Radical Proposal For “University Bonds” Will Help Scotland
02 Feb 2006
STUDENTS should pledge a fraction of their future income to fund their universities, according to a new paper from the Policy Institute.
Under the proposal universities could borrow against, or issue bonds backed by this future income stream. Investors would bid for the bonds or make loans based on their expectation of this income.Universities could then receive up-front lump sums as a major source of funding.
Students could look forward to the prospect of well-funded and increasingly competitive higher education in Scotland, tailored at least in part to maximising their income on graduation. Since their payment would be based on a proportion of future income, they need have no worries about incurring debts.
Government and taxpayers would be free of much of the financial burden and political headaches of funding higher education. Taxes could therefore come down or public spending more carefully targeted, or transferred elsewhere.
This scheme offers Scotland the chance to remodel higher education in a way that will give its universities, economy and society major competitive advantages over other countries’. And unlike the fee system it would reward universities for the current quality of their teaching rather than their reputation.
Approximately 2% of graduates’ earnings would be needed for universities to match their current income. This figure might vary according to course or university, and if grants or endowments were available. Payment thresholds would affect the level, as would international and domestic competition over time. In addition, the scheme might be affected if fees were still available as an alternative method of payment.
Author Ben Reilly said: “The introduction of top-up fees in England has serious implications for Scottish Higher Education. Our universities are liable to face a major financial handicap compared to UK and international competitors. But the idea of fees is misconceived. They reward universities for past reputation rather than current teaching prowess, and they may deter poorer students. A graduate tax would also be flawed. It would not reward good universities, and would be too easy to avoid.
“Instead, universities should collect a small percentage of their graduates’ future income. This could be ‘securitised’ or borrowed against to generate current funds. Universities would be directly rewarded for improvement in the quality of their teaching, since it would result in higher graduate salaries and thus higher income. They would therefore have a powerful incentive to enhance their performance. Students would have no fear of debt, and government would make major savings.”
A full copy of “University Bonds” is available from the Research & Publications Page of this web site.