Augar Review – No, Don’t Slash Fees, Raise Them, Increase The Interest Rate

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Philip Augar is running a review into university fees, student loans and all that sort of thing. It’s the usual Great and the Good type report, chair this review, deliver the right political answer, get admitted to that nice club in SW1. The right political answer rarely being the right economic one of course.

What should be happening is that fees rise, student loans be charged higher interest rates and, the point of all of this, fewer people go to university. For the mistake being made is to think that if degrees aren’t worth it then we should reduce the price. Nope – if degrees aren’t worth it then people shouldn’t be doing them:

University tuition fees and interest rates on student loans should be slashed, a report will recommend this week as ministers warn that many degrees are terrible value for money. The Augar review of higher education is expected to call for annual tuition fees to be cut from £9,250 to £7,500 and interest rates on student loans to be reduced from 6.3% to as little as 1.5%. The review, chaired by the banker Philip Augar, aims to ease financial pressures on young people and help to divert them from university degrees to vocational and technical courses. Further education colleges will receive a cash boost.

Most student loans aren’t repaid. That is, most default even though we don’t call it that, we say the graduates aren’t earning enough to have to repay them. If you’ve a high default rate then the interest charged should be higher.

But then there’s that other problem. Some to many degrees aren’t worth it. Lifetime earnings diminish as a result of gaining one. This has been true of an arts degree for a man for some time now. This isn’t in fact because of the price of doing the degree. It’s because of the time taken to do it and the earnings lost as a result. That is, it’s not a problem solved by reducing the fees charged, it’s one solved by not doing the degree.

So, how do we dissuade people from doing things? We raise the price. Thus we want to increase the cost, not reduce it, of doing a degree in order to reduce the number of people who do degrees.

As and when – if – those doing degrees are carrying the full freight of a degree being done then of course it’s entirely up to them how they spend their lives. Or what they earn in them. But only once they are paying full freight.

So, the actual answer to all of this is free the universities to charge anything they damn well want to. Then leave damn well alone. Sadly that’s not an answer that gains a seat on the red benches so it’s not the answer that will be given.

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timworstallMattthammondPatJonathan Harston Recent comment authors
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Davidsb
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Davidsb

….free the universities to charge anything they damn well want to….

Yes, and make each university responsible for any shortfall in its students’ loan repayments. Hopefully this will help university management to behave less like superannuated 1960’s Trotskyites….

;¬)

Jonathan Harston
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Jonathan Harston

Or, go back to 15% of 18-year-olds going to uni.

My boring just-scraped Scottish Pass in 1990 just nudged me into the top 15% of the population. Doing the same today just nudges me into the top 50% of the population.

Pat
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Pat

I think Davidsb has the method which will achieve JH’s objective.
The trouble is that an 18 year old hasn’t the experience to distinguish properly between a loan and a grant- she’s got the money hasn’t she- and is likely to overestimate the financial returns from the degree, an overestimation encouraged by both teachers and universities.
Only if teachers and universities suffer when they misrepresent the position to students will they return to giving honest advice.
As it is they take money for an often shody product and there’s no comeback.

thammond
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thammond

Aren’t “some degrees are not worth it” and the defaults the same point?

Matt
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Matt

The trouble is that the way things are set up, the people who do the most value-destroying degrees are the ones who don’t end up paying for them, and those doing worthwhile degrees do. Making degrees more expensive, either through higher upfront fees or higher interest rates will always end up with students who read for worthwhile degrees subsidising those who read for underwater basket weaving. The solution would surely be for the earnings threshold and % of earnings taken for repayment to be variable based on degree and advertised up front when the degree choice is being made, and… Read more »

timworstall
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timworstall

Damn good idea that.