University Funding

I just got about halfway through watching last week's QT. One topic of discussion was university funding. It was asked whether the government should ensure that tuition fees are not increased in order to make sure that students don't leave university with more debt.

The general consensus amongst the QT audience was, as you might expect, in favour of not increasing tuition fees. But someone on the panel noted that there is not a God-given right to go to university.

This point is so key. Going to university is a rational investment. You earn an average of £100,000 more post tax in your lifetime if you go to university than if you don't. Since university costs approximately £30,000, that's an insanely good return on investment - plus you might factor in non monetary benefits; the academic experience, broadening your horizons, making friends, participating in sport, having three more years to figure out what job you want to do. All of these together indicate that going to university is, for the most part, an extremely rational investment to make.

But perhaps it is too good. In the money market, if a bond pays very highly (a high coupon rate) and there is a very low interest rate, the value of that bond increases. This is to reach an intended equilibrium where all bonds have the same returns (this isn't quite true as there are risks to take into account, but that is unimportant for now). Since there are legal restrictions on university, the investment of university is not allowed to reach this equilibrium. The legal restrictions mean that going to university remains one of the most consistently profitable investments one can make.

So why on earth should we stop the price from increasing? Why should we create a legal barrier to ensure that this investment is so good?

There are three possible replies. One is that it is a form of ensuring that there is relative income equality. Obviously I reject government forced income equality, but in this specific circumstance we must ask the question: why university? If we're interested in ensuring income equality, just make a government subsidised bond which pays way above the market rate, but only the poor can buy it (you could buy the bond from the government at £30,000 and it would pay real £100,000 tax free across the course of your lifetime). That has the same effect, and reduces all the bureaucracy involved.

Then there is the notion that it is 'good for the economy'. It's 'good' to have intelligent citizens because they will be more productive. This is clearly a case of the market being able to ascertain this better than the government. What a laughable idea it would be to suggest that the government knows best how may people should go to university and what courses should be taken in order to maximise economic growth. No; if it is good for the economy to have intelligent individuals, then that must be because it is good for firms to have intelligent workers; and if that's the case, don't even worry about it - the firms will take care of it by paying for university education in return for a few years working at their company.

Lastly, it is argued that not all subjects will pay £100,000 - things like medicine and law are far more likely to pay out than English and Media Studies. This of course is true. But then this really begs the question of why the government should subsidise/limit the price on university anyway. If the person goes to university to study, say, English, not for the future economic benefit but for the pleasure of learning English, it is preposterous to say that the government should limit the price of or subsidise that course just so that the student can enjoy the pleasure of academia. If that's a good enough reason for the government to pay for or regulate something, I'll be lodging my application for a government subsidised trip to Florida next week.

EDIT: Watched the rest of QT. A beautiful quote from Toby Young; "Free university education is not a foundational principle of the welfare state. Getting the taxpayer to pay for university education is effectively saying, '70% of people who don't go to university should pay for the 30% who do', which is the opposite of the welfare state".
Nailed.