sou · GYB388 · 2010-11-30 00:00:00 — Given that the social cost of late graduation appears to be larger than the private cost borne by the student there would be a case for government intervention. The government could influence the schooling decisions by creating stronger incentives to invest in education earlier in life by altering the incentives by reforming the tax and student support systems. Such reforms should aim at aligning private incentives with social objectives and removing the distortions created by the taxation and social benefits. Bilaga 3 till LU2011 Empirical research on economic incentives affecting graduation age delay in entry is primarily due to non-monetary reasons chances of inducing more rapid entry with stronger incentives may be limited. 5Potential policies to lower the graduation age In this chapter I will review policies that have been proposed or implemented in order to lower the average graduation age. The intention is not to present specific policy conclusions but rather evaluate the pros and cons of potential reform options. 5.1Start school at 6 One of the simplest and yet most radical ways to lower average graduation and labor market entry age would be to lower the school starting age without extending the duration of schooling. This would naturally affect not only the university graduation age but also the graduation age of those competing lower degrees. is one of the few countries where compulsory schooling starts at the age of seven. Naturally, these differences may be somewhat artificial, since over 90 per cent of Swedish six-year-olds participate in some form of pre-school where to curriculum may not be very different from school curriculum in countries where the six-year-olds attend school. Table 5.1 Compulsory school starting age in various countries , , , , , , , , , , , , , , Republic of , , , , , , , , , , , , , , , , , Source: : . Potential policies to lower graduation age Bilaga 3 till LU2011 Effects of early school start Effects of school starting age have been evaluated in several recent studies. Most of these rely on within-country data and variation in school starting age caused by the cut-off dates in first grade enrol- ment. For example, in the children typically start school in the year when they turn seven. This creates an eleven month differ- ence in the school starting age between children who are born in January and the children who are born in . In addition, some children are held back and start school when they are eight and some children start school earlier, in the year when they turn six. Since these decisions are not random, a comparison of children starting a year earlier or a year later to the children who start in the usual age would be misleading. However, as long as month of birth is uncorrelated with child ability, a comparison of children born early or late in the year can provide reliable information on the effects of school starting age. Bedard and Dhuey (2006) use this approach and examine the effects of school starting age in 19 countries including . They use data from the Trends in International Mathe- and Science Study (TIMSS) that measures mathematical skills at ages 9 and 13. They find that the oldest students score 4– 12 percentiles higher than the youngest students at the fourth grade level, and 2–9 percentiles higher at the eighth grade level across a wide range of countries. They also report that the effects are long-lasting: in the US students that are older when starting school are more likely to participate in pre-university academic programs during the final years of high school, and are more likely to enter flagship postsecondary institutions. A problem with TIMSS data is that students that start school later are automatically older when taking a test given at a certain grade. If age at the test date has independent effects on test scores, the differences between students born early and late in the year may reflect age at test rather than age at school start. Solving this problem requires data that measures the effect of age at school start at a given point in time rather than at a given grade. Even this is problematic, since those who are younger when they start school have completed more schooling by any given age. However, meas- uring outcomes after compulsory schooling is over may solve this problem. This approach has been used by and (2006) and , Devereaux and Salvanes (2008). Bilaga 3 till LU2011 Potential policies to lower graduation age , Devereaux and Salvanes (2008) use Norwegian data on military tests and find a small positive effect of early school start on IQ scores measured at age 18. They also note that age at test has a large effect on the test scores. They find effect on educa- tional attainment of boys or girls. Interestingly they report that beginning school at a younger age has a short-run positive effect on earnings. This effect disappears by age 30. This pattern could be explained by the effect of school starting age on the labor market entry age and the effect of labor market experience on earnings. If educational attainment remains , those who are older when they start school are also older when they finish, and have hence less labor market experience at any given age. However, the effect of small differences in labor market experience becomes less important as individuals get older. For the Swedish case the paper by and (2006) which uses Swedish data is naturally the most relevant. They use a similar strategy based on variation in age at school start due to differences in the month of birth. According to their results, those who are older when they start school do better in all subjects in school. They also note that this is mainly due to absolute age, not age relative to the other children in the same class. Those who are older when they start school also obtain more education and are more likely graduate from college. The effect age at start on earn- ings