Dr. Aedín Doris:

For this analysis, I added to the model that I had been working on in my research with Professor Bruce Chapman. In this, we assume that policy makers wish to increase the income from core funding of higher education institutions by €2,000 per student. There are many alternative ways of achieving this, with three options given in the Cassells report. The first is to remove the €3,000 in fees that are currently paid by approximately 50% of students and make a payment of €5,000 per student from central government funding. The second is to retain the €3,000 fees paid by the 50% and apply an increase of €2,000 for all students coming from central government funding. The third is to increase fees from €3,000 to €5,000, apply them to all students and make an ICL facility available. This is the ICL described in the Cassells report.

As well as this basic ICL, we also show results for two alternative ICLs that are designed to have a lower impact on public debt. The fourth option is to incentivise students or their families to pay upfront by giving a 10% discount on fees, resulting in an assumed 10% of students not availing of the ICL. Under the fifth option, in addition to allowing for upfront payment, fees are increased gradually over the early years of the ICL scheme. In the first two years, fees would remain at €3,000 but would be payable by all students rather than the current 50% and are covered by an ICL. In the following years, fees would increase by €500 every two years until they reach €5,000 after eight years. This is a gradual implementation.

To consider the costs of each of these options, it is important to specify the alternative with which they are being compared. Here, each option is compared with the alternative of maintaining the current level and system of higher education funding, that is, leaving fees at the current level of €3,000 per student and increasing annually at the rate of inflation, with 50% of those fees payable by the Government because the students qualify for grants. Using this comparison allows us to take into account the fact that, because of demographic pressures, the cost of higher education funding is set to increase in the coming years even if funding is left as it is without a per-student increase. The analysis, therefore, isolates the effect of increasing funding per student by different methods and only examines the alternative methods.

I have provided graphs in the appendix to this submission that show the effects of the five alternatives on the annual budget deficit and accumulated public debt. It is clear from them that all three ICLs have an advantage over the other options in terms of their effect on the annual budget deficit. It is also clear that all ICLs have a substantial advantage over option No. 1 - the free fees alternative - in terms of their effect on public debt, and over option No. 2 in the long run. In the near term, the effect on public debt of option No. 2 is lower than for the ICL given by option No. 3. However, the calculations for options Nos. 4 and 5 show that it is possible to design ICLs that will have a lower effect on public debt than option No. 2 even in the immediate aftermath of their introduction.

Given the overall picture presented by this analysis, it is important to emphasise that an increase in higher education institution funding by €2,000 per student will be costly no matter how it is done. However, if done through an ICL, the costs to the taxpayer are substantially lower, with the burden being shared with those that benefit financially from higher education. Moreover, an ICL is more equitable. The subsidisation of higher education by those who have never benefitted from such an education is reduced and education is free at the point of access for all students.

In countries that have adopted an ICL to date, their situations at the point of adoption were different to that which pertains in Ireland. In all cases, they were moving from having no fees to a situation in which deferred fees were payable. Therefore, no revenue stream was being eliminated. Moreover, they were not motivated by needing to increase higher education funding per student dramatically. While concern around the public costs of ICL schemes in other countries has been voiced, these concerns largely stem from issues such as graduate emigration, the interest rate attached to the loans and supply-side reforms. These are issues that can be mitigated when designing an ICL, given that we can learn from other countries' experiences in this regard.

There is nothing about an ICL system that is inherently costly in terms of Government finances. In fact, because students repay most of their debt, costs are lower under an ICL system than under systems based entirely on taxpayer funding. The costs incurred if an ICL is introduced in Ireland will not be the costs of the ICL system itself but of moving to a system where no fees are payable upfront for equity reasons and where funding needs to be increased dramatically for quality reasons.

A careful analysis of the fiscal implications of ICLs shows they are entirely feasible in Ireland. The design of any ICL scheme should be carefully considered, as the choice of the parameters of the scheme will determine the extent of the subsidy required. An ICL scheme can be designed so as to minimise the immediate costs of the introduction of the scheme. This should also be a consideration of the design of any ICL, if that is the route chosen.

Our conclusion is that an ICL would allow a substantial increase in higher education funding without reducing access and at a lower cost to the Exchequer compared with other alternatives. The resulting savings can then be used to improve funding for earlier education from preschool through to secondary school, which is where the main barriers to participation in higher education lie.