It is quite plausible that there are public benefits from higher education on top of the private benefits accruing to graduates themselves. And there is an at least theoretically plausible argument that, in some cases, these public (and private) benefits may be under-produced if higher education was simply left to the market. This is a conventional market failure argument used to justify public subsidy of higher education.
But is it the case that taxpayers should fund public benefits even if there is no market failure? That seems to be the claim made in the Universities Australia submission to the higher education funding review. They tell us that:
McMahon [an American academic] concludes that the value of external benefits (excluding equity funding which is separate) to wider society beyond those appropriated privately through education by the former students themselves ranges from a lower bound estimate of public benefit of 37% to an upper bound estimate of 61% as a share of the total returns to education. Fifty per cent is close to the midpoint estimate. Universities Australia believes this can serve as a reasonable benchmark for discussion of the public: private benefit shares of higher education.
Later in the submission they call for this to be the basis for public funding:
A national aspirational target of 2% of GDP for higher education, funded 50:50 public and private, properly indexed and funded on a full cost of delivery basis, will create the necessary framework to deliver on the promise available from this investment.
In assessing whether there is a market failure the specific mix of public and private benefit actually isn’t that important. Provided the private benefit is high enough to prompt individuals to take higher education courses then there is no market failure.
We already have many cases in which public subsidy is well below 50% (law and business courses) or only loan subsidies (many domestic postgraduates and students at private higher education institutions) or none at all (international students, full-fee domestics paying up-front). It’s not obvious what we would gain in additional public benefits by handing them a subsidy for doing what they are doing anyway.
The UA argument (or implied argument, since no reasons are actually given) seems to be that society should not free ride on graduates. But why not? The subsidy argument seems to be that graduates should capture not just the private benefits of their higher education, but also the public benefits through cash compensation. That’s taking us a long way from the original market failure argument, that some additional private benefits (via tuition and/or loan subsidies) are needed to encourage production of public benefits that will be shared across society.
Even if we accepted UA’s logic, I am not sure that their submission makes sense. They seem to think that a 50:50 public:private split would increase public funding. But for government supported places the overall current public:private ratio is more like 60:40 on direct tuition costs, and around 67:33 if the costs of HELP are factored in. So on a 50:50 split the public is already paying too much for its public benefits, and we should have a substantial increase in student fees. Yet elsewhere UA says that student fees should not increase on average.
If the ratio was fixed at 50:50, it would also mean that any increase in government funding would need to be matched by an incease in private funding to maintain the ratio.
Perhaps the funding review panel will have more success than I did in extracting a coherent argument from UA’s submission. But I think it more likely that they won’t find much there that will help them with their task.