Alan Ryan

一月 17, 2003

By the time you read this, Charles Clarke may have decided how universities are to be funded and how students are to pay for their courses. It looks as though some version of Nicholas Barr's long brooded-on and carefully calculated proposals is in the offing.

The Barr scheme seems to me to have one drawback only, which is to leave parents out of the equation completely. So here is how and why it works in the US.

The defining characteristic of the middle classes is deferred gratification, and their defining attitude towards child-rearing is to see the money they spend on their children as an investment in the children's long-term success. The middle classes, however much they complain, are willing to spend money on their children. But they don't altogether trust the government to spend it for them, so they are disinclined to pay taxes - which is one reason there is a funding crisis in higher education in the UK.

Over the past 20 years, the British middle classes have had their tax reductions, and, even with the stock market in the tank, both shares and houses have put on substantial increases during the lifetime of an 18-year-old going to university in October. They have bigger disposable incomes than ever and they are resource-rich as never before.

If you head for www.finaid.org, you can see roughly what you would be in for if you were sending your offspring to an American college in September. US colleges, independent-minded as they are, work with something known as the "federal methodology", a way of working out how much parents can decently be asked to chip in for the education of their children.

It takes account of assets other than pension funds and home equity as well as income. Income is offset by federal and state taxes and a few other expenses. Like all such schemes, including the now-defunct assisted places scheme in Britain, it takes a sharply rising proportion of available resources. A family making about £20,000 contributes nothing, one making about £50,000 would contribute about £6,500 a year, and one making £75,000 about £18,000 a year. This is the family's total contribution; if you send triplets to college, it's £6,000 apiece.

Not many people earning £75,000 could easily put a quarter of their gross income into their children's education. Where do they find the money? One route is by borrowing against unspent capital appreciation in the home.

If only the British home-owner spent the money in the same way, it would help the balance of payments to divert money to educational services and away from imported consumer goods and foreign holidays. Spending home equity is less painful in the US, where you can still set mortgage interest against your taxable income, but the least painful route of all is to borrow from the institution your children attend. Ivy League schools and their equivalents will lend you the money for 14 years at the US equivalent of bank rate.

There are odd side-effects. One is that prosperous parents have very mixed feelings about where their children go to college. Imagine you are a doctor in North Carolina, and your child has just been accepted both by Duke and the University of North Carolina at Chapel Hill. The in-state cost for your child is $13,000 (£8,000) at UNC, and for Duke almost exactly three times as much. Even if your child went to an out-of-state public university of much the same quality as UNC - Michigan or the University of California at Los Angeles, say - you would be looking at $25,000 a year rather than $40,000. Stories abound of parents gratefully buying their children new sports cars when they fail to make it to Harvard and save them $25,000 a year for four years. Who knows if they are true, but there are certainly some nice cars in the student car parks.

Should we pile the cost of higher education on to parents here in the same way? I think we should. If they could borrow at the rate at which the government borrows, it would be perfectly affordable.

It would reflect the reality of middle-class family life more accurately than the usual guff about students being independent at the age of 18 - a piece of nonsense exploded at the beginning of each term as the family station wagons roll up, laden with a ton of electronic kit, and at the end as they bear the children off for the holidays. And if those who can pay paid something nearer their fair share, we could concentrate more intelligently on those who really can't.

Alan Ryan is a fellow at the Center for Advanced Study in the Behavioural Sciences, Stanford University.

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