Coffee Space

Problem

The core issue is that the incentive structure is completely wrong. The Universities are currently incentivized to get as many students on their courses as possible. Now this has a few knock-on effects:

• Universities want to be attractive to students. There are the following observations:
  • They essentially want to game the nation’s University rankings to be as high as possible.
  • These studies are taken whilst students are still studying, and not when they are actually applying the knowledge.
  • The studies are measuring the student’s perception of a good education, and not how well they actually achieve. For example, Universities will produce many Art Degree students, but these are not widely applicable ¹.
  • Students often don’t know what is good for them. I remember trying to convince a student that the course being difficult was a good thing, as it added value to their degree. If it was easy, it would have no value. Students can not reasonably be expected to understand what a good University education is, until they come to apply it and compare with other students.
• Universities want students to pay them as much as possible. There are the following observations:
  • As a result, it is within their benefit that students get as large a loan as possible. Almost all Universities maximise their tuition fee, because then it makes sense for them to maximise return per student.
  • Local students are often not nearly as profitable as foreign students, but it’s difficult for foreign students to justify high costs to study an undergraduate fee, so we see undergraduates predominantly local nation students and masters and above being foreign.
  • Universities lie and say that they charge more because students perceive low tuition fees as lower quality - but in reality it is just some partially hidden value paid by the student loan.
  • Universities could end up with a large surplus of cash, which looks terrible when applying for funding, tax breaks, private investment, etc, so they spend enormous amounts of money on assets. If you want an idea of a University’s excess cash, check their annual expenditure.
• Universities don’t care about student’s ability to pay back loans. We observe that:
  • They often talk about statistics such as percentage of students in employment within 6 months. This can be anything from McDonalds to Warren Buffet - they don’t care how successful you are at all.
  • They typically use extremely flawed statistics to encourage students to follow in the same path. I personally refused to answer these questions despite them hounding me, because I could see the warped incentive.
  • The debt is sold by the government under the Student Loans Company (SLC). SLC then sells this debt on under ICR debt sales, where they were able to raise £3.6 billion. The only reason these were sold is if the predicted return was higher than the sale price, meaning that further public money was lost.

I think it’s fair to state that it’s pretty screwed up…

Cost To Tax-Payer

Don’t hold your breath for transparency out of the new Labour government, but the Conservative party in 2019 suggested that the tax payer fronts about 45% of the value of the student loans. From the same article:

It is estimated that 70% of full time undergraduates starting university in 2018/19 will benefit from a government contribution; on average across all student loans, the contribution is around 45p in the pound. In total, this contribution equates to £7.4 billion in the financial year 2018-19.

It’s not entirely clear where this money is actually going.

The question we should be asking ourselves is: Is this sustainable?

See the following graphs:

The cost is exponential, but the growth of the UK’s GDP is linear (at best). This is not sustainable.

Proposal

The solution is quite simple, there needs to be a feedback mechanism in order to inform and incentivise the Universities to provide economy boosting degrees. Their future success should entirely be based on their ability to provide good value.

This could be achieved by a slow transition from tax-payer backed student loans to University backed student loans. To address complaints by Universities in advance:

• Universities may complain that they don’t have the capital to transition to become a loan provider, but the Student Loans Company could instead be used to provide loans to the Universities that can have a large pay-back window with little to no interest.
• Universities may complain that they are not able to provide the infrastructure, but the Student Loans Company can still be used to provide the infrastructure.
• Universities may complain about the inability to collect payments, but HMRC and pay-as-you-earn may still be used.

We might see a greater value assessment for degrees going forward…

Other Changes

Additionally, we may see the following:

• Instead of a maintenance grant, students could and should be housed by the local Council and unemployed persons. The current standards of private student accommodation is appalling, many living standards and practices should not be legal.
• Money can be issued and managed via the existing government benefits system to save additional infrastructure costings. Students would need to provide proof of study (instead of being required to seek employment) and could be aided with government helpers for accommodation, employment during studying, etc.