Let’s talk about…. the student loans crisis

StudentsWITH TUITION fees increasing in price to £9000 pounds (non-international); which are adjusted with increasing inflation, an average graduate will have to pay back £36000 in tuition alone. The question is: why are loans becoming so expensive? The main causes of rising prices are credential inflation; the easy access to credit being student loans; and the decreasing value of the UK pound sterling. Quite simply, too many people are going to university. Whilst many politicians take credit for record levels of university enrolment, nobody stops to question the value of the education that people are receiving. Thresholds for entering universities now are so low that people who haven’t displayed much merit in their previous studies are managing to get into higher education.

This raises several questions surrounding the motives of the university, as the increasing tuition fees provide universities with perverse incentives to lower their standards to take in these candidates and offer useless degrees such as basket weaving and film studies to expand their profits. Whilst in these universities, the academic standards and the bands required to pass are so low than any idiot can graduate with a useless degree. If we apply the laws of supply and demand, there is a huge call from students for access to public education. This means that the costs of student loans are increasing to service the increased costs that universities have to meet through the expanding of faculties, facilities and hiring of lecturers and other personnel. The increasing costs of tuition wouldn’t be a problem since graduates are receiving increasing pay grades in jobs that they apply for, unless you have a trash degree or are from an unknown university making your degree useless.

So why are these degrees useless? If we use simple supply and demand principles; the more you have of something, the more the value decreases, and in this case there are too many graduates. This is why you see so much exclusivity of employers when they hire. They focus on the Russell group universities, as they have a known track record and prestige compared to other newly founded, or unknown, universities. This means that students have to take on further education and debt in the form of a masters degree to increase their value in an oversaturated job market. Increasingly there are limited job opportunities presenting a huge problem for students in repaying their debts.

At the core of this problem is the easy access to credit, where granted student loans are backed by the government through tax payer receipts. As tuition fees increase, there is an increase in the pressure upon politicians to further subsidize student loans, which helps to increase the consumption of higher education through more affordability. Ironically, increasing the demand through subsidization and increasing demand only increases costs and rising debt. This also disincentives colleges from cutting costs as they have no reason to; they can easily fill seats through ever increasing demand and expand their facilities, as previously stated. If we use Aber as an example, we can look at the new expensive faculties that the University is building which could have been used to lower tuition fees. Thus education is more expensive without expanding the value of the education.

If I was going to compare this crisis, the housing crash of 2008 is a perfect comparison. The loans granted in this crisis had little due diligence conducted to see if the debtor had the ability to pay back the loan. With student loans it is the same as there is no consideration of previous academic performance at the primary or secondary level to determine the amount or eligibility of the loan you receive, meaning merit is meaningless and ultimately taking incentive away from maximising your university education and increasing default rates on the repayment of loans.

So what are the solutions? We should stop subsidising universities, as it will get rid of the perverse actions that I have stated above. Instead universities will restructure to become cost effective, and seek to provide the best value for the least cost. Removing subsidies will also let supply and demand pricing mechanisms work more efficiently. Currently students are cut out of this process by government subsidies. If they are removed, universities will have to lower their prices to relatively fall in line with the valuation placed upon it by the market, a valuation which will make their efforts at providing the best value for the lowest cost more efficient. We also need to reform primary and secondary education to make it far more competitive through far higher marking standards, similar to Japan where children work harder for their education as places are so highly contested. These schools also need restructuring and less subsidies in order to incentivise them on similar lines of efficiency as previously stated. There also needs to be efforts at bringing back grammar schools to incentivise youngsters to work as hard as they can to get into the best schools, instead of having a guaranteed spot at an inefficient, low standard public school. With this demand for higher education will fall due to more realistic outlooks from those seeking education.

This isn’t to say that they shouldn’t get education, but previous academic records should show you whether you are suitable for academic higher education. There is a huge skills shortage in this country, so a set of vocation schools should be created to teach trades such as joinery to provide alternative to purely academic options, similar to Norway, Germany and Italy, all of whom have better schooling systems than us. I refute notions of elitism, as they are ridiculous; competition is needed to provide the best and most efficient use of resources. We need restructuring to fix this broken education system we have.