POLICY FACT SERIES
Dig deeper: what does increasing tuition fees really mean for young people
English universities tripled their fees from £3,000 to £9,000 as of 2012, because the government opted to transfer the financial burden from public (state funds) to private (students and/or parents) hands. A recent OECD report now shows that England has some of the highest fees at public universities in the West (source). The rise came with increased public loans for students, which ultimately equalled to a higher tax burden for graduates once they start earning money (a study showed that the loan repayments would increase marginal tax rates for graduates up to 60 percent).
This development fosters much debate. A list of pros and cons can fill pages. For example, Mr. Schleicher at the OECD claims that transferring more of the cost of education to private hands can help make government spending more sustainable. And despite the higher fees, the OECD thought that the system was still fair and efficient. This might be true. However, I wonder if this is not rendering certain correlations with increasing cost of education invisible. For one, the fees only increased 3 years ago – is that really a long enough time to see decreasing numbers of full-time graduate students (there has already been a decrease in part-time students, see source above)? Secondly, I worry that decreasing real wages since the 1970s will make it less likely that taking out £30,000 plus loans (living costs will vary depending on where the university is situated) for only an undergraduate degree (let us not forget that the job market has become so competitive due to decreasing supply that some employers will not even give young professionals a job before they obtain a masters degree) will be financial sustainable for graduates.
Additionally, if you have a loan then you can fall into the trap of taking a lower paying job (and perhaps more importantly less fulfilling in terms of using the intellect you have spent years acquiring at university) just to make ends meet after graduation. There is a vicious cycle that most young people have to endure: the first job hunt is tough because prospective employers turn down inexperienced candidates without realising that if they never obtain that first job, they will never get onto the career ladder. Let me give you an example: I was in the same predicament after graduation. There was no financial way for me to do an unpaid or low paid internship after my master’s degree. I cannot remember how many times I was told that I needed to do an unpaid internship to show my worth. Eventually, I got an interview for a low paid internship at the OECD. I had managed to get a part time job that would pay me enough to make ends meet, so I spent the last part of my interview explaining how I could not do the internship unless I could leave at 4pm everyday to earn the money required for me to live. I was lucky enough that this employer took a risk and hired me on a formal contract instead. However, this is not the norm. We have all met young motivated graduates lose their motivation as months and sometimes years go by before they find a job, which a) pays them enough and b) makes them want to get out of bed in the morning.
Finally, I think think-tanks like the OECD who follow the mainstream economic rhetoric of markets forget the social decisions involved in education and loans. I am Swedish and have therefore been fortunate enough to get student state loans with zero interest rate (you only pay between 1-2% in interest to accommodate for inflation). Everyone has the right to this loan in Sweden. As I studied abroad, I could even borrow (some) money to pay tuition (which does not exist in Sweden). British student loans offered by the government are very similar to my Swedish loan. You only pay a small rate to accommodate for inflation and (unlike my Swedish loan) graduates only start paying back once they earn over a certain annual salary. However, I know many young Swedish people who are discouraged to take out these relatively fair loans, because of the social norm that one should not spend money that one does not have. I wonder if this social barrier does not also exist in Britain.
The taboo of loaning money coupled with the increasingly low prospects of finding a job after graduation must be a great source of worry for young people. And I am pretty sure that the British government will see dire consequences sooner rather later.
Article: Maria
ECON+ 