The hidden cost of free higher education

All eyes will be on South Africa’s universities at the end of January. 

A month earlier, President Jacob Zuma announced free higher education for students from 90% of South African households, ignoring the recommendations of his own Heher Commission into the Feasibility of Fee-Free Higher Education and Training. 

Julius Malema, leader of the EFF, added fuel to the fire in a New Year’s message by calling on all prospective students, even those unregistered, to “report at the academic institution of their choice”.

In response, Universities South Africa issued a strong statement for students to follow due process. 

The situation is likely to be tense.

This is of course only the latest chapter in a long saga of broadening access to higher education.

SA’s campuses have seen repeated protests over the past three years as students express their desire for fees to fall.

And these calls make sense: a university degree is a ticket to a better life for many South Africans. 

The unemployment rate for those with a university degree, even if one includes various household controls, is significantly lower than for those without.

And university campuses offer more than just tacit knowledge: they are places where young people build networks, relationships and values. 

In short: they are places where the future business, political and intellectual leaders of the country are forged.

Yet, attending university has become prohibitively expensive. In a short paper I published with colleague Estian Calitz in 2016, we show that a BA degree at Stellenbosch is now almost three times more expensive (in real terms) than in the 1960s. 

That is mostly the consequence of government funding not keeping pace with the increase in student population. 

To maintain quality while balancing the books, universities have had to shift the financial burden onto students.

Unhappiness with the situation is entirely warranted.

The call for free higher education is therefore logical, if intellectually lazy. This is because free higher education is unlikely to benefit poor students, even if the intention is to do so. 

Let me explain: Students from poor backgrounds, because they traditionally go to poorer-performing schools, enter university with lower marks than rich kids who go to good schools. 

Now consider what will happen with free higher education. Because the number of seats at universities is limited, better-performing kids that might have decided to do something else with their lives will, because of free higher education, enroll for a university degree instead. 

These kids, because of their better marks, will displace the poorer students. 

You might argue that kids from poor backgrounds would not have been able to afford university education in the past anyway. 

That may be true, but ignores the massive bursary system in place at many of SA’s top universities which, within the constrained financial environment, has allowed many of the best-performing students from poor backgrounds access to a university education; an education they are now unlikely to receive. 

Think of it in pure Economics 101 terms: if supply is fixed, and the price falls, demand will increase.

Who will have to make way for this increasing demand? Most likely the poorest students.

Can we find any evidence for such displacement? An MIT economics graduate student, Alonso Bucarey, has written a wonderful 2017 job market paper on the experience of free higher education in Chile, a country very much like SA. 

A Chilean political party was elected in 2014 promising free university tuition by 2020. 

Bucarey follows students from poor backgrounds who previously received generous financial aid.
He shows that free education increased demand for certain programmes, as expected, making “these programmes more competitive and pushing them out of reach for many poor students who would have qualified otherwise”. 

He estimates that 20% of currently enrolled poor students will lose seats to wealthier students when the free tuition policy is fully introduced by 2020.

More distressingly, he calculates that total university capacity in Chile would have to increase by more than 10% to accommodate those students who have now been displaced. This is unlikely, he notes, given that capacity only increased by 5% in the previous nine years. 

So where do these students go? Many are forced to attend lower-quality private universities, or simply not study at all. 

The implications? Free higher education in Chile, despite the rhetoric of the election campaign, has resulted in greater levels of inequality and lower social mobility for the poor. 

As so often in the real world, good intentions are not enough.

While the Heher Commission did not have access to the Chilean study, its recommendations did convey the spirit of Bucarey’s research.

A rough calculation applying Bucarey’s numbers locally would suggest that we first have to build four more Wits universities before free higher education will benefit the poor. 

Without an increase in supply of seats in lecture halls, poor students are most likely to be displaced when free higher education kicks in.

Free higher education is fiscal suicide in the current economic climate (the purported R50bn needed is likely to be much bigger – and where will it come from?), and is not likely to have the desired outcomes. 

For those students from poor backgrounds dreaming of a better life, Zuma’s free higher education is likely to end, at best, in disappointment and, at worst, tragedy. 

Johan Fourie is associate professor in economics at Stellenbosch University.

This article originally appeared in the 18 january edition of finweek. Buy and download the magazine here.

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