is negative up to age 35 mainly because those who are older when they start have obtained less work experience at a given age. This effect turns positive at later ages but remains small. the lifecycle the net effect of starting school later is negative implying that the loss due to entering the labor market later outweighs the long term gains due to better school performance. The results by and seem to indicate that starting school earlier would lower the graduation age and increase the aggregate employment rates. At the same time early starting age may have negative effects on school performance. However, if increasing the employment rate and lowering the average gradua- tion age is considered to be sufficiently important, changing the school staring age to six would be potentially effective policy change. Potential policies to lower graduation age Bilaga 3 till LU2011 5.2Impose restrictions to UI benefits for high school graduates The incentives to enter into higher education also depend on the opportunity costs of schooling. Good employment or generous unemployment benefits lessen the incentives to enter into tertiary level education directly after high school. One possi- ble policy option for inducing earlier entry into higher education would therefore be limiting the options for receiving unemploy- ment benefits for youth without vocational education. Such reforms were implemented in in 1996 and 1997. The Finnish unemployment benefits consist of earnings-related UI-benefits and flat-rate labor market support. Receiving earnings- related benefits requires membership in a UI-fund and fulfilling an employment condition i.e. having been employed for ten months prior to entry into unemployment. , most recent high school graduates are not eligible for earnings-related UI benefits but the unemployed youth may receive labor market support. In 1996 the eligibility for labor market support was restricted so that youth below age 20 were no longer eligible unless they had completed vocational education (general high school education is not classified as vocational education). In 1997 this age limit was lifted to 25 years. The intention of the reform was to activate the youth pushing them into jobs or into further education. The 1996 reform was never evaluated, but (2005) has examined the effects of the 1997 reform. According to her results losing the eligibility for labor market support increased employment and par- ticipation in formal education, but the effects were small. For example, the fraction in education only increased by 1.6 percentage points. 5.3Increase guidance for students in high school To the extent that delay in entry into higher education is related to lack of information on potential schooling options or lack of information on ones own skills, a natural solution would be increasing information for the high school students so that they would be better prepared to make career choices. Unfortunately, research exists on the impact of providing information, but Bilaga 3 till LU2011 Potential policies to lower graduation age since increasing career counselling at high schools is likely to be a low cost intervention, such policies could be experimented with. An interesting example of the experiment on the effects of information is a study by Vuori et.al (2008) where a randomly cho- sen group of Finnish ninth graders were offered a one-week career counselling workshop to help them in the transition to upper sec- ondary level. Though the study could not demonstrate significant effects on secondary-level schooling choices the authors argue that the intervention was beneficial for students with high drop-out risk and had more generally positive effects on measures of career- choice self-efficacy. They also argue that similar experiments among the upper-secondary school graduates who are in the proc- ess of making choices for tertiary education could be very useful. 5.4Reform the admission system Swedish university admissions are based on high school grades and a general scholastic assessment test (Högskoleprovet). In addition, some slots are allocated using special admissions criteria. Accord- ing to calculations by et al (2010) about half of the slots are allocated using high school grades and one quarter each by the two other systems. The goal of the admission system should be to select students who benefit most from university education, or to select students that have the best chances to successfully complete university edu- cation (note that these are not necessarily the same groups). Other possible criteria for a good admission system include providing equal opportunities for all applicants irrespective of gender, place of , ethnicity or family background. Admission systems may have an effect on graduation age, if they provide favourable treatment to those who do not apply to universities immediately after high school. The worst option is to introduce entrance exams that require a long preparation period, as is the case in e.g. . Also, giving credits for previous work experience is likely to increase the fraction of older entrants and hence delay the average graduation age. The Swedish system is rea- sonably efficient since it has a centralized admission system and a large part of students are selected based on high school grades. However, increasing the fraction of students admitted based on grades further might improve efficiency. et al (2010) Potential policies to lower graduation age Bilaga 3 till LU2011 also note that the test scores in scholastic achievement tests increase when the test is taken repeatedly. Therefore, students that have just finished secondary schooling and are taking the test for the first time have a slight disadvantage in the university admission relative to older competitors who may have taken the tests repeat- edly. (2004) analyses the predictive value of entrance exams vs. high school grades in . In most universi- ties admit