The Political Economy of Higher Education Finance: How Information and Design Afect Public Preferences for Tuition Philipp Lergetporer (ifo Institute at the University of Munich) Ludger Woessmann (ifo and LMU Munich) Discussion Paper No. 145 February 27, 2019 Collaborative Research Center Transregio 190 | www.rationality-and-competition.de Ludwig-Maximilians-Universität München | Humboldt-Universität zu Berlin Spokesperson: Prof. Dr. Klaus M. Schmidt, University of Munich, 80539 Munich, Germany +49 (89) 2180 3405 | [email protected] The Political Economy of Higher Education Finance: How Information and Design Affect Public Preferences for Tuition* Philipp Lergetporer and Ludger Woessmann† Abstract Public preferences for charging tuition are important for determining higher education finance. To test whether public support for tuition depends on information and design, we devise several survey experiments in representative samples of the German electorate (N>19,500). The electorate is divided, with a slight plurality opposing tuition. Providing information on the university earnings premium raises support for tuition by 7 percentage points, turning the plurality in favor. The opposition-reducing effect persists two weeks after treatment. Information on fiscal costs and unequal access does not affect public preferences. Designing tuition as deferred income-contingent payments raises support by 16 percentage points, creating a strong majority favoring tuition. The same effect emerges when framed as loan payments. Support decreases with higher tuition levels and increases when targeted at non-EU students. Keywords: tuition, higher education, political economy, survey experiments, information, earnings premium, income-contingent loans, voting JEL classification: I22, H52, D72, D83 February 25, 2019 * For valuable comments and discussion, we would like to thank Nick Barr, Eric Bettinger, Leonardo Bursztyn, Sue Dynarski, Achim Goerres, Rick Hanushek, Juanna Joensen, Wilbert van der Klaauw, Volker Meier, Richard Murphy, Ricardo Perez-Truglia, Randall Reback, Lisa Simon, Marty West, and seminar participants at Harvard, Stanford, Ohio, Prague, Munich, Konstanz, Freiburg, Karlsruhe, Nuremberg, ifo Institute, the FRBNY/NYU education seminar, the CESifo education meeting, the IZA workshop on education, interventions and experiments, and the annual meetings of SOLE in Raleigh, EEA in Mannheim, the German Economic Association in Augsburg, and its economics of education group in Bamberg. We are grateful to Elisabeth Grewenig, Sarah Kersten, Franziska Kugler, Laura Oestreich, and Katharina Werner for their collaboration in designing and executing the surveys. This study is registered in the AEA RCT Registry as AEARCTR-0003873. Financial support by the Leibniz Competition (SAW-2014-ifo-2) and the German Science Foundation (CRC TRR 190) is gratefully acknowledged. † Lergetporer: ifo Institute at the University of Munich; CESifo; [email protected]. Woessmann: University of Munich and ifo Institute; CESifo, IZA, and CAGE; [email protected]. 1. Introduction The question whether higher education should be free or whether students should pay tuition creates strong political tensions. Politicians in countries with long traditions of tuition suggest making higher education free of charge, and countries without tuition see attempts to introduce it. For example, in the last U.S. presidential election campaign, Democratic candidate Bernie Sanders created substantial public attention by campaigning for tuition-free colleges. In traditionally tuition-free Germany, seven of the sixteen states introduced tuition in 2006/07. Clearly, whenever governments try to introduce or raise tuition, there is substantial public opposition. Plans for tuition raises in England in 2010 triggered a wave of student unrest, and proposed tuition hikes regularly spark campus protests in the United States.1 In Germany, four of the seven state governments that had introduced tuition got voted out of power in the next election, and all abandoned tuition within a few years. In political debates, proponents argue that charging tuition provides universities with resources necessary to maintain quality and make future well-offs pay for part of the services they receive. By contrast, opponents argue that tuition undermines access and equity in tertiary education. The fiscal, human capital, and equity implications of charging tuition have been studied extensively in the economics literature (e.g., Lovenheim and Turner, 2017). The public opinion battles over tuition indicate, however, that the feasibility of reforming higher education finance ultimately raises an important political economy question: What determines political majorities for or against charging