Has market failure made education expensive in advanced nations?

In many developed nations, including the United Kingdom and Canada, it seems that students are spending more time in streets protesting against exorbitant costs associated with going to university than they are spending in class. The latest in such actions of civil disobedience took place in London last week when 10,000 students from across all universities in England and Wales marched to the capital’s Parliament Square demanding that the UK government seriously consider lowering university tuition fees which currently stand at a staggering £9,000 per year, or stand to be remembered as the government that failed to offer future generations a fair crack of the whip. To put it simply, many observers are suggesting that market failure maybe at play already. Market failure occurs when freely-functioning markets fail to deliver an efficient allocation of resources where the result is a loss of economic and social welfare. In addition, market failure exists when the competitive outcome of markets is not efficient from the point of view of society as a whole. This is usually because the benefits that the free-market confers on individuals carrying out a particular activity diverge from the benefits to society as a whole. But how costly is it to acquire a degree at any one of England’s universities which are regularly ranked among the best in the world? Take, for example, my alma mater, King’s College London – University of London. The university, which was ranked last year in the top 20 worldwide by QS World University Rankings, attracts some of the brightest talents from within the country and beyond. At present, the university charges home and European Union students a flat rate of £9,000 per year for all three-year undergraduate programmes subject to inflation. And, to cover the cost of the fees, home and EU students are given the option of taking out tuition fee loans from the Student Loans Company, which means that there is no requirement to pay the fees upfront. Fast-forward three years later and this means that at the start of life after university, the overwhelming majority of students will owe in excess of £27,000 in tuition fees alone plus interest. As if this wasn’t crippling enough, most graduates are now faced with modern-day challenges such as chronic unemployment, underemployment, and low wages. However, it has not always been this expensive to go to university. For example, between 2007-2011 home and EU students wishing to study at King’s College London and other universities in England were only required to folk out £3,000 per year. Between 2000-2007 tuition fees were even more affordable because undergraduate students were only required to pay £1,000 per year for all undergraduate programmes for home and EU students subject to inflation and interests – a reasonable amount considering that after graduation students were only faced with a debt of £9,000 and £3,000 in tuition fees respectively. Therefore, in essence, in less than ten years, the cost of attaining a university education in the UK has increased nine fold. Astonishing isn’t it? But what has caused this sudden increase in tuition fees? Many experts believe that over the years, the decline in state support for universities is one factor that has driven prices upwards. Others believe that rising administration costs especially the amalgamation of IT services in higher education has greatly contributed to this rise, not to mention faculty salaries which now mirror those of private sector executives. Should governments intervene? The market failure framework remains as divisive as ever and yet it is a dominant tool that economists use to explain government intervention in particular sectors at specific moments in time. In this regard, fiscal intervention by way of subsidies to reduce the internal costs of staying on in full-time education or tax credits to universities maybe necessary because various features essential to a properly functioning market are absent. Of course, we know that there’s no such a thing as a perfectly competitive market economy where markets fix problems themselves, and in light of this, allocative efficiency is found wanting given that instead of generating the highest level of social wellbeing for young generations, higher education generates outrageous debt. Therefore, when markets fail to achieve allocative efficiency, then the rationale for government intervention must be seriously considered including as far as public provision. By and large, there is no question that this rise in tuition fees will continue to have far reaching consequences even among Rwandan students intending to pursue further education in advanced nations. One can only assume that as costs continue to rise, education institutions will be forced to raise fees for international students in a bid to balance books. As it stands, international students pay in excess of £15,000 per year for an undergraduate programme minus living costs. The writer is a UK Parliamentary Intern and holds a Master of Science in Public Services Policy.

Opinions

Has market failure made education expensive in advanced nations?