I do not actually object to student loans. It is perfectly sensible way for a student short of cash to borrow on the security of future earnings. I will have something, in the short time available to me, to say about the inefficiency of the current student loan system, but what I am really concerned about today is the way we force students into debt through our university fees and allowances system.
Let us begin, where most New Zealand education discussion should begin, with the Fraser-Beeby principles of student entitlement which (adjusted for gender) states:
The government's objective, broadly expressed, is that every person, whatever her or his level of academic ability, whether he or she be rich or poor, whether he or she live in country or town, has a right, as a citizen, to a free education of the kind for which he or she is best fitted and to the fullest extent of her or his power.
It is one of the most noble sentiments articulated by a New Zealand government, but we were some distance from that vision when the current tertiary regime was introduced in the early 1990s.
In fact the new regime seems to have had some benefits in raising the quality of our workforce, a major concern a decade ago. A recent international survey found that 36 percent of New Zealand’s 25 to 64 year olds had post-secondary qualifications. That is third equal in the OECD, where the average is 26 percent. One worry is whether the certificates and diplomas are of international standing. Our degrees still are, although there is a danger that inadequate funding of the degree providers will undermine our reputation. (It will not only be the new graduates who will suffer but all the past graduates who need international acceptance as well.)
However, the survey also suggests New Zealand’s achievement is much more middling if we look at the qualification mix. The strength is in certificates and diplomas. Only 14 percent of the age group has degrees or higher, a little below the OECD average of 15 percent. In effect, we have at least 20,000 New Zealanders who should have a degree, but do not.
The implication is that we are over-certified and under-degree-ed. On the supply side we have focussed the tertiary education expansion on low level qualifications, because it was cheaper. But the demand has been for low level qualifications. Why? It is not, presumably, that New Zealanders are less capable of education than the rest of the world. Rather we make it too expensive to get a degree, so New Zealanders choose to take cheap tertiary qualifications, such as diplomas and certificate. The high cost is not just the student fee levels, but the whole cost of spending but not earning during the course together with fees and learning expenses.
Now you might say they do not really matter, because the whole costs are covered by student loans. I’ll come back to the Fraser-Beeby principle shortly, but even were it irrelevant, the implication of our poor graduate performance is that the loans are not doing the job. They were imposed ideologically, without consideration of whether the return on private education is sufficient. They are very inefficient financial instruments, for they are not standard loans but ‘contingent ones’ – for the repayment is contingent on subsequent events. But borrowers dont understand this, treating them as conventional. The misunderstanding means poor quality decisions and not enough students going to university.
(Perhaps the fundamentally problem is their policy foundations theorise that people behaviour in particular ways, whereas in practice, as Chicago economist Richard Thaler shows, people behave quite differently.)
The loans are also misleadingly represented in the government accounts. I have only time here to sketch the point, but in essence the quantum in the accounts is the valuation of the future stream of revenue the government will receive from recent graduates as a part of the taxes they pay. So the loan scheme is really a tax on recent graduates.
It has the problem of all taxes, together with some peculiarities of its own. Among those are the misunderstandings, the contingency nature of they way they operate, and that they penalise the poor more than the rich since it is the poor who have to borrow. If putting them in the government accounts is a good idea, why dont we go the whole way and put in an item for the value of all the future taxes the government is going to receive?
For what the scheme was really about was my generation, who got broadly free tertiary education, lowering income taxes on ourselves but keeping them high on recent graduates. The inequity is patently obvious, so we have to disguise it in the mumbo-jumbo of accounting and finance.
After all my generation was a beneficiary of the Fraser-Beeby principle. Having benefited we pulled up the drawbridge so later generations do not get the same benefit. We said that in future the principle would only apply the primary and secondary education but not to tertiary education, a strange argument because it applied to tertiary education in the past when the only the elite received it, but not today when the masses go on after school. The argument seems to be based on New Zealand being a third world country too poor to afford its citizens a tertiary entitlement. Are we that poor?
Designing a new system based on the Fraser-Beeby principle applied to tertiary education is not simple. First we are going to have to find some more money, in effect spreading the fiscal burden across all graduates and not just to recent ones. Getting the right balance across lower fees, higher (presumably targeted) students allowances, and a student loan scheme is a complex task. There will still have to be a student loan scheme, although it would be a different one from the current one, including discounts for being in priority New Zealand occupations (including parenthood) and working in graduate scarce regions. Most of all it would be based on the premise that students should not be forced into debt in order to get a standard tertiary education.