The Prime Minister discusses tuition in the Chamber of Deputies

Prime Minister Mirek Topolánek's appearance on 25 September 2008 before the Czech Chamber of Deputies, in a debate on MP Ladislava Zelenková's questions during question time to Education, Youth and Physical Education Minister Ondřej Liška, on the topic of deferred tuition.

Esteemed madam MP, esteemed colleagues, I value your interest in the issue of financing universities and its social context. I hope that you will continue with your interest in the topic.

I think we have essentially the same goals. Of course I regret that you have not understood the issue and principle of deferred payments at all. According to you, if it costs a family CZK 70,000 per year today – on average, such a deferred payment, which is not only for tuition, which could cover these social aspects as well, will on the contrary decrease this amount. This is thesis number one.

Thesis number two. If we put the sentence "The government will begin discussions on payment deferrals for university studies" into our programme announcement, then the government has clearly stated that the deferral will not be implemented in this period. If you read this differently, then I really do not know how we should write it so that everyone will understand.

This government does not have:

a) the strength,

b) the concept prepared to such detail that it can implement it.

Nonetheless, initiating discussions on the floor of the Chamber of Deputies is hopefully part of its function, and in this sense, I welcome your interpellation, and allow me to devote a moment to the issue.

As opposed to you, I am trying to resolve the situation through the means the country has at is disposal. We may not have natural resources, but we can become richer by investing in human capital. This is neither a leftist or a rightist concept, but it is true. First of all, we do not have a budget surplus because of your governments, we must draw these investments from both public and private resources.

In addition, I am personally convinced that investing private resources into university education is correct. Both because I think it is the same for public and private assets, as well as because it increases responsibility for the choice of major and school, as well as increased interest on the part of the university in providing the highest quality education. But also because university education is clearly the best investment in life.

The latest OECD report on tertiary education, published two weeks ago, also showed that the Czech Republic is in first place in the OECD in the rate of return of individual costs for achieving a university education, both in economic and income rates of return; translated into Czech that means wages. What does that mean?

It means that in average wage amounts, an investment into a university education is returned far faster than other investments. That is another argument. And I will continue to adhere, madam colleague, only to the facts.

1. Tuition at universities has already been enabled through legislation in various forms. In most cases under ČSSD governments. Both in public and private universities in the case of lifelong education programmes, or in exceeding the usual term of study. I consider all of these forms to be legitimate. In this, I agree with you. I point out their existence only so that questions of financial contributions may be presented precisely, and so that various myths are not started.

2. In the given context, the problem is rather that students of private universities, who already make up more than 10 % and whose share is constantly rising, are actually being discriminated against. In contrast to other countries, there is no financial aid system for students, which would compensate for relatively high tuitions, especially in cases where the student's social situation requires it. Students of private universities and students enrolled in lifelong education programmes at public universities do not have a right to such things as tax breaks on tuition paid, as is the case in other countries. I think this is a topic for discussion. In a system of so-called free public university education, students of private universities - or their families - pay twice. First for themselves in private schools, then in the form of taxes for those who were luckier and through massive demand for university education made it through the entrance process and can therefore study on taxpayer funds. You certainly know that children of socially better-off families go through this net easier. For this reason as well, surveys of university students show that a large number of private university students are young people coming from poorer levels of society; they did not get into a public university not because of bad grades, but because of the real influence of a social filter, and I will talk about this in my next point.

3. Data gained by the OECD and its analysis clearly shows the causes for why, in comparison with other OECD nations, young people from working-class families here have such a low chance of studying at a university, which would enable upward social mobility. I don't like to do this, but I must repeat what I have already said many times. An investigation by Eurostat from 2005 - and the situation has not changed much since - shows that in the Czech Republic, only 9 % of young people whose father was a manual labourer achieved a university education in the youngest age group, to age 26. But 56 % of young people coming from families of university-educated experts did. Do these numbers really leave you cold? The ratio of imbalance is 6 to 1. This is the least favourable ratio in the entire EU. In most European Union countries, the share of young people from so-called working-class upbringings achieving a university education is around 30 %, while the children of university-educated experts reaches 60 %, or an imbalance of 2 to 1. And there are countries such as Finland or the Netherlands where this ratio is around 1.5: 1. Somewhat older statistics show that nearly 8 % of children from working-class families here have a chance to study at university, while in Scandinavian countries this is on average 28 %; in liberal systems - the USA, Australia and New Zealand - it is 32 %. But these are numbers we know.