tuition? In this paper, we study the extent to which two groups of factors affect the electorate’s support for tuition: factual information about central aspects of higher education and the design of the tuition scheme. Recent German history provides a prototype of the political economy conflicts that surround tuition. After the Constitutional Court had declared a federal ban on tuition unconstitutional in 2005, nearly half the states introduced tuition of mostly 500 Euro per semester (see section 2.2 for details). By the end of 2014, however, all of them have abolished tuition again in response to an apparently overwhelming public opposition. In fact, though, little is known about the extent to which the public at large – as opposed to special interest groups – favors or opposes tuition and how these public preferences are shaped. 1 For example, one protest against plans to raise tuition in England drew 50,000 students in November 2010 (BBC, 21 November 2012, http://www.bbc.com/news/education-20412792 [accessed 9 October 2018]). Over time, there have been many campus protests across colleges in the United States against proposed tuition hikes (e.g., Washington Post, 20 November 2014, http://www.washingtonpost.com/news/post- nation/wp/2014/11/20/university-of-california-students-protest-tuition-hikes-a-look-at-some-campus-protests-over- the-years/ [accessed 9 October 2018]), and observers increasingly raise concerns over soaring student debt (e.g., Oreopoulos and Petronijevic, 2013). 1 To elicit the electorate’s preferences for tuition, we conducted five annual representative surveys (2014-2018) of the German voting-age population with over 19,500 observations in total. To study determinants of the public’s preferences for tuition, we implemented a series of randomized experiments in the surveys. The first set of experiments tests the effects of correcting potentially biased beliefs about different economic aspects of the higher education system on public support for tuition.2 Our main focus is on studying the effects of randomized information provision about the earnings differential between persons with and without a university degree. We subject this experimental treatment to several tests of robustness and replicability and study persistence in a follow-up survey about two weeks after the information treatment. Additional experimental treatments provide information on the overall public cost per university student and on unequal access to university education by family background. The second set of experiments investigates the effects of the design of the tuition payment scheme on public preferences. Our main focus is on whether public support for tuition depends on whether payments are due while attending university or deferred until students earn sufficient income. Our experimental treatment allows us to compare preferences for regular upfront tuition to preferences for income-contingent tuition that is due after graduation and has to be paid only if income exceeds a certain threshold.3 We again test for replicability of results, as well as for robustness to framing income-contingent tuition as loan payments. We also complement our results for the voting-age population with a separate survey of adolescents, the highly relevant interest group of potential future university students. Public opposition may not only focus on the basic principle of charging tuition, but also on its level. Another design experiment thus varies tuition levels across experimental groups to study the public’s responsiveness towards the level of tuition. A final experiment compares preferences for universal tuition versus tuition for non-EU citizens to test the extent to which public support is affected by which group of students is targeted. 2 Previous evidence suggests that people are ill-informed about relevant aspects regarding university tuition (e.g., Bettinger et al., 2012; Hoxby and Turner, 2015; McGuigan, McNally, and Wyness, 2016). 3 Economic research generally indicates positive equity and efficiency aspects of income-contingent tuition (e.g., Chapman, Higgins, and Stiglitz, 2014; Findeisen and Sachs, 2016; Stantcheva, 2017; Diris and Ooghe, 2018; Barr et al., 2019), which is currently in place in Australia, England, and New Zealand. A related concept – income share agreements where tuition is paid as a percentage of later income – is gaining ground also in the U.S. It has been adopted, for example, by Purdue University and by an online learning start-up that recently raised major funding by leading venture capitalists (see New York Times, 8 January 2019, https://www.nytimes.com/2019/01/08/business/dealbook/education-student-loans-lambda-schools.html [accessed 16 February 2019]). However, the topic never took center