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Government Loan Programmes Are Failing the Most Vulnerable Students

June 7, 2018 in Economics

By Diego Zuluaga

Diego Zuluaga

To extend credit to people in the knowledge that they are
unlikely to repay is decried by some as predatory lending. Those
suspected of engaging in this practice will face scorn from
regulators and opprobrium in the media.

Yet predatory is not an inaccurate sobriquet for government
policy towards the funding of higher education. So doggedly have
administrations around the world pursued the goal of giving
everyone a degree, that they haven’t stopped to ponder
whether this drive benefits taxpayers — or, indeed, students
themselves.

As so often with government-induced disasters, the original
motivation was laudable. Because human capital accumulation raises
worker productivity and therefore salaries, higher education was
viewed as a driver of increased prosperity and social mobility.
Moreover, since higher productivity raises output and tax revenue,
having more educated workers became not just a private but a social
good in politicians’ minds.

Governments on both sides
of the Atlantic are trapping many young people in debt at the start
of their working life in pursuit of qualifications that, plainly,
do not benefit them.

However, the crisis and its aftermath have forced an unwanted
reckoning. Even as enrolment rates have climbed strongly, rising
from 49 to 69 per cent among US high school graduates
— especially those from lower-income backgrounds – between the
1970s and 2016, and reaching 49 per cent among all 18-year-olds in
Britain, the expected returns have failed to materialise for
many.

A 2014 report from the Urban Institute, using a
conservative methodology, found 25 per cent of US bachelor’s
degree holders working in occupations for which they were
overqualified. In Britain, as many as 16 per cent of those in employment
between the ages of 16 and 64 were “overeducated” in
2015, up from 13 per cent in 2006.

Overqualification need not be a concern so long as it’s
the product of choice. It is generally associated with lower median
earnings than occupations which require a university degree. But
plenty of less-than-well-paid jobs, such as journalism, political
activism and creative writing, feature a preponderance of
university graduates in their ranks.

The problem arises when overqualification stems from
graduates’ inability to find suitable work.

It may be that their specific skills do not match the needs of
firms – which might require more introverted computer scientists
and fewer eloquent philosophers — or that the skills taught
in universities do not add up to much valuable human capital.
Economist Bryan Caplan has persuasively contended that college education
is more a signalling device than a provider of hard skills. If that
is the case, then encouraging university attendance will …read more

Source: OP-EDS

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