Auckland Central MP Chloe Swarbrick and I probably don't agree on too much when it comes to economics, but I can agree on this from her column in the New Zealand Herald today:
This week is the beginning of Semester One for many tertiary education students around the country. There's a lot made of the "choice" to take on higher education, to the extent that in the 1980s, politicians began the process that would see students take on ever-increasing, exorbitant debt and decreased quality of life to get through it.
For far too many in this country, this supposed "pathway out of poverty" tends to look quite a lot like a level of mainstream social comfort with several years spent in poverty.
There's a neat story in "the student experience" of two-minute noodles, mouldy flats and part-time work. Working or studying in poverty isn't some cute cosplay. Students are paying an arm and a leg to live in flats that see some develop preventable respiratory illnesses that may stay with them the rest of their lives. Working to study now means chasing the tail of recorded lectures in the dead of the night after a day of low-paid work in order to afford … to study.
How far can we argue our society has really developed if one of our main arguments for this continual suffering is "I went through it too"?
In my ECONS102 class, we discuss the private tertiary education decision as weighing up the private costs and benefits of education. Students face a range of costs associated with tertiary education, including the costs of tuition fees, books, stationery, and so on. However, by far the largest cost is foregone income - students have to give up some time that they could have spent working, in order to spend that time studying. On the other side of the equation, the benefits of education are mainly captured in a higher future income once they graduate.
The fact that the costs of tertiary education has up-front costs, but the benefits don't happen until sometime in the future creates a number of problems. First, and most obviously, how are students expected to pay for their education? They face very real credit constraints. Banks and other lenders are typically unwilling to lend money for educational purposes, because there is little in the way of collateral that can be seized in the event of non-payment of the loan. So, students would find it very difficult to borrow in the private loan market to fund their education. Like many western countries, New Zealand solves this problem by a system of student loans. Students can borrow from the government now to pay the costs of their education, and then repay the loan through the tax system once they start earning (hopefully, following graduation and a higher-paying job).
Students can borrow to cover the cost of their fees, course-related costs (for books, stationery, computer items), and living costs. However, there is a problem here. Students can currently borrow up to $242.53 per week for living costs (see here). But if you know anything about the cost of living, you know that isn't going to stretch too far. And forget student allowances. As Swarbrick notes in her article:
Students make up 6 per cent of the population of this country. Of those 350,000 odd students, only around 8 per cent of them receive means-tested student allowance, on average receiving half of the maximum, leaving the small minority who do get that support with around $130 a week. The average rent in this country is $540 a week.
Of course, Swarbrick is overstating the case, because students aren't all going to be renting their own home and paying the average rent by themselves. Nevertheless, it should be clear that student loans and the student allowance (currently $240.65 for a single student living away from home, if they qualify - see here) are not sufficient to pay all of a student's living costs.
The meagre nature of the support that is provided to students explains why so many students have to work while studying. So what, you say? Students should be picking fruit? Working has a negative impact on students' academic performance (see here). The more that students have to work in order to live, the less time that they can devote to their studies, and the lower quality education they will receive. And this has equity implications as well. Students from well-off families might be able to avoid having to juggle work and study, being well supported financially by their parents. Students from lower socio-economic groups do not have that luxury. The current system reinforces existing societal inequities.
We need to provide better financial support to tertiary students. Students shouldn't have to be the only group in society that has to borrow in order to live. They shouldn't have to compromise their studies in order to be able to feed and shelter themselves. And the way that tertiary education students fund their studies shouldn't simply transfer inequity from one generation to the next.
There is a good argument to be made that students are the beneficiaries of their education, because their future income is higher, and therefore they should be the ones to pay the costs of that education. That is a good argument for why students should pay tuition fees, and why the first-year free tuition should be scrapped. However, students are not the only ones who benefit from their education. As Swarbrick notes in her article:
It's argued you can earn more after you complete a degree, so why should "the rest of us" shoulder the burden?
Firstly, try telling that to a nursing or teaching student. Secondly, every time you walk into a building and it doesn't collapse, or know you're in safe hands in the emergency room of the hospital, you're benefiting from other people's education.
The very fact that you don't have to understand the technological process underlying the computer code presenting these words on a screen for your reading pleasure, let alone that if you're reading this in print, you don't have to understand the proliferation of the printing press, means you're benefiting from others' education, experimentation and investment. It shows we as a society all benefit from the education of each other.
Imagine how many other life-changing inventions and ideas could have been found had the brains capable of founding them been encouraged and supported, not punished to prove their worthiness to survive.
That barely scratches the surface of the social benefits of education, which also include higher tax payments (from higher-educated and higher-earning taxpayers), lower crime, healthier lifestyles (and lower public healthcare costs), better social outcomes for children (of higher-educated parents), healthier democratic processes, a richer and more sophisticated cultural environment, and more skilled volunteers for charity organisations. For all of these future social benefits, it is reasonable for the government to better support students in covering their living costs now.
How should the government better support students? I'm generally not in favour of a universal basic income, but in the case of students I can see a strong argument for one. The key question is how generous such a payment should be. As a starting point, consider paying all full-time students an amount equal to the full-time minimum wage. From 1 April 2022, that would be $848 per week before tax, and probably around $720 per week after tax. Students should easily be able to support themselves on that, without needing to work (in fact, this treats their studying as a full-time job). The total net cost of this is around $7.6 billion per year (based on 330,000 domestic students being paid $720 net per week for 32 weeks per year). Total government spending on education (at all levels) is currently about $15 billion per year, so that would probably be an infeasible increase (and might come from Vote Social Development, rather than Vote Education, in any case). It is certainly well up on the $680 million currently paid in student allowances per year (see here). The payment needn't be nearly as generous as the starting point of paying all students the full-time minimum wage, but there is clearly scope for something more than is currently offered. And more is clearly needed.
Finally, the payment should come with strings attached. The point of paying students generously is so that they can focus on their studies. There could be a case for means testing, to incentivise students not to take on too much additional work. Also, there should be an expectation of attendance at classes, and completion of courses. In order to qualify, students should have to attend a certain (and high) proportion of all of their classes, and to maintain a passing academic record. Given the generous nature of a payment like this, students need to fulfil their obligations to study.
We need to revise the social contract with tertiary students. Taxpayers need to support them better, and they need to use that greater level of support to focus more on their studies. Tertiary education has significant social benefits, and the current meagre support that is available to tertiary students is hampering their studies and actively impeding their future contributions to society. We can (and should) do better.
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