How do we budget for ‘free college tuition?’

By Gerardo P. Sicat (The Philippine Star), Aug 9, 2017

Last week , the President signed into law a bill that provides free tuition for college level students who enroll in government supported institutions.

Affected by the new law are all state-supported universities and colleges, local tertiary government schools and training institutions under the TESDA (Technical Education and Skills Development Authority).

Disappearing tuition income of state-supported educational institutions. By making tuition free, this law virtually removes the ability of the educational institutions to earn any tuition income from students.

Budgetary allocations might enable the institutions to pay for a lot of their operational needs, including salaries and wages, but tuition income gives them enormous flexibility in managing their affairs.

Now, this source of flexibility disappears with the abolition of tuition income. The institutions will now be totally exposed to government budgetary support.

The relevant question then is whether the government can sustain the quality of support essential to make free tuition a successful social policy?

The cost of the free tuition policy is high to a government strapped by many expenditure needs. Our present predicament requires that priority be given toward removing major economic gridlocks that could be solved by amassing resources to solve the infrastructure needs.

High budgetary cost. Estimates of the new budgetary requirements have varied from as low as P16 billion to as high as P100 billion. The former is from the Commission on Higher Education, and it is suspect for being too low. The budget department has made much larger estimates of the cost, but it is still uncertain. Most estimates seem to indicate that the initial amount would be near the ballpark figure of P25 billion early in its implementation, but could rise over time.

The main issue for government financing is whether it is economically sustainable without a major effort at further tightening the budget, either through additional taxes (over and above those projected under the comprehensive tax reform program) or a major pruning of some public expenditure to accommodate the needs of free tuition.

Failure to provide the required budgeting effort could derail part of the economic program. The large spending could fan inflationary pressures and threaten macroeconomic stability. This is an important issue for economic management.

New spending that supports government schools represents a fiscal expenditure jolt because of its size. It threatens to widen the fiscal deficit. For a new law with a large spending requirement, the calculus for its implementation simply depends on more budget appropriation.

An implication that requires to be watched is that the additional spending abets inflationary pressure if no new taxes are collected or no reduction in spending elsewhere is undertaken.

Senator Panfilo Lacson, who had not used any pork barrel funds, had suggested removing pork barrel from Congress could finance the budgetary demands of free tuition.

While Congress passed the free tuition bill in almost no time, one wonders if the speed of action would have been achieved if the legislators faced a trade-off involving the loss of their pork barrel allocations.

Finance Secretary Sonny Dominguez suggests another way to finance the needs of the free tuition law. He zeroes in on the problem of “right-sizing” the national government.

Estimates being made in the right-sizing bill indicates that by removing 38,000 government workers, it is possible to save as much as P50 billion in spending. This is a sizable gain in efficiency and could enable substantial financing of large new spending arising from the free tuition law.

There appears to be no easy way out. Both the proposed measures will test the political will of the government. They are difficult measures, much more difficult than legislating benefits without having to account for the costs.

What happens to the quality of education? Many studies indicate that our state-supported universities and colleges do not produce the expected quality of the educational output that we aspire for.

While there are some cases of rising educational institutions within the public tertiary system, in general, however, the quality of output has not been improving sufficiently for all institutions.

It is unlikely, therefore, that educational output will improve if there is less certainty of the adequate budgetary support of the institutions. The system of free tuition would weaken the fiscal position of many universities and colleges if we judge them by what they have produced in the past.

Implications on private universities. Free tuition could lead to a displacement of student enrollments in private schools as some students might be induced to enroll in public schools.

Thus, a consequence would be an increase of student enrollment in some state universities and colleges at the expense of private schools. The drop in price of schooling to zero tuition cost for college could lead to the closure of some private universities.

In the case of the University of the Philippines system, there is no danger that it would attract enrollees from other private schools other than those who could qualify to pass the strict entrance requirements. This could not be said of other state-run schools where the standards of admissions are similar to those of private schools.

If such is the case, the free tuition law could enlarge demand for schooling in state-supported institutions and to some extent, could threaten the viability of some private sector run schools that might lose enrollment.

However, it is likely that schools that provide a high quality of educational product would be able to hold their own and survive competition from a university system that offers free tuition.

My email is: gpsicat@gmail.com. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/