Tertiary education: Who should pay?

Dr Michael Johnston
NZ Herald
5 August, 2022

Our young adults are having a rough time of it at the moment.

They have, perhaps more than any other age demographic, been impacted by COVID lockdowns. Instead of establishing their independence, travelling the world and meeting people, they’ve been grounded.

Ministry of Health data show a sharp uptick in depression for 15–24-year-olds in 2020 and 2021, greater than for any other age group. It’s not only COVID though – the trend has been upward for a decade.

Young people are doing it tough financially too. A decade of monetary and fiscal policy has fuelled asset inflation, making millionaires of homeowners. Meanwhile, young people have largely been locked out.

The price of rental accommodation, on which young people disproportionately rely, has also increased markedly. Now, inflation has taken off across the whole economy and their already limited spending power is being further eroded.

Against this backdrop, it’s not hard to see why Chlöe Swarbrick, who laudably advocates for young people’s interests, is arguing for ‘fees-free’ tertiary education and universal student allowances. From a compassionate perspective the idea is appealing, albeit misguided.

Before getting into the reasons to be sceptical that taxpayers should foot the whole bill for higher education, it’s worth noting some common ground.

I have taught university students for most of the past 25 years. Like Swarbrick, I believe that the current pressures on young people are unprecedented in modern times. Instead of being able to concentrate fully on their studies, students spend far too much time eking out meagre livings in low-paid employment. Financial stress compromises students’ ability to focus on study.

I therefore agree with Swarbrick that government has a role to play in improving the lives of tertiary students. Where we part company is on just what should be done.

Swarbrick begins her analysis by noting that education is a public good. She correctly points out that highly educated citizens contribute disproportionately to the wealth generated in New Zealand. Thereby, they increase the tax take going into the public purse.

Graduates also provide much-needed services. Medical professionals, teachers, lawyers and engineers all need degree-level training. Tertiary education, especially university education, also contributes to the public good of cultural enrichment.

What Swarbrick seems to miss is that tertiary education is also – in fact, primarily – a private good. Qualifications are awarded to individuals, not to society. The higher earning potential they bring with them may increase GDP, but the primary beneficiaries are those who hold the qualifications.

No one has to enrol in tertiary education. Compulsory education in New Zealand ends at age 16. Those who take on debt to acquire tertiary qualifications do so with an expectation that the long-run financial returns associated with holding a qualification make the debt worthwhile.

So far, employers seem to be fulfilling that expectation. According to Stats NZ, in 2021, the average earnings of New Zealanders with just a secondary school qualification such as NCEA was just shy of $53k per annum. Those holding a bachelor’s degree or equivalent earned, on average, more than $75k per annum. Graduates start on higher salaries than non-graduates and attain increases more rapidly.

The private good of tertiary education is not evenly spread in the population. NZQA data show that, in 2021, 69% of Year 13 students attending high decile schools attained University Entrance (UE). This compares with just 30% of students who attended low decile schools. ‘Fees free’ tertiary study would not, of course, really be free. All taxpayers contribute financially to the cost of tertiary education, but not all directly benefit from it. The UE data show that those benefitting are predominately from higher socioeconomic strata.

I believe that Chlöe Swarbrick is entirely genuine in her commitment to raising up those in poverty. As an educator, it is a commitment that I share. It is therefore a puzzle that she supports ‘fees free’ tertiary study. Her policy would disproportionately benefit the already well off.

A final reason that I don’t support Swarbrick’s ‘fees free’ policy is that it provides an incentive to education providers to run courses that have superficial appeal, but which do not provide much value, either financially or culturally. If those taking courses are not paying for them, they are less likely than they might be to worry about the quality they’re getting.

But back to my main point of agreement with Swarbrick – young people need more assistance to live healthily while they study.

All students, whether in undergraduate, postgraduate or vocational education, should be able to access student loans at market interest rates. This would allow government to loosen limits on the amounts that can be borrowed, allowing young people to live without privation while they study.

The public good of tertiary education is already recognised through a very substantial government contribution – around $2.8 billion per annum, according to the Tertiary Education Commission. Many taxpayers will never earn the kinds of salaries to which most tertiary students can look forward. It would be unfair to expect any further contribution from them.

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