Financing higher education: a contributory scheme

Abstract

In this paper, we study the higher education financing based on the classical contributory versus self-funded pension funding scheme. We provide a brief discussion of how a system based on student debt can be seen ’funded’ and why it fails to ensure equity and efficiency and funding for the longer term. We also define a contributory financing scheme for higher education based on income tax and social security contributions, and study its strengths and weaknesses. By contributory, we mean a scheme that ensures free access to university, providing for students’ expenses and the costs of research and teaching. We show that such a system would be efficient and equitable, and we discuss under what conditions it would be efficient. We show also that it would prevent polarization in the higher education system. We conclude with an implementation of our contributory financing scheme in the case of France (it increases university funding by €5bn and provides €19bn for students’ expenditure) and illustrate the effect of such a scheme on some typical households.