Higher education finance might be the last thing on America’s minds when they cast their votes on Tuesday. However, the fact that both candidates have set out plans to reform the US’ student loan repayment schemes is perhaps indicative of the importance of this issue in the US. The problem is, both candidates are just messing with the small print, and their plans which will do very little to help graduates struggling with student debt.
Trump intends to push for an income-driven repayment plan that would increase the level of the payments students have to make (by increasing the cap on payments from 10 to 12.5 percent of income) but reduce the repayment period to 15 years from its current period of 20-25 years (depending on the scheme). Meanwhile Clinton has endorsed the current plans, with the caveat that she aims to simplify the number of plans.
But will these proposals help students who are struggling with their loan repayment? The short answer is no.
For the most part, when we think about social mobility, our concerns are with those on the lower rungs of society’s ladder; people “for whom life is a struggle and who work all hours to keep their heads above water” as Prime Minster Theresa May put it in her most recent speech on the matter. One of the issues often considered is how likely are those from disadvantaged backgrounds to enter into higher education. This is often viewed as the direct route to the top jobs in the UK where a degree is almost always a pre-requisite now. The hope is that, if society is meritocratic, rewarding those for effort and achievement rather than family background, if we get more disadvantaged kids into higher education then this will equalise their chances of reaching the top jobs. Unfortunately, in the UK, this does not seem to be the case. Recent research by ourselves, and colleagues from Cambridge, Bath and Warwick university has revealed that higher education is not the leveller we might hope it to be, and that socio-economic differences persist throughout higher education and into the graduate labour market, even comparing those with similar educational attainment.
Every few weeks, a new report emerges raising concerns about the graduate labour market in Britain.
Only recently in the UK, the Chartered Institute of Personnel and Development (CIPD) came out with a plea for a halt to the expansion drive in higher education. Earlier in the summer, an Institute for Fiscal Studies report, while noting that the graduate earnings premium had been steady (or increasing, even) for many years, warned that the future might not be so bright.
Indeed, there seems to be growing concern that, maybe, higher education has expanded to the limit over the past 20 years and can take no more. So, should governments be worried about the underemployment of graduates – that is, graduates doing supposedly non-graduate jobs?
Our short answer to this question is: “Yes, but…” Let us explain why.
By Anna Valero and John Van Reenen, Centre for Economic Performance
In 1900, only one in a hundred young people in the world were enrolled at universities, but over the course of the Twentieth Century this rose to one in five. It turns out that this enormous expansion of the higher education sector was not just the product of riches – it has helped fuel economic growth.
We compiled new data based on UNESCO’s World Higher Education Database detailing the location of 15,000 universities in 1,500 sub-national regions across 78 countries over the period 1950 to 2010. On average, doubling the number of universities in a region increases that region’s subsequent income by over 4%. There are also spillover effects to other regions in the same country, creating a growth multiplier.
In all OECD countries, higher education is financed by a mix of public contributions (e.g. income taxes levied on labour income) and private contributions (e.g. tuition fees paid by students). Often, the public share clearly dominates. However, within the last two decades almost half of the OECD countries have introduced or increased tuition fees. During the same period, the number of international students has risen rapidly.
In tertiary education systems that are partly publicly funded, there are two possible causal relationships between student migration and the financing of higher education. First, it may be that the migration decisions of students are affected by the extent of private contributions, e.g. tuition