

wombat said...

Why not an income tax based solution?

Probably because the political class have a vested interest against hypothecation of taxes. So the money would just go into a general pot, and lets face it most government in the West have a pretty poor record on spending money wisely. I seem to remember the LibDems trying this appeal for more tax for education but suspect that most voters see through this.
Tax is tax and we are nearing the limit of what people will stand. Why were "stealth taxes" necessary in the Brown/Blair years? The focus groups surely told them that a more open policy was unacceptable.

Stephen Law said...

Yet, if the money has to be found it remains the case, surely that income tax is the most progressive and efficient way of generating it. These other solutions are less efficient, and favour the rich. Perhaps that's what people need reminding about.

Stephen Law said...

"most government in the West have a pretty poor record on spending money wisely" Compared to whom?

wombat said...

"Compared to whom?"

Well I certainly didn't want to try and compare to, say, a lot African countries, or other fast developing ones where getting an improvement in living standards or happiness is relatively easier.

I'll cut out the bits where I appeal to the power of accumulated anecdote. I think you might spot that!

(a) Do we need to compare it with anyone? Do you think Western Governments spend money as wisely as they could? You didn't seem to support spending on religious schools for instance.

(b) Taking a broad brush approach - if they had spent it wisely why are so many of them in huge debt and still on the face of it with the same (or worse) problems in terms of social and economic ills they had a decade ago?

(c) How about compared to say Sweden? Scores highly on things like social equality (GINI), rule of law, life expectancy etc. with only a slight budget deficit this year. So it can be done - relatively high spending but apparently doing something right.

[ I will admit that I've never been, it looks rather nippy in Winter, and there may well be a number of Swedish Govt. white elephant projects or duck house scandals so it may just be they're better at publicity management.]

Tim Stephenson said...

Stephen, I was wondering what you thought of the current debacle of celebrity Humanists on the left such as Philip Pullman, Andrew Motion and Michael Rosen denouncing the government – see http://www.guardian.co.uk/books/booksblog/2010/dec/24/government-against-reading and http://www.guardian.co.uk/books/2010/dec/26/booktrust-funding-cut-pullman-motion
for having the audacity to cut a £13 million pound fund for free books. Michael Rosen says “We are at a moment of crisis here. We need all people, everyone, to think for themselves, to think critically” and so I am going to do just that. In a time of plenty, public funding for this kind of social engineering might be desirable but certainly not in the current financial climate. Have these people never heard of public libraries or buying books from car boot sales. Is this public funding critically important? As Cicero might ask Cui bono? The people who might actually lose out are the authors, publishers and writers in residence associated with this “charity”. Many of our public libraries were instituted not by the state but by philanthropic industrialists such as Andrew Carnegie who had the means to fund these institutions. The idea that Nick Clegg and his colleagues in government such as the Tory cabinet minister and former Cambridge University Philosophy don Oliver Letwin are against encouraging reading and better education is so preposterous that the people making such claims should hang their heads in shame. I for one am fed up with the ridiculous claims of socialists who want everything to be free with no explanation as to how it is all going to be paid for. Why not start a campaign for a genuinely charitable attempt to help educational opportunities for the poor?

Hugo said...

Stephen,

Part of your argument is that the rich benefit from income tax cuts and the poor lose. It is implied that this is bad/wrong.

But is it wrong? If I give someone a present every month and they start to expect it, I suppose in some sense they are a "loser" when I decide to stop. But they haven't actually lost anything, they just have stopped gaining.

Of course those on high incomes benefit from income tax cuts. This is a tautology. But you seem to be assuming it is wrong. This is an unexamined assumption behind many of your articles on this subject.

What if taxation is wrong? See, for example, Edward Feser's article "Taxation, Forced Labor, and Theft" where he makes a very good case that any taxation is morally equivalent to slavery. Pointing out that the rich can afford it doesn't defeat the point. A reply to his article by James Rolph Edwards points out that public goods cannot be supplied except through taxation. Feser replies in another article that this is true but taxation is still theft.