4. The oft-repeated arguments that systems founded on students' contributions, or so-called tuition, create greater social barriers in access to university education than systems fully-financed from public sources, are shown to be unsustainable in light of such statistics. All analyses carried out clearly show that the imbalances in access to a university education in underfinanced systems without tuition are higher than places where students play a major role in financing their studies, and where the state instead creates programmes of social assistance for students.

5. In addition, our system of financing does not motivate schools to maintain the greatest interest in the best placement of their graduates. As a result of this, schools don't even have such a great interest in attracting the best-qualified people, regardless of social origin, who as excellent graduates would best advertise their schools. At this point I would ask you: Don't you think it's absurd to look for a cure for solving the aforementioned problem through changes in university financing so as to have them become directly and financially interested in the selection and long-term performance of their graduates, and accordingly in the elimination of social and economic barriers to entry for this education?

6. There are a great number of those who obstinately defend the opinion that university education must be free. As it is practiced here, free education means that everyone pays for education within the framework of the tax system, regardless of whether they have had the opportunity to draw upon this publicly-funded service or not, or possibly whether they would have to fully pay for a private university themselves. What is even worse is that the providers of educational services, the public universities in question, get financial resources independent of how their graduates are placed. The system is unfair and ineffective at the same time.

7. Another mistake is that the alternative to this system is tuition, which will limit access to education for those less well-off. In reality, both here and in other countries, what is being proposed is a system that would enable everyone to pay from what their education will bring them, or from future income. According to how much they can bear, they repay only a certain amount of their income and directly to the education providers, the universities. At the same time, the public financing of universities will be maintained at current levels, and will grow respectively with the relative trends in the economy's development.

In his comments, your party's chairman frequently relies on public opinion surveys. I will therefore do the same. Among the stereotypes that frequently appear in public discourse is the argument that students' financial participation as a tool toward greater opening of universities is opposed especially by individuals of lower socioeconomic status and people in working-class professions, while middle and higher status groups belong to the supporters of this model of financing. Of course, this stereotype does not have support from public opinion surveys. A survey carried out by CVVM and STEM shows that support does not differ meaningfully for the question 'Would university tuition with the possibility of loans enable a greater number of young people to study?' – 78 % of experts said yes, 76 % of self-employed, 73 % of routine non-manual workers and 71 % of labourers said yes.

It may surprise you that this opinion was expressed by 72 % of secondary school students, who from the point of view of the previously mentioned stereotype should potentially make up the most-threatened group expressing the strongest opposition to this principle of financing university studies. What may surprise you the most is the fact that voters from your party, ČSSD, favour this financing model just as strongly as ODS voters. In both cases, around 75 % of those questioned agreed with the opinion that tuition at university with the possibility of loans would enable a greater number of young people who want to study to get an education. There are minimal differences between ODS and ČSSD voters.

With this, I could close the compendium of the main arguments in favor of deferring tuition. But I assume that the topic of tuition will appear again and again in interpellation, and for this reason I will now try to deal with the additional objections I have noted from opponents of implementing tuition. I don't have to add that many of these come from the ranks of your party colleagues.

Objection no. 1. A student who has to repay a student loan will have problems borrowing additional funds for items such as an apartment. If someone is in debt, their credit rating is decreased.

Life is like that; it's always something for something, and we all can't have everything we would want. Having a well-paying university education only on state funds and money from the taxes of those who do not have such a degree and then being able to take out a mortgage for their own apartment, that's truly a pleasant problem. But we must not forget about those who have not been to university but pay them from their taxes; they have given no thought to mortgages and apartments. I think it is better to pay attention to their private creditworthiness more than the fears of the educated, whose payments would decrease their credit ratings in the eyes of commercial and mortgage banks. That will be constantly higher under a tuition plan than for those who do not have a university education.

Objection no. 2. The time for discussing tuition will come when the average domestic income is even with that of western countries. Allegedly the argument of Madam MP Vlasta Bohdalová, one of Jiří Paroubek's very frequent arguments, and is, I think, something similar to what Marcela Mertinová, the deputy chair of the education, culture and youth committee, has argued.

This argument would make sense if it were placed in the opposite. We could allow ourselves to cancel tuition and replace it with massive state financing if the Czech Republic's degree of economic development were on the level of Finland, Norway or Sweden. This argument may come from the idea that the incomes of our university-educated population are on the edge of poverty, so tuition payments of 5 to 9 % of average incomes would pull people into poverty. This is already not possible just because the payments of deferred tuition would not come from below-average incomes. If it were like that, and it's not, what kind of poverty must people with secondary and vocational educations be in? Their incomes reach 30 or even 50 % of what university graduates have even after paying their tuition. It might be more advantageous to ask why poor labourers have deductions from their low wages to fully pay for the lucrative educations of university students. That is a legitimate question.

