There is both an efficiency argument and an equity argument for
subsidizing higher education. The efficiency argument is based on the
claim that there are positive externalities from higher education—that is,
that the country as a whole benefits when a student receives higher
education. In many cases these externalities cannot be internalized by the
students receiving the education, so, left to their own maximizing
decisions, students who had to pay the full cost of their education would
choose less than the socially optimal amount. The equity argument is that
if students were forced to pay anything like the full cost of the services
they receive, a university education would become prohibitively
expensive to low- and even middle-income families. Government
subsidies help provide education according to ability rather than
according to income.
Proponents of charging higher tuition fees to finance a larger fraction of
the costs of running universities start with the observation that the value
of many kinds of post-secondary education is internalized and recaptured
in higher incomes earned by the recipients later in their life. This is
particularly true of professional training in such fields as law, medicine,
dentistry, management, and computer science (although students in these
fields typically pay a smaller proportion of their real education costs than
students in the arts do, where the argument for externalities is greatest).
Further, subsidized education does represent a significant income transfer
from taxpayers to students, even though the average taxpayer may have a
lower income than the average post-secondary student can expect to earn
in the future.