This system not only gives a huge advantage to the people who are most likely to become high earners, but a particular advantage to the men who become high earners. Across all subjects, the government’s study (conducted by the Institute for Fiscal Studies) found that the pre-tax discounted benefit of going to university was ?260,000 for women, and ?430,000 for men.
In this irrational market, women who want to invest in a university education are asked to believe despite centuries of evidence to the contrary that things will quickly change, and they will earn as much as men over their lifetimes.
In the 1970s, workers were given defined-benefit pensions because it was assumed that in the future (long after the people setting up the schemes had retired, on their own cushy pensions), growth would continue and an ever-expanding economy would keep passing the wealth on. By 2018, the reality was a ?190bn hole in the nation’s pension schemes, and an economy in which the young pay for today’s elderly in the knowledge that there will be no such bounty for their own retirement.
Worse still, the irrational degree market is underwritten by people who don’t necessarily take any direct benefit from it: taxpayers, who cover student debt at the cost of more than ?7bn a year guaranteedinstallmentloans.com/payday-loans-al/.
For any government, addressing the supply of (financially) worthless degrees is tricky. Even if it means a big chunk of the population escapes long-term reduced earnings and debt, no politician would want to be seen as having reimposed the old system of class division and low social mobility, in which only a privileged few went to university.
It might look unfair or unproductive if doctors are saddled with more debt than sociologists. But inequality is bad for GDP; as far as the wider economy is concerned, there’s a lot to be said for giving the graduates likely to end up on lower incomes more spending power in later life, and giving the taxpayer less sub-prime student debt to support (economists being more likely to pay off their student loans that poets).
This is a bit like your bank deciding to double your mortgage payments because it’s pretty sure interest rates will be a lot higher in 20 years
Such an approach would still be unfair to some what about the economics grads who become librarians? and would need to be carefully regulated to prevent the very best universities charging an absolute fortune (as happens in the US, where a Harvard education costs more than $200,000). It might also lead other universities to offer an even greater quantity of cheaply delivered degrees at cheaper prices. No one wants an economy in which a handful of doctors subsidise a nation of experts in esports, pastry and golf.
Another approach would be to address the irrational demand for degrees, with information. The government is becoming more aggressive in policing quality, but attending a bronze standard university might still sound like a good (financial) idea. There could instead be a requirement that before a university can sell a degree, they have to provide the prospective student with an assessment based on who they are, what they plan to study and where of its likely impact on their finances. If it’s going to make them poorer for decades, as many do, they need to know; as the minister pointed out, many financial instruments are sold with more information. Not to offer such a service to 18-year-olds who are about to make one of the biggest financial decisions of their lives looks like a dereliction of duty.
Adjusting the structure of fees and loans might make it possible to keep university equally affordable at the point of use, but more expensive in the long term for those that will benefit the most from it
A degree in a profitable subject is a good investment compared not just to other degrees but to almost anything else. If a medical student pays ?46,250 in tuition fees and realises half a million in net gains over an average-length (35-year) career, that’s an average annual return of just over seven per cent (although it’s actually better than that, because this is a net return made out of borrowed money). A three-year economics student does even better. Such degrees are therefore a considerably better investment than the FTSE 100 (which makes an average annualised return of 5.77 per cent), and they dwarf the performance of the UK’s best fixed-rate Isa, which pays 1.77 per cent interest. In that Isa, for ?46,250 to deliver the same return as the average doctor’s career would take at least 135 years.