In current mainstream debates on the economics of education it is a firmly established piece of received wisdom that universities should not be free. The World Bank and the IMF in particular have consistently argued that free higher education, especially in developing countries, amounts to a subsidy to students from rich and middle income families who can either afford the economic cost of their university studies or should finance them with loans to be paid back after the student graduates and starts earning an income. Only students from low income families should be entitled to non-reimbursable grants.(1)
The issue has recently come up in a major way in Chile, where the electoral platform of the candidate who won last December’s Presidential election, Michelle Bachelet, includes a commitment to free university education; this has predictably attracted sharp criticism from orthodox observers and analysts.
Interestingly, strong support for the unorthodox view – that higher education in Chile should be universally free - has come from someone who was Director of the Western Hemisphere Department at the IMF from 2009 until 2012, Nicolás Eyzaguirre, a Harvard Economics Ph.D. and former Chilean Minister of Finance.
Eyzaguirre’s main contention is that the orthodox view does not apply in a country like Chile, which is characterised by a highly unequal income distribution and a de facto segregated educational system. In those conditions, charging full fees to the better off and extending loans to middle income students would, in his view, lead to serious perverse results:
- Parents who can afford the fees would prefer to send their offspring to private institutions – or universities abroad - at a similar or even higher cost but with a higher academic level, because of having more resources; the system would thus tend to become segmented between ‘a handful of paid and expensive universities, well equipped and with top level faculty, that would attract the scions of the elite, and a large number of [lower academic level] public universities for the rest’;
- Parents and students who would receive loans would tend to factor in the issue of repayment into their choice of careers, biasing it towards those that involve fewer years of training and have more promising labour markets; this would create a disconnect between preferences and talents and actual choice of careers, resulting in both individual dissatisfaction and a loss of social efficiency and productivity;
- The burden of repayment of the loans would be heavier for students of the middle and lower income brackets, as the unequal character of Chilean society manifests itself, among other things, in that ‘an important part of the income of the graduates is not a function of educational level but of networks and family contacts’; this would breed discontent and alienation among graduates, a phenomenon already visible in the student protest movement that erupted in 2011 and continues to date.
The analysis is persuasive, but the orthodox are not convinced and the debate goes on. Fortunately, there might be a chance to put it to the test: President-elect Bachelet has recently announced that Eyzaguirre will be Minister of Education in the incoming government.
(1) See Nicholas Barr, ‘Financing Higher Education’, Finance and Development. A Quarterly Magazine of the IMF, Vol. 42, No. 2, June 2005.
Carlos Fortin is an IDS Research Associate currently working on the relationship between the emerging international trade regime and human rights.