Bruce Johnstone

“Additional taxes cannot solve the problems of public higher education, even in wealthy countries. We have to look to minimal cost sharing.”

Bruce Johnstone believes that a ‘cost-sharing’ model is better than increasing taxes to finance the public higher education system. In this interview, he also talks about the North American HES (higher education system), which he thinks is in some ways in a better position than its European counterpart.

Can you describe the main characteristics of the HES of North America?

One of the main factors is that public higher education (PHE) in the United States is up to the fifty individual states, not the federal government. Higher education (HE) is not subject to federal laws or federal regulation. PHE has emerged in a very similar fashion in all states, but it is still something that is at the state level in terms of government.

Another of the characteristics of North American PHE, which is an important theme of this conference, is that financially, although the states and the federal government—which does have jurisdiction over student financial assistance and loans—spend a great deal of money, the system is more supplemented by private philanthropy and private tuition payments to the public system than in any other country in the world. This means that for the taxpayer’s dollar we get an enormous amount of revenue for PHE.

I would say that, although PHE is in a sense costly in the US, because all public universities charge tuition that ranges between a quarter and a third of the underlying cost, it’s also one of the most accessible systems because of the extensive array of financial assistance. This assistance, which is based on financial need, is designed particularly for students from low-income families and is supplemented by a very extensive student loan program that is minimally subsidized. Therefore, no student of traditional student age, no 18-, 19- or 20-year-old young man or woman, is kept from higher education by the poverty of his or her parents.

Do the efforts to increase the output of intellectual capital at universities in the US sometimes exceed the social commitment of universities?

I think the university in the US is still a body that believes its most fundamental mission is the pursuit of knowledge, and particularly new knowledge. I do not believe those who say that the university has sold out to commercial interests. It is true that the idea of a university totally oriented to the creation of new knowledge is descriptive of only one part of tertiary education. We have lots of institutions and lots of students who are in the ‘non-university sector’. This sector is very limited in Spain but there are numerous examples in other countries: the Fachhochschulen in Germany, the IUTs in France and the HBO in the Netherlands. We have a very extensive sector where the primary work of the faculty is—appropriately, I think—to teach and to train. When 150, 250 or 300 universities are devoted to the creation of knowledge, I think that’s an important division of labor, and this is the big difference. I don’t believe that research universities have compromised themselves to the detriment of their social mission in the US.

Which is the present situation of the financing model of universities in the US or North America?

The US is a little different to Canada, mainly because we have a very large private sector, but we have very extensive financial assistance which is mainly given according to financial need, so that we can say that students who have the ability and interest, and the willingness to take on some indebtedness and to earn some money while at college, which is very possible, can complete not only bachelor’s degrees but advanced professional degrees. We can say that no student is prevented from carrying his or her HE as far as they can because their parents happen to be poor.

There are still exceptions, such as the 30- to 35-year-old single mother who dropped out of high school, had three or four children, and now wants to go back to HE; that’s different, and even she will be supported. I’m not sure we support this model sufficiently, but that’s stretching the access envelope a long way. We’re very accessible, very affordable, and this is because we supplement the government’s tax dollars with much philanthropy and much self-help, so much from parents and so much from students. These four factors together—philanthropy, parents, students and government—provide a very resource-rich HE.

Do you think that the 'cost-sharing' model is the way to overcome the austerity of public budgets for universities?

I think it is. I believe that’s practically the only way. Take a country like Germany, a very wealthy country. German HE has reportedly become terribly overcrowded, terribly under-supported, and the German government arguably just doesn’t have the revenue, because other priorities take precedence over giving more to HE or as much more as they need. What the Germans have been doing is forgoing what would be a willingness on the part of parents to help if they had to. But as long as they don’t have to, then of course they won’t. You can say, if parents are willing to help fund of portion of the cost of HE, wouldn’t they also just be willing to pay more taxes? And the answer to that is, I think, no. They seem not to be.

