The student loan system is working just perfectly
As we’ve been known to remark around here prices are information. We may not like the information being transmitted but that’s an incentive to change what is being done rather than to try and hide the price. On this basis the student loan system is working just perfectly:
Student loan repayments of up to 9% means some of these so-called Plan 2 graduates face effective marginal tax rates of 49% or more, in England and Wales,…..Since only the highest earners will ever contribute enough to outrun that galloping interest rate and actually clear the loan, many of the rest are now realising that despite years of conscientiously paying their dues, their debts have actually grown rather than shrunk…..Though anything this crop of graduates still owes will be written off after 30 years…..begin graduating into a jobs market that didn’t have enough genuine graduate opportunities to go round.
OK, so we tried it, that fallacy of composition. Graduates make more money than non-graduates therefore if we have more graduates then they’ll all make more money. Nope, didn’t work.
Which is the sense by which we say that this is all working. We are seeing the price of trying to have 50% of the age cohort going to university. It’s a very high price too. One that - clearly - isn’t worth it as the whingeing is showing. But that’s what having that price, clear and obvious, does for us. Tells us that this isn’t working. Further, it’s the plan that isn’t working, not the financing of it. Changing who pays those costs doesn’t change the price itself, it just changes who pays those costs. The price will be the same whether it’s buried in general taxation, paid for with a graduate tax, we nail down Jimmy Dyson and steal his wallet or any other possible or potential variation. The price is too high therefore we need to change what we’re doing.
We’ve been known to suggest that all social and council housing be abolished, that everything be rented out - or sold - at market prices. The whole and entire burden of the system should be carried by housing benefit. On the grounds that then we’d see, as one big number, the true cost of our absurd housing policies. The price is the information that the system needs to be changed, not hiding prices among opportunity costs, fake interest rates and taxpayer grants.
The same is true here of the financing of the university system. Interest rates on student loans are high because at least some attempt is being made to recoup the bad loans of those who never do repay. Those costs are there whoever by and however it is all paid for. Those prices are telling us we require proper reform of the system as a whole - for we might not like the information we gain from prices but prices are true and good information all the same.
The answer is almost certainly less university and fewer. But seeing the prices forces us into at least discussing that.
Tim Worstall