Rethinking the Welfare State: The prospects for ... - e-Library

Rethinking the selfare state 182
prospective students. By contributing to their alma mater, graduating students register
their appreciation of the experience they have received, and the life-long benefits that it
has conferred on them. In these terms, institutions who are dependent upon these
contributions for their program offerings, will be loath to jeopardize future tuition income
or alumni contributions by chiseling on the quality of their current offerings.
Thus, given the existence of strong innate interests on the part of existing and
prospective suppliers to bond their performance, coupled with the capacity of student
consumers aided by informational intermediaries to ascertain accurately the quality of
programs prior to entry, we would argue for a relatively light-handed level of regulation
in determining which resident institutions should be eligible for ICL vouchers. Generally,
students will not be likely to make irrational choices in this setting, particularly when one
considers the costs of university education in terms of their foregone income during
university, as well as the responsibility they will ultimately bear for repaying student
debt, albeit on an income-contingent basis. Having said that, we would not go so far as to
abandon entirely the scope for some minimal core of entry regulation. Sponsoring
governments will have legitimate concerns over entry by nefarious or illegitimate
operators who seek to exploit certain disadvantaged population groups (for instance,
recent immigrants) by overstating the putative benefits of their programs to students,
particularly where these institutions do not have any sunk reputational or physical capital
investment in the jurisdiction. Governments will fear that where students are insulated
from confronting any of the current costs of their university program (other than the
opportunity costs of foregone income), certain vulnerable students will be induced to pay
excessively high tuition levels (particularly in relation to the long-term benefits realized
from the program) to these institutions financed by government-backed loans. Apart from
governmental certification of institutions and ongoing regulatory review (perhaps, as we
discuss below, primarily in the form of mandatory disclosure of information), another
possible response to this moral hazard problem is for governments to impose some of the
costs of loan defaults back onto participating universities by, for instance, reducing their
loan proceeds from the vouchers tendered by future students so as to reflect historical
loan-servicing experience. However government decides to proceed, the critical design
issue is to ensure that the regulatory regime that is established to govern entry be
insulated from capture by incumbent institutions, and further that regulation not deter
dynamic entry
Should the premium on broad-based citizen access to the higher education
marketplace extend to out-of-state institutions? The eligibility of foreign institutions to
participate in the voucher program of a sponsoring state is a difficult one. Allowing
students to secure state loan assistance for participation at out-of-state institutions will
obviously be welfare enhancing for the affected students because it allows them to access
a broader array of programs and university offerings than if they were confined solely to
the local marketplace. Further, to the extent that the motivation for government provision
of the ICL voucher program is based on various distributional concerns, there would
appear to be little reason to deprive citizens of the benefits of state assistance for higher
education simply because the student affected wishes to pursue a program abroad. This
position is strengthened by noting the evolving character of university educational
programming. Although there is strong reason to believe that the residential-based
university experience will persist well into the future, the rise of large internet-based