Graduate magnets told to stop ‘free-riding’ on foreign education

Countries that attract highly skilled graduates must stop “free-riding” on the higher education systems of others and offer compensation in return, an international tax expert has argued.

In an era of increasing global graduate mobility, countries often fail to capture the economic and other rewards of providing university education if their graduates emigrate to work elsewhere, warns Marcel Gérard, professor of economics and taxation at the Université Catholique de Louvain. If unaddressed, this could undermine support for the public financing of higher education, he believes.

English-speaking countries “free-ride the rest of the world” by getting overseas students to cover the cost of their higher education through the tuition fees they pay and then retaining them as graduates and thus reaping higher tax returns, he warns in a new co-authored analysis of global student flows.

Zero- or low-fee continental Europe is poor at retaining overseas graduates – few countries hang on to more than 5 per cent, compared with about 35 per cent in the UK, according to “Students’ mobility at a glance: efficiency and fairness when brain drain and brain gain are at stake”, published in the Journal of International Mobility.

The problem of free riding also exists within the European Union, where students must be charged equal fees. German students who have failed to win medical places in Germany flock to Austria, and French students pour into Belgium for the same reason, but both cohorts generally return home after graduation. This is “clearly a negative externality for Belgium”, said Professor Gérard.

There has also been concern about the failure of EU students to repay loans after returning home following study in the UK.

The number of internationally mobile students has increased “sharply” since the turn of the century, the analysis says, and many remain in the place where they gain their qualification: 70 per cent of Europeans who do a PhD in the US stay in the country for their first job.

These globally footloose graduates create “a mismatch between the population who pays for higher education and the population who benefits from higher education”, the analysis warns. Unaddressed, the injustice of this system could lead governments to “abandon” higher education to the private sector.

Several potential solutions are on offer. One option, which works when students typically return home after graduation, is to get students’ governments to fund their education abroad. Such mutual arrangements already exist between Swiss cantons and Nordic countries, Professor Gérard pointed out.

But where graduates go on to work in a third country – neither the country of their birth nor the country where they studied – there needs to be an international system of compensation, he argued, just as states make treaties to ensure that citizens do not avoid tax.

A French graduate working in London finance could, for example, repay France for her education through an income-contingent loan, but could also receive tax credits from the UK government in compensation, Professor Gérard suggested.

In the absence of a global compensation system, some governments have taken more drastic steps by limiting the right of graduates to leave. In 2016, the UK government announced plans to force junior doctors to work in the country for four years after qualification to stem an exodus to countries such as Australia. Singapore, meanwhile, offers tuition fee grants to overseas students on the condition that they work in the city state for three years after graduation.

david.matthews@timeshighereducation.com