For a number of years commentators have suggested that voucher funding arrangements are the best means of delivering educational subsidies. This article does not explore the merits or demerits of voucher funding, but examines the key design features of any voucher funding mechanism. I will define a voucher in this context as "an entitlement to a subsidy for tertiary education delivered directly to the student". This does not preclude the entitlement being of an "in kind" nature (such as a coupon to be presented to an educational provider for conversion into cash).

Key factors to consider in designing a voucher funding system include:

* Any limitations on the student's voucher entitlement. The voucher could be limited to a certain volume or value of education (eg. the equivalent of 5 years full time study) or to certain educational providers (eg. providers that meet quality requirements), or to certain students (eg. students that meet minimum academic requirements).

* Whether the voucher entitlement is to be made available in cash or in kind (ie. should the entitlement be provided to the student in the form of a cheque that they can cash at a bank and use as they wish, or in the form of an entitlement that some other party can cash in).

* The tradeability of the voucher (ie. can the student sell their voucher to somebody else).

* The monetary value of the voucher. Vouchers may be for a fixed monetary value or the value may vary depending on factors such as the student's course of study, choice of education provider, or individual need.

Generally limitations are put on voucher entitlements in order to protect both the student's interests and the taxpayers' interests. It is normal practice to restrict their use to quality approved providers. Limiting the volume or value of subsidised education is readily achieved with a voucher system.

The advantages of limiting either the total monetary value of the voucher or the volume of education that it covers include:

* the ability to limit Government's maximum fiscal exposure over the longer term;

* providing incentives for students to use their entitlement wisely by enrolling in a course for the minimum period needed and studying to the best of their ability.

The disadvantages limiting the total entitlement are:

* that it assumes all students have similar need for education;

* that it may actually encourage over-consumption since full value isn't achieved until all of the entitlement has been expended.

Voucher systems seldom provide cash directly to students since at least a minority of students would be likely to misuse a straight monetary entitlement. Instead they are generally only able to be turned into cash by a student enrolling in an education provider and the payment goes to the provider, not the student.

There is a way of avoiding the problem of a fixed entitlement assuming that all students have the same entitlement need, and that is to allow the vouchers to be traded. This means that an individual who is unlikely to fully expend his or her entitlement could sell part of that entitlement on the open market to individuals who wanted additional education assistance, but for whom their orginal entitlement was insufficient. Both the buyer and seller would benefit from this arrangement. Transferrable vouchers could, however, be more open to fraudulent activity and the government would potentially face 100% of the voucher entitlements being cashed requiring a lower initial allocation of entitlements.

Another variation of the basic voucher scheme would be to allow individuals to apply for an additional entitlement based on their past achievements. This would add administrative complexity.

While a voucher is normally of a fixed monetary value it could provide for a subsidy in proportion to the fees charged by the provider. In other words the actual subsidy could vary by the cost of the course that the student enrols in. This would encourage providers to raise fees, exposing the government to higher than necessary expenditure.

This article Copyright © 2000 Mike Woods MPP BSc DipTchg, Mike Woods & Associates