• The World View

    A blog from the Center for International Higher Education

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Some Notable Nordic News

Free tuition, whatever its benefits, also has some pitfalls.

February 22, 2016
 

With all the talk about free college in the United States these days, there is an inevitable tendency to look to Nordic countries to see how the concept works in practice.  Though there are some differences between these countries in their higher education set-ups, by and large they look quite similar: zero tuition, generous student assistance, long student times-to-completion, and government spending on higher education which, as a percentage of GDP, is about twice as high (or maybe even a little more) than it is in America. In some countries (e.g. Finland) that results in very equal access to education in terms of parental socio-economic background while in others (e.g. Sweden) it does not.

Until quite recently Nordic governments seemed content to keep increasing funding to higher education even as economic growth slowed.  While universities elsewhere in Europe saw decreases in funding of up to 50%, those in Nordic countries tended to be spared from cuts or even receive increases.  But with prolonged slow economic growth on the horizon, governments are now changing their tune.   And while the ideas of charging domestic students tuition is not on the agenda, the effects of this change in policy are having some fairly dramatic effects on universities in the region.

Let’s start with Denmark.  The government there is trying to rein public spending back in from a walloping 56% of GDP, and bring it back down to an only slightly less-imposing 50% by 2020.  And it’s doing this while the economy is still weak, and while oil prices are falling (Denmark has some North Sea oil so, unlike the United States, it tends to see low oil prices as a negative).  As a result, cuts are on the way across many services, and higher education is no exception: universities there will see reductions of 2% in their budgets for each of the next four years. 

Over to Finland, where it’s the same story in spades.  Nokia’s role as a technological savior and massive boost to government coffers is long over, and economic contraction in Russia is hitting Finnish exports hard.  With the economy declining and the government trying to stay out of debt, the government there also laid out cuts to many services, including higher education: there the hit is a cut of roughly 13% out to 2020.

Now, in North America, when you hear about cuts of this magnitude, one tends to think “oh, well, at least the government will let institutions make some of it back through tuition, either by increasing enrolment, or raising fees, or both”.  And in general, this attenuates the impact of funding cuts: if government revenue only accounts for 30% of your institutional budget, then a 10% cut only amounts to a 3% loss of operating revenue, which can usually be offset in a number of ways.  But in free-tuition countries, by definition, there is nothing that can be done to offset cuts: a 10% cut is a 10% reduction in operating expenditures.  Period.

And so that 2% per year cut for the next four years in Denmark?  The University of Copenhagen has since announced a first round of cuts equaling 300M DKK ($45 million USD), equal to about 5.5% of the university’s operating budget, and that will involve cutting 500 staff positions.  Also on the table: a 10% reduction in the intake of PhDs. Those cuts in Finland?  The University of Helsinki has decided to cut almost 15% of its total staff positions, including nearly 300 teaching and research staff.

The lesson here for those interested in free tuition is that total reliance on government funding looks pretty good while government spending is on the rise but it looks much less friendly on the way down. Tuition fees are, in effect, a reliable way to diversify revenue. Students can be guaranteed to pay tuition fees every year, which makes them a more dependable source of revenue than government grants. In effect, fees balance the ups and downs of the funding cycle.

Another thing tuition fees do is provide an incentive for institutions to accept more students; if institutions can’t charge tuition and aren’t funded according to student numbers, their inclination will be to accept fewer students, thus undermining the “access” rationale for free tuition. And this seems to be what is happening in allegedly-access-friendly Sweden these days, where enrolment in first and second degree programs has actually been in decline over the past few years.

 

Total Bachelor’s/Master’s Enrollment at Swedish Universities, 2007-2014

Sweden's decline is not related to demographics.  According to the Swedish Higher Education Authority’s annual reports the ratio of applications-to-acceptances for students with no previous post-secondary education (i.e. 18-19 year olds) has actually been rising for the last five years, from 2:1 to 2.5:1, meaning it’s now significantly more difficult to attend a university.  And unlike neighbouring countries, there’s no financial rationale for these reductions: between fall 2010 and fall 2014, expenditures at Swedish universities increased by 12% after inflation.

Effectively, what is happening is that universities are choosing to keep spending per student high rather than increase access. In some ways, that’s understandable – who wouldn’t prefer to be paid more rather than less. But reducing spaces while accepting ever greater sums of public money is a policy choice that is almost inconceivable in North America; it would simply be rejected by every legislature on the continent.

What all of this tells us is that free tuition, whatever its benefits, also has some pitfalls. It can in some circumstances result in reduced access to education, and in all cases makes universities more vulnerable to the vagaries of the business cycle and state decisions on public expenditures. These are two results worth pondering as the debate continues back in the United States.

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