I was thinking to myself the other day, our University student loans
structure is completely wrong.
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?
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.
Coffee Space 