students using a combination of the two criteria but the weights given to grades and entrance exams vary across universi- ties. uses data on three cohorts of applicants to and . As an achievement measure she uses the number of study credits accu- mulated over four years and likelihood of graduating within seven years from the entry date. Interestingly, she finds that entrance exams are better predictors of academic achievement than past school performance in , social sciences and sport sci- ences. In contrast, past school performance is a better predictor of achievement in education. She also notes that grades and exam results are strongly correlated which implies that a large fraction of admitted students would be admitted no matter which admission criteria were used. Comparing marginal students that would be admitted using grades but not using exam results, or vice versa, reveals that a reform abolishing entrance exams would change the pool of admitted students in a way that would reduce academic achievement. Naturally, this loss should be compared to the cost imposed by the entrance exams in terms of delayed entry. A potentially effective way of shortening the gap between com- pleting secondary education and entering university-level education would be to give extra entry credits to students who apply to a uni- versity directly after completing high school. A report by Commis- sion on Higher Education Admission (SOU 2004:29) takes a very negative view on quotas and supplementary credits for the younger students. The report argues that general credits would not work well since the heterogeneity of university programs is large. Some programs are dominated by young and some by much older stu- dents. also argues that the potential for increasing direct transition from secondary to tertiary level varies across high school programs noting that: Among the traditional higher educa- tion preparatory programmes– Natural Science and Social Science – Bilaga 3 till LU2011 Potential policies to lower graduation age direct transition within three years is about 70 per cent. For other national programmes, it is a mere 14 per cent. Strict quotas may be difficult to impose given very different age structure of applicants to different programs. However, simply giving extra admission credits to those applying directly from sec- ondary education could be a feasible policy option. It is also highly questionable whether starting university education within three years after completing secondary school can be called a direct tran- sition. Shortening the gap between secondary and higher education from three or two years to one or zero years would be a major improvement in terms of employment and productivity. 5.5Reform student support system to reward faster graduation and to discourage working while enrolled The characteristics of the student support system may have important implications for the graduation age, though not much research on the topic exits. Important features include the size of the support, whether the support is given as a subsidized loan or direct support and how own labor income affects student aid. suggests in its 2009 increasing the support stating that Study support should be at a level at which students can manage on their own without parallel incomes, to prevent students from working too much during their study time. They also suggest lowering the exempt amount, i.e. the maximum labor earnings that students can earn before student support is lowered, as well as a limit on the number of years that support can be collected. Perhaps the most interesting proposal of the Council is to make student support more generous for younger students (in higher education). The motivation is to encourage students to begin their studies soon after completing secondary education. In and Uusitalo (published in 2004) we examined the effects of Finnish student support reform imple- mented in 1992. The reform replaced an old system that was mainly based on loans with direct grants that were about three times larger than prior to the reform. At the same time, the maximum duration of the support period was cut from seven years to 55 months. The intention of the reform was to shorten graduation times by pro- Potential policies to lower graduation age Bilaga 3 till LU2011 more aid at a faster rate, allowing the students to concen- trate on studies instead of working part-time.11 Unfortunately, the reform took place just before a major reces- sion and it is hard to argue that changes in student employment or in times-to-degree after the reform would be entirely due to the student support system. Still our results suggest that the reform did not have the intended effects on student employment or graduation times. Removing the interest subsidy made the loans unpopular. Also, student employment increased rapidly after the reform (though part of this was no doubt due to the business cycle). However, the graduation times shortened in fields where they used to be very high. Our interpretation was that this to a large extent was due to the lower maximum duration over which student aid can be received. Our results also indicated that employment opportunities (measured by variation in local unem- ployment rates) had important effects on times-to-degree implying that working while enrolled in a university did delay graduation. Overall, it seems that if student employment is to be discour- aged, increasing the study support could be a wise policy change. A cost effective way of implementing this would be to increase the loan component of study support while the direct grant . This would be in line with treating education as an investment and would retain the incentives to take into account the profitability of the investment in the choices of education. The loans could be income-contingent spreading the risk of unem- ployment more evenly. An even more effective way would proba- bly be to lower the exempt amount that the students can earn without having their student support decreased. This would increase the effective marginal tax rate for student incomes and discourage students from working while receiving student aid. A modest decrease in the period over which student support can be received to match the normal time to degree could also be imple- mented. 