Education is a cornerstone of economic growth with substantial private and public returns. Unfortunately, providing high-quality education is costly, and its returns are distributed unevenly. So, who should pay the bill?
The answer is complex, which is why countries vary widely in their approaches to financing higher education. At one end of the spectrum are countries such as the U.S. and the U.K., with more market-based education systems, high tuition fees, and elaborate loan schemes. At the other end of the spectrum, there are most EU countries where universities are centrally funded, and studying comes with little direct costs. For policymakers considering shifts along this spectrum—whether to redistribute costs or improve university funding—it is crucial to understand how fees affect educational attainment.
To contribute to this understanding, we exploit a natural experiment in Germany. Coming from a no-fee-regime, some German states introduced and subsequently abolished tuition fees (500€ per semester) for first-year and already enrolled students—an unusual lack of grandfathering. This allows us to study the effect of tuition fees on university enrollment and their causal effect on completion rates. Importantly, we use the fact that many affected students were already enrolled when the federal constitutional court in 2005 unexpectedly allowed states to raise fees. Students didn’t know what they were in for.
We study the introduction of tuition fees in 2007 and their abolition over the following years. Our results show that while university enrollment decreased by 3.9 percentage points, following the introduction, and completion rates increased by a similar magnitude, depending on students' study progress. As a result, the combined effect on overall attainment is small and close to zero. Symmetric effects for the abolition of fees confirm this small net effect. This suggests that tuition fees at the “zero fee margin” can be introduced without compromising educational attainment, even in the long run.
While our results indicate that moderate tuition fees can enhance university funding and shift some financial responsibility from the government to individuals without reducing attainment, many states remain hesitant due to the unpopularity of fees among voters. However, other research suggests that payment scheme design and information provision matter: income-contingent repayment plans, for example, may be supported by a majority of German voters. Additionally, sharing information on graduate earnings may shift public opinion in favor of fees. At a minimum, our findings imply that in countries with already modest fees, abolishing them simply to appease voters seems unwise.
This INSIGHTS piece is based on a study published in the European Economic Review:
Bietenbeck, J., Leibing, A., Marcus, J., & Weinhardt, F. (2023). Tuition fees and educational attainment. European Economic Review, 154, 104431.
References:
Lergetporer, P., & Woessmann, L. (2022). Income Contingency and the Electorate’s Support for Tuition. CESifo Working Paper No. 9520.
Lergetporer, P., & Woessmann, L. (2023). Earnings information and public preferences for university tuition: Evidence from representative experiments. Journal of Public Economics, 226, 104968.
