University of Limerick

A recent paper by UL researcher, Dr Darragh Flannery, explores the impact of alternative funding models for the Ireland’s higher education system.

In his research, Dr Flannery, Lecturer in Economics, Kemmy Business School uses microsimulation techniques to evaluate the impact an income contingent loan or a graduate tax system might have for Irish students. This is the first time such a study has been undertaken to evaluate the impact a new funding structure would have for Ireland’s third level sector.

Dr Flannery explains: “Our research suggests that an Income Contingent Loan system (ICL), similar to that in use in Australia would be most equitable while a graduate tax system whereby graduates are levied withextra PRSI or income-tax payments for the rest of their working lives could be a better alternative from a fiscal viewpoint. Both of these systems require no up-front costs unlike our current registration fee system which is set to increase to €3,000 by 2015.”

Under the ICL system, graduates would pay nothing on entering higher education but would have a student debt of €10,000 on graduation. Under the ICL system, only those who work and earn above a certain limit in a given year contribute towards repaying the debt in that year. An individual stops repayments once their debt is cleared but graduates who do not have their debt repaid by the time they retire simply have the debt cancelled.

“The results of the research found that with an assumption of a 0% real interest rate on student loans, 82% of graduates would repay their debt in full over 15 years in the ICL system.” explained Dr Flannery.

The ICL system appears equitable as those on lower incomes across their lifetimes repay the lowest amount of their student debt and may not have to replay their debt in full at all.

The graduate tax system scenario assumes that the student does not pay fees up front and leaves with no debt, however, they will be subject to a graduate tax of an extra 1% PRSI-related charge for the rest of their working lives.

In the case of the graduate tax system, those who earn more over their lifetime will pay more than those who earn less. However, the research indicated that substantially more revenue is generated under this system. With the graduate tax system, the graduate continues to pay the tax even after the cost of his/her education has been met.

Dr Flannery added; “Within Ireland, the vast majority of third-level funding is provided by the state. Given the current difficult fiscal situation in Ireland, alternative forms of higher education financing have been mooted. International evidence has shown that since the mid-1990s, there has been a general move by developed nations to shift the burden of higher education costs onto the student and away from the state.”

“The Lifecycle Impact of Alternative Higher Education Finance Systems in Ireland”written by Dr Darragh Flannery, UL and Cathal O’Donoghue, Teagasc was published in The Economic and Social Review, Volume 42, Issue 3.A full copy of the paper is available at http://www.esr.ie/vol42_3/01_Flannery%20article.pdf