11 In practice, an important reason for the reform was also that the banks were unwilling to grant student loans with a regulated interest rate when the market rates were much higher. Bilaga 3 till LU2011 Potential policies to lower graduation age 5.6Create incentives for students for timely graduation As argued in the previous chapters, there are already substantial monetary incentives to graduate at a younger age. This is mainly due to the difference between average earnings of graduates and average earnings of during or before studies. Still, the private returns to graduating quickly are apparently lower than the social returns and the society would therefore benefit from faster graduation. A direct way of internalizing the externalities is to attach incentives to faster graduation. A recent tax allowance introduced in present an exam- ple of how such reforms can be implemented. The allowance, applying to students that started their studies after 2005, grants graduates of the student loan exceeding 2500, but only if the degree was completed within target time. However, so far there are no evaluations of the effectiveness of the system.12 5.7Introduce tuition fees alongside increased student support A market solution that could solve the problem related to long study times and high average graduation age is to make the stu- dents pay for the resources they use. Long enrolment periods are costly, and when education is free to the student she only pays a part of this cost (in terms of forgone earnings). Introducing tuition fees could align the private and social costs of extensive study times, and potentially increase efficiency of the system. Cross-country correlations reported earlier suggest that graduation age is highest in the countries with no tuition fees and considerably lower in countries that charge substantial fees. How- ever, credible micro-level evidence on the effects of tuition fees exists. One of the few convincing studies of the effects of tuition fees was performed by et. al (2009) who estimate the effects of tuition fees on graduation times at Bocconi university in . At Bocconi, the tuition fees depend on family income according to a step function so that students just above each threshold pay 12 However, a recent report by the indicates that take-up of student loans has remained unaffected by the introduction of the new system (OPM 2009). Potential policies to lower graduation age Bilaga 3 till LU2011 higher tuition than the students just below the threshold. Com- paring students that differ in tuition but that are almost identical on all other respects, the authors can identify the direct effect of tuition fees. The results suggest that increases in tuition for the years beyond the standard program length have a substantial effect on the likelihood of finishing on time. To ensure that introducing tuition fees would not prevent stu- dents from poor families from entering tertiary education, student support could be increased by means of larger student loans. An alternative is to introduce a voucher system. In a voucher system, each student that is admitted to a tertiary program would be granted a voucher that would cover tuition fees for a standard duration of the program, but not beyond that. Effectively this would introduce a heavy tax on studies that delay beyond the stan- dard length. A simple voucher system that would grant the right to study for a given number of semesters would however still not create incen- tives to graduate sooner than the standard length of the program. Therefore, ideally the vouchers should be tradable so that the stu- dents that are not using there full entitlement could sell their unused vouchers to students that need more than the standard time to complete their degrees. Such a system would resemble the cap- and-trade market for carbon dioxide emissions that is in place in the EU and would be an effective solution as it would create incentives to shorten study times for those of the students who can do so at a low cost. A potential problem with tuition fee / voucher systems is that entry into tertiary education may be delayed further if students are risk averse and uncertain about their preferences. In such cases the students may be hesitant to use their vouchers for potentially wrong schooling choices. Given that the main reason for late graduation in seems to be a delay in entry into the tertiary level, tuition fees may not be as effective in as in countries where late graduation is related to extensive student employment and long average enrolment periods. Bilaga 3 till LU2011 Potential policies to lower graduation age 5.8Increase incentives to universities Creating strong incentives for students may not help much if the universities lack incentives to organize studies in a way that makes rapid progression possible. Creating incentives to universities is a policy route taken by other Nordic countries. In universi- ties get about a third of their basic funding based on output. The number of degrees has the largest weight in these funding rules but funding also depends on reaching other targets such as the number of students that graduate within seven years, and the number of students that attain at least a given number of credits per year. A working group appointed by the Finnish suggests further increasing targets that are related to timely graduation. The funding rules of the Danish system have also been reformed in 2009 so that universities get completion bonuses for each degree, but only if the degree has been achieved within tar- geted time (OPM, 2010).