And there is another important thing here. Loans for tuition and possibly for a better student sustenance, as I said, will be paid off in the period around 10-15 years after graduation, or 13-20 years after beginning university studies.

The payments will be therefore repaid from wages that will be higher in real terms than those today due to inflation. In other words, if tuition were today truly CZK 30,000, which was the figure that [the newspaper] Mladá fronta Dnes pulled out of thin air, from the standpoint of future real incomes this would only be between CZK 19,000 and 20,000.

Objection no. 3. It is not motivating for students to pay for tuition after finishing school.

Tuition should certainly have a motivational role, and students who will have the money for it should have the possibility of paying tuition immediately in cash and could even be motivated by tuition discounts. The more students who pay immediately, the more resources will remain in the student loan fund for needier students interested in the loans.

Objection no. 4. Today anyone can study at a university, so more money from tuition is not necessary.

Due to a sharp increase in available university places in recent years, many more people can study than before. But of these, only very few study entirely from their own money at a private university without any state support. The increase in the number of available places came at the expense of a decline in state subsidies per student. It's mistaken to assume that the demand for tertiary education in coming years will lessen due to a demographic decline in the number of 18-year-olds, because at the same time a number of additional factors will be taking effect.

• In the Czech Republic, there is a low level of successful completion of studies with a relatively high average period for unsuccessful studies. The level of completed studies is lower here than the indices of participation indicate for tertiary education in the Czech Republic.

• For a long time to come, overall demand for university education will reflect a long-unsatisfied, long-deferred demand from the ranks of the middle aged with secondary school educations. I would like to remind you that the Czech Republic is among the countries with an extremely low share of educated populace with tertiary educations, and at the same time with a very high share of inhabitants with secondary educations.

• The share of graduates that will have tertiary education at their disposal will grow, and they will be able to effectively make demands.

• Demand for additional education will grow even for generations which have acheived a first tertiary education at the beginning of their careers; the length of their productive lives are extending, and the role of human capital on the labour market is growing, as are changes in professions, etc.

• Demand pressures will – sometimes unfortunately – continue as a result of formal and informal requirements on the performance of a number of professions that until now only required secondary education. This will be caused by both real changes in qualification requirements for these professions as a result of the introduction of new technologies, but also by pressure from professional chambers for the formal increase in educational standards.

• The role of education will rise as a factor in a quality societal life, recognition and life success. This will further contribute to demand for tertiary education without the barely rising demand on the labour market being necessary.

• Purchasing power demand for tertiary education abroad from foreigners will continue to grow. The bigger this demand gets, the more modern, diversified and competitive the offers of Czech educational institutions will become, and with this, there will be lower barriers on the movement of residents both inside and outside the European Union.

• Even with current numbers of accepted students, which are sharply higher than several years ago, the Czech Republic will take several decades before it reaches a share of population with tertiary education that is at least at the average level common in the OECD.

Objection no. 5. University students massively return subsidies to the state in the form of taxes, so there is no reason for them to pay tuition.

University-educated citizens certainly give back to the state in the form of GDP, taxes collected and a growth in the overall standard of living. The problem is that the state does not and will not have the budget to make such a profitable investment into human capital by itself. Let's take the following into consideration. The Czech Republic is among the countries with below-average spending on universities, and both you and I know this, regardless of how we measure it. Spending growth in previous years meant we were only making slow progress in catching up. In the continuing low volume of public spending – and I most definitely do not want to discuss why they are so low and why we are paying old debts - and it will not be possible to catch up in a satisfactory way in the future. A sharp increase in public spending will be prevented by strict European Union limits, deficits and state debt. As a result of a rapidly aging population, other parts of the public budget will press hard for funds in coming decades; health care, the social and pension system, and primary and secondary education.

I would like to remind you on a European level of one of our pension system's greatest implicit debts. Only through high, long-term sustainable growth, which can be developed only by increasing productivity through investment into human capital, can this be decreased; pension reforms cannot decrease it. Can you agree with this? We have to admit realistically that sharp growth in funds for universities, for university students, can only be reached through a concurrent increase in public and private funds, for example, from tuitions. By insisting on free university education, our country is letting a very profitable investment opportunity get away.

Objection no. 6. It should be like with commercial companies. Tuition should follow after increasing the quality of studies.