Therefore, what I’m rejecting in my paper is the notion that additional taxes can solve all the problems, even in wealthy countries. When you turn to Russia and the former republics of the USSR, for example, or you look south to Africa, particularly sub-Saharan Africa and even northern Africa, you find that taxation capacity is very limited, but more importantly you find that the queue, the line of public priorities other than HE, is so enormous and so compelling, that if they had more money it would have to go to fighting malaria and HIV, to public health, elementary secondary education, infrastructure, water sanitation, and so on. Simply to continue saying that it is only the government that should support increased HE seems to me to be almost suicidal, as it simply won’t happen, and the consequence will be one of two things: either the public sector and these countries will be limited, so a smaller and smaller proportion of all the students who want to go will be able to be accommodated and all the rest will have to somehow find their own way, perhaps by paying tuition elsewhere, or higher education will become more and more underfunded, shabby, overcrowded, physically deteriorated and lacking in equipment and libraries.

I do therefore think that there is a need for some cost sharing, and I think that cost sharing has to be minimal. Many people wrongly accuse people like me who urge cost sharing as saying that we should privatize HE, but I’m not saying that at all. All I’m saying is that perhaps some parents could borrow 20-25% of the real cost, and other parents who can’t will still need to be assisted by the government or indeed by those who can.

Is the HES in North America more prepared to accept that model than the continental European system? If so, why?

In Europe, resistance to it is huge. Much of the resistance comes from students themselves, which is understandable. If students have been told for many, many years that the taxpayer should support them through higher education and suddenly someone says that that is going to change, they will resist. I guess I would resist. Similarly, there is a very important political left that continues to be sufficiently socialist, in that it believes that current levels of taxation can be increased significantly. Of course Europe already has a tax system that takes nearly half of the gross domestic product. Maybe it can be that much larger, but I tend to think it can’t be, partly because I think the forces of globalization will continue to make European industry less and less competitive if it has to bear such taxes, so I think it is going to be difficult. Without the assistance of some relatively modest cost sharing, the German, Dutch and Belgian governments, and ultimately the French, Spanish and Italian governments too, will move toward—as they already have been doing—to a system where parents and students fund themselves through loans. In these countries, taxpayers have a kind of accord where certain things are the responsibility of government, particularly assistance for the poor, basic research, which can only be supported by government and taxation, basic support of most of the cost of instruction, so we can continue to have dynamic European universities and vibrant programs in literature, arts, anthropology and sociology that don’t tend to be able to support themselves on the market. That’s very appropriate, but where you have parts of higher education that can be supported in part by the market, then this revenue comes in to help the whole enterprise of higher education. I think Europe will be moving in that direction.

Can you explain what student loan models—as a ‘cost-sharing’ model—exist in North America, and at an international level?

I think the most successful is probably the American model, followed perhaps by the Canadian model. And it’s been successful because it is governmentally guaranteed, that is to say, it is available to all students who have any need at all, and yet the government stands behind it. The money may come from a bank or a private capital market, but there’s no real risk attached, because the government stands behind the loans. It is what I call ‘minimally subsidized’, meaning that the total cost is certainly not as high in terms of the interest rate as a market loan, but it does repay close to the real cost of the money. The government’s borrowing rate, for example, is probably as low an interest rate as you’ll get, and so there is some real return on the money; there’s some real cost sharing. Some of the money comes back. It takes a constant infusion of new money because it never becomes a revolving fund, but that’s unimportant. The fact is that a substantial portion of the loan is really repaid, recovered and can be lent again. That’s true of the American system. Defaults are relatively small now.

Why have some models been successful while others have failed?

Where loan programs tend to fail—and dozens have failed in Africa and Asia—they tend to fail because there was never a real interest rate at all. Oftentimes, it was considered important for the interest to be very, very low, if there was any at all, so there were no defaults and they could never repay the amount of money they had. Loan programs have sometimes failed because the repayment period was too short. That’s the case with Chinese loan payment plans. They were unnaturally short and that pushed the repayment burden up too high. American loans average about ten years to repay, which is appropriate. Loan programs may also fail because the students don’t feel it is a real loan. Sometimes this is the fault of the government, which hands students the money and never reminds them that they are real loans, and not a gift. The way in which it is given is very important, and the American student borrower is no more responsible per se than the Spanish or Italian student borrower might be—they simply know that when they get a loan it’s a loan, and they’re expected to repay it. If they can’t repay it, there are mechanisms for reducing the amount, and ultimately even to have that burden forgiven if they are unemployed or ill or something else.