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Should fees be paid?

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Introduction

Should fees be paid? Most countries today have a high-quality mass system of higher education, which cannot be entirely supported by public funds, and governments have thus to decide where the additional funding should come from. In order to determine this, policy-makers, who are concerned with the welfare of society as a whole, must first determine the efficient level of output and to examine the inefficiencies of the market for education to see how much funding is really needed. Then, policy-makers have to determine who actually benefits from education - trained individuals or society as a whole - as this plays a big role for the question about who should fund education spendings. Finally, if fees have to be paid by the trainees, government must decide with type of fee - mortgage-type or income-contingent - is to be applied. It is commonly believed that education is beneficial on several levels. Education promotes homogeneity of values in a particular society as well as discussion and diversity. It has important cultural benefits as well as economic ones, namely increased future earnings of trained individuals and hence increased future tax payments, as well as a higher productivity which is associated with the level of education. ...read more.

Middle

The willingness of the trainee will depend on his expected future benefit. In a perfect capital market, investment in human capital or education, like other forms of investment, could be undertaken with the aid of a loan at the market interest rate. Then, the optimal amount of investment would occur because trainees would invest in education if and only if the rate of return to human capital was greater than or equal to the interest rate. In practice, however, trainees are very likely to be credit-constrained, as unless other investments in real estate for example, investments in human capital do not provide a collateral for a loan, and so lenders will probably demand a higher rate of interest. Therefore, potentially profitable human capital investments do not occur in an efficient amount, and there will be under-investment in education. There are two possible sources of education market failure: labor market imperfections and capital market problems. We will consider the market for education. The price of education is paid by trainees to the firms providing the training, which are assumed to be price-takers, as potential trainees can choose freely among all firms offering education. ...read more.

Conclusion

So far, our analysis suggests that firms providing education should charge fees, as education cannot be supported by public funds alone, and it is students that should be charged with those fees, as they are the ones that are definitely profiting from the investment in human capital, while there remains some doubt about the extent of social benefit, which is represented by a part-subsidy. However, providing loans results in an inefficient market outcome, if this is handled by private firms, and so government has to take up the task of providing the loans, which should be offered at an interest rate broadly equal to the government's cost of borrowing. The loans offered should be income-contingent as opposed to mortgage-type, as they reduce the risk and uncertainty that students face, because a certain percentage of their future income is used to pay off the loan, and not a lump-sum amount. Concluding, we can say that while fees should be paid for students for receiving education, there is a strong case for making it free at the point of use in order to achieve the efficient amount of education. week 7 MT 04 For Fabien Curto Millet Sophie Sandner 1 ...read more.

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