Unfortunately, this can't be done. This would be as if, at the beginning of the 1990s, we would have wanted to introduce competition but at the same time did not free up centrally-directed prices and state ownership of centrally-managed companies until the quality of their products and services were to increase sharply. Where would the quality of Škoda cars be today? In line with the argument, one must clearly state that the introduction of tuition must be accompanied by the opening of space for universities' competitors, not only with regards to the number of financed students, but mainly to competition in the area of quality programmes of study. And here we must remember that tuitions will have upper limits. This will leave the schools with space for cost competition. A school that achieves the same quality of teaching with low costs can decrease its tuition and attract more interested people. It would be advisable to have a sliding scale of upper limits for tuitions according to how lucrative the field of study, according to the relation of private and societal benefits from the education.

Objection no. 7. Tuition in the tens of thousands of crowns per year will not be torn away. Tuition of course must not become the dominant source of financing for universities. But today its role in public schools is zero. But a partial role for tuition as a supplementary source of financing for schools should be underestimated. Let's take the example of societal and humanities majors, where the basic norm is the lowest, frequently the highest outstripping of demand over supply and on average an up to above-average earning for graduates. Setting tuition in the amount of one average university graduate's paycheck would make up nearly double a school's current income. Expressed differently - tuition from one student would bring a school resources worth nearly one additional normative. This would enable the school to accept another student, which would of course also bring the school tuition, etc., or a multiplier effect.

As mentioned, implementation will have a multiplier effect, which will open space for some schools to increase the number of their available places and for growth in financial resources per student. The multiplier effect will be high in fields with low costs, with the lowest normative. A sharp outstripping of demand will still remain in these fields, which could essentially be eliminated by tuition's multiplier effect with a couple of years.

Objection no. 8. Students from families with higher incomes will be favoured by their ability to pay tuitions immediately, and in addition, with a 20 % discount. The proposed changes will therefore not provide equal opportunities for all students, but will instead worsen the social situation for those students from families with average and below-average incomes.

A discount for the immediate payment of tuition is above all a motivation so that those who can pay will do so immediately, and so that more money will remain in the deferred tuition fund, as I have said, for loans to other students who truly need them. Discounts will also be given to those who take out loans. Interest deferrals are another form, albeit low, on the loan during the period of study.

Objection no. 9. Experience until now with tuition deferrals from countries of Western Europe, especially in Britain under the reforms of Tony Blair, a labourist and your colleague, show that costs for managing such a system are always higher, and the efficacy of choice is always lower than expected.

This is an objection that has no serious analysis, one for which something could be presented.

Objection no. 10. Schools are looking forward to the money. According to concepts that have been published up to now, Czech schools should get the first funds from tuition in 10 to 15 years. In that time, their rectors and deacons will change three times, and half of their teaching staffs will be changed. Grandchildren will, as is the phrase, be rewarded for the sins of their grandfathers. But schools need the money now and not in three of Topolánek's Five Year Plans. This was the argument presented by Jiří Paroubek in Hospodářské noviny and also by Jiří Havel on the programme Václav Moravec's Questions on 9 March 2008.

Here, luckily, it is a simple lack of understanding. Jiří Paroubek criticises the tuition model called the "human capital contract," where schools will get payments only after their graduates start to make money. But the White Book speaks of a different system, where a student pays later, but the school gets part of the money from tuition immediately, partly from students who get discounts up front, and part from the Loan Fund. The fund will later collect most of this money from successful graduates. Schools would get only part of the tuition from future payments by graduates. The pure "human capital contract" system, which Jiří Paroubek criticises, would actually not work here today because the horizon for planning and responsibility in the management of universities is much shorter today. With a long delay between the creation of commitments and the real beginning of payments, it would be hard to distinguish between the achievements of the schools' management and the influences of external circumstances, regardless of whether the good reform of universities started more dynamically, and, from the viewpoint of the schools, with less-foreseeable processes. As far as setting up the system, it is mainly a question of finance. If we agree that it is good to start a Loan Fund in the range of a couple of billion crowns, for example from one-time privatization revenues, the entire system will function both as a source of immediate income for universities, but also as a competitive tool.

Objection no. 11. Imagine the situation when a young person begins working. We cannot imagine an ideal situation, where they will have a clear guarantee that they will find absolutely lucrative employment. We have to truly think about support to young families, This was said by Marcela Mertinová, the deputy chair of the education, culture, youth and physical education committee, ČSSD, 10 March on the programme Radioforum on Czech Radio - Radiožurnál.

I have already explained all of this previously, so now it will be only very brief.

• The situation for university graduates on the labour market is incomporably better than others with less education. Those few unemployed university students are either people with both a health condition, people who studied at some strange university decades ago under socialism or young graduates who are either taking a break before entering another university or are about to take their first real job.

• If secondary school and vocational school graduates – who are far more numerous than university graduates - can start a family, it must not be a problem for university graduates to do it. But this is the exact opposite.

• Tuition is not a debt as we know it from consumer loans or mortgages. People have to pay mortgages and consumer loans like mad, regardless of whether they are making money or not, whether they have children or not, whether they have a job or not, and whether they are healthy or sick. Deferred tuition payments are zero if a person does not make enough money.

Objection no. 12. Deferred tuition leads to indebtedness, which for those from socioeconomically disadvantaged backgrounds interested in studying develops fears of future commitments, and therefore discourages them from their studies.

I have already explained this and it wouldn't hurt to repeat it. Deferred tuition payments work differently than payments for consumer loans and mortgages, so there is no risk of an inability to pay as a result of a lack of income. If a person interested in studying at a university does not understand this, maybe they should really not be considering being at a university.

It is true that students from socially disadvantaged environments have a harder time estimating their ability to study at university. For this reason it is advisable to accompany the system with targeted scholarships for such students, especially in the first year of university, where they are first reaching for their studies.

Since its introduction in 1989, the Australian system of deferred tuition has been a rich source of empirical experience, and is also a response to this objection. With regards to the impacts of deferred tuition per person from socially disadvantaged backgrounds, its author, Bruce Chapman, summarises the findings of diverse empirical research as follows:

1. There were fewer relatively socioeconomically-disadvantaged Australians in universities than when deferred tuition was introduced. Before 1989, Australia also had free university educations, fully paid for by public finances. This, by the way, is one of the pieces of evidence that free university education, financed only by taxpayers, is essentially regressive.

2. Introducing deferred tuition was connected with an indispensable increase in the overall numbers of university students.

3. This growing participation also meant that deferred tuition increased the participation of students from socially-disadvantaged families. Their participation increased less than for other groups of students.

4. Major changes in the parameters of deferred tuition in 1997 were connected with growing participation until 1999 regardless of families' wealth.

Objection no. 13. The next to last. Reform assumes that individual schools, and not the state, will now decide on investments into university education. But with this, the state loses a tool for pushing its long-term plans and goals.

Yes, reform intentionally assumes that the formation and realization of long-term goals will be shifted at the university level. For this reason, they will gain responsibility for new legal authority, and will bear responsibility for their possible lack of development. Schools, never bureaucrats in the good sense of the term, have the best information on their own needs, comparative advantages and possibilities. Long-term development will be the subject of competition among schools. The state cannot in principle be a better investor than the schools themselves. The ability to decide on investments also insulates them from unhealthy political influences, changes and lobbyist pressure at the central level. Without liberalization in this sector, quality will suffer, as will the natural diversification of our universities.

And the last objection, Number 14. At a time when you will pay tuition, you have somewhat above-average pay, but you support a four-member family and the bank is going to want you to repay your mortgage, said Shadow Education Minister Jiří Havel (ČSSD). In addition, university graduates at that time will not have such above-average pay. It is believed that in that generation, two-thirds of people will have a university education. According to Havel, schools will also only get one-third of this amount. The rest will be swallowed up by inflation and administrative costs, he argues in Respect Issue 26. 5. 2008.

I have already mentioned the weakness of arguments based on university graduates' mortgage burden. I can only add that it is probable that in 10 or 20 years, people with a university diploma will be paying such a high premium from their pay for their educations, but the ability to make payments on deferred tuition is set not by this premium, but by real pay, which is visibly increasing in the Czech Republic long-term, both for graduates of secondary schools as well as for university graduates. This deferral of tuition is only from the standpoint of the student, never the school. The school will get the tuition money, at least their half, immediately from the Loan Fund for deferred tuition, so inflation will consume only part or possibly none, depending on how the system is actually set up. Administrative costs will be according to practical foreign experience - New Zealand, Australia, Great Britain – considering the volume of loans and payments, this is minimal.

To conclude this discussion, which I welcome, I would like to add that this Monday there was a meeting of the authors of the White Book on Tertiary Education with industrialists, businessmen, employers and other stakeholders or external people involved in this system. The important leaders of industry and employers present at the meeting signed a communiqué in support of tertiary education reform, part of which includes deferred tuition payments. It would appear therefore that opposition to these reforms, which should be brought by deferred tuition is only ideological, and stems more from a lack of knowledge and ignorance of the facts.

People who are interested in reform as a whole, and who understand the relationship between reforms of university education with tax and pension reform also understand that deferred tuition is not a step that creates additional barriers on the path to higher education, but it is actually completely opposite and will make it more accessible mainly who have not yet achieved it.

Thank you for your attention.