I am a New Zealander living in Norway lecturing at NTNU, Norway’s largest University. For the last few months I have been thinking about the challenges of providing free post-secondary education. Norway offers free education for all students including international students.
Norway’s pays for this through general taxation. For New Zealand I would propose something called an Income Share Agreement (ISA) for providing free access to post secondary education. Income Share Agreements are starting to be experimented with in the US, Purdue University and MissionU for example. The basic principle is that instead of paying a fee upfront, the University will earn money by the graduate paying a share of future income for a set length of time, rather than a set amount of money. Thus if the University fails to provide a good education and help the students career then the student pays almost nothing back, while if they get an amazing career using their qualifications they pay a proportion of that back to the University/Government.
In the NZ context the numbers might be:
• Each year at a Post Secondary education would be 2% investment
• The investment is active from year 3 to year 15 after graduation ( a 12 year period)
• The payment is on all income over the current level of $19,000.
Given the estimated of value of a 3 year degree on average then the students would be paying back about $18k for a three year degree. However students who earn a lot using their degree pay more, and students who were unable to find work using their qualifications will end up paying very little. This focuses on the value of the degree rather than the cost of the degree.
This approach works well for high paying career focused degrees. To balance the focus on developing a career the Government would need to create different funding categories, with both public good funding and private good funding. Degrees that have a high private good component receive less funding from the government and are expected to be able to help people who are focused on career advancement. This would include Computer Science, Law, Dentistry, Medical, Accounting, Engineering, Business, etc. There would also be public good funding for studies such as Nursing, Arts, History, Teaching, Caregiving, etc. This would require an analysis of the value and benefit of degree programmes.
Perhaps the largest and most disruptive change would be using this as part of the funding for Universities. Having income linked to graduate performance would put significant strategic pressure on the administration of Universities to increase the relevance and quality of their educational offerings. Rather than getting paid to graduate students, the organisations are investing in the future of their students. This also creates a natural incentive to offer continued education opportunities for alumni as the University is invested in the career of their graduates. This would create alignment between the goals of the students, and the income for the University. Universities would not want to risk flooding the market with graduates in an area where there were not jobs, as they would not get the money back from their investment.
The Universities have said the education is a “wise investment”. This model requires the Universities to back that assessment up by actually having a stake in the future of their graduates. Unlike individual students who are risking a large amount of money on a single item, their education, the University is able to diversify their investment across all their graduates. Thus the University and the Government take the risk not the individual student. The focus on alignment with what is needed in the market would also help to addresses the mismatched qualification issues related to New Zealanders identified by the recent OECD report.
With Labour offering free education by raising general taxation, this model proved a solution for who pays, and at the same time changes the game for post secondary education providers, no longer “bums on seats”, but “careers for grads”.
Links
Purdue offers an ISA system https://www.purdue.edu/dfa/types-of-aid/income-share-agreement/index.html
MissionU is no fees but heavy ISA https://www.missionu.com/about
OECD NZ report http://www.oecd.org/eco/surveys/economic-survey-new-zealand.htm
Dr Simon McCallum has been lecturing in Computer Science and Game Development for 20 years, in New Zealand and Norway. He is currently lecturing at the Norwegian University of Science and Technology (NTNU), Norway’s largest University.
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