We just watched the Final Four (congrats to Villanova!), and it is now College Decision Month.  My news feed is filled with college acceptance statistics and my college email filled with reminders of all of the activity on campus as admitted students come to visit.  If we teach seniors, we are well aware of their stress as they compare programs, negotiate financial aid and make what is probably the biggest decision of their young lives so far.

A New York Times Upshot article entitled International Final Four was the inspiration for this week’s Digging Deeper.  In it, eleven higher education “experts” evaluate the higher education financing in four countries: the United States, Britain, Sweden, and Australia.  They compare the cost of education, average debt levels of graduates, and repayment schemes (for government issued debt) between the countries and came up with a winner.  (No spoilers, you’ll have to read the article for yourself to find out who won, mate.) Given that each country operates so differently, doing this in an objective manner was no small task.  The initial pairings were made based on repayment structure.

Since I began writing on the subject of higher education and financing, I have come across proposed “solutions” to the issues we face in the US.  When folks propose something like free tuition or debt-free education and hold up other countries as an example, they often ignore some basic cultural and fiscal differences between the countries.  Let’s examine some of these here.

In the Upshot article, Sweden is an example of a system with free tuition.  Students are able to borrow money to defray living expenses. Interestingly, Swedish students end up with more debt than students in neighboring countries where college is no longer free (average of about $21,000.) The major reason for the difference is that most Swedes move out on their own when they go to college, a cultural difference compared to southern Europe, and 85% borrow money to do so.  The interest rate charged is only 0.6% and the loans are paid back over up to 25 years, starting low and increasing 2%/year. Balances not paid by age 68 are forgiven. (Sweden was paired initially with the US.)

Looking south in contrast, my personal experience studying in France was that students attend their regional university for a small fee (now 200 to 2000 euro per year.)  Testing determines which degrees/courses of study you are able to pursue, and students live at home.   The dormitories are for foreigners and for those that live too far away.  Students spend only 2-3 years to get an undergraduate degree. Their high school education is more comprehensive than in the US (think IB diploma), and the university-level study is concentrated in their major course of study.  Even medical school, which starts right after high school, is free! Bottom line, only 2% of students borrow money to go to school.

In Germany, students only pay a fee of about $250, which sometimes covers books and transportation.  Attendance and degree attainment is low, perhaps because Germany’s dual track education system where children are “tracked” as early as age 12 for university or a comprehensive vocational/apprenticeship program beginning at age 16.

The next pairing in the article was Britain and Australia, paired up for the first round because they both have repayment schemes set up automatically through the tax system as a percent of income.  The key difference on the borrowing side is that British students can borrow for living expenses.  In Australia, they can only borrow to cover tuition. As in France, most students in Australia attend a local university and live at home.  

We have recently included articles in our reading lists discussing the few (private) loan programs available in the US that bank on a percent of income payment scheme.  We wondered “out loud” as to who would agree to such a scheme; those with higher or lower expected income? Note that in the US, the Federal loan program offers income-based repayment plans, but the paperwork has to be filed annually.  Nothing is determined or paid automatically through the tax system.

Two huge fiscal details are often left out when looking abroad to “free” or much lower tuition.  The first is the higher tax rates individuals pay in these countries (see below). Tax revenue supports the free tuition, subsidized interest rates and forgiveness schemes.  The second is that there are no national public universities in the US (unless you consider the military academies to be national.) Our public universities are reliant on state funding, and therefore vary tremendously across states, sometimes even by county for community colleges.  

What is the takeaway here? Restructuring the financing of higher education in the United States without creating some national university system with higher tax rates for all, (not to mention removing states’ rights), seems like an impossible task.  So what elements could the US possibly incorporate? Personally, I like the concept of withholding student loan payments along with the withholding already done for income and payroll taxes. This would be easier if repayment were based on income as taxes are, and would effectively eliminate the loan servicers and streamline the administration.  Then states could differentiate among themselves by implementing whatever programs they choose to finance, anywhere from free tuition to zero subsidies for their public colleges and universities, based on the values and taxes in each state.

Top tax rates by country:

Australia              49% plus up to 10% VAT

Sweden               60% plus 6, 12, or 25% VAT

United Kingdom  45% plus 20% VAT

United States     37%

France                 45-49% and up to 20% VAT

Germany             45-50%

Post secondary degree attainment (OECD data, 2014) 25-65 yrs/25-34 yrs

Australia              42%/48%

Sweden               39%/46%

United Kingdom  42%/49%

United States     44%/46%

France                 32%/44%

Germany              28%,/29%

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