University As Consumption Good

Firstly, James Zuccollo at TVHE:

As summarised by the Economic Logician, “except for the top students, high school graduates do not care about academics at all. All they want is excellent “college consumption amenities.” And this likely explains why they learn so little while in college. Their focus is on the university as a consumption good, not an investment good.” The policy-maker’s view of the value of university and the student’s view are very different.

What does this mean for policy, then? Well, if the private value of university is largely in the consumption value then the total value is far higher than most estimates suggest since they are usually based entirely on investment value. That has implications for the level of the subsidy we want to provide to tertiary students. In addition to the efficiency questions we also need to ask whether,as a society, we want to heavily subsidise most students’ on an extended holiday?

Secondly, Eric Crampton at Offsetting:

I conclude that MOOCs aren’t likely to eat a substantial part of our academic lunch barring substantial changes in tertiary funding, or unless parents start balking at the large cost differential between online and on-campus options.

The literature generally looks at university as an investment. You incur costs – foregone wages, tuition, lower income etc. for a few years in the hope of earning a higher labour market income after graduation.

In New Zealand, interest free student loans and the availability of Studylink to subsidise living costs introduce distortions to the market for higher education. Without facing high out-of-pocket costs, sub-optimal decisions are easier for high school graduates. With social mobility as one of the goals for the student loan scheme, I’m not sure it’s delivering when degree completion seems to be significantly easier for those from high income households.

When this is added to a lot of nonsense about “do what you love”, and a lack of frequent examination of the data on what graduates actually earn in New Zealand, it’s hard to classify university as an investment if almost everyone is treating it like a consumption good.

I’d point people to the 2013 Student Loan Scheme Annual Report for an interesting look at how the public sector discuss human capital and the effectiveness of the student loan scheme in achieving higher levels of “social and economic wellbeing”.

My concern at the moment is seeing a lot of people my age “double down” on what has proven to be a sub-optimal allocation of time and capital. Failing to obtain employment after undergraduate studies, but having good enough grades to continue with post-graduate employment, is typical. The changes to Studylink don’t matter as much if you have a part-time job and parental assistance – which far more people do than they might let on.

The student loan scheme is a major financial asset for the government. But are the higher incomes on offer really worth the enormous costs? How does this table below compare to the return on a trade qualification? I would argue that trades training is cheaper and leads to similar earnings profiles once you finish your apprenticeship and start your own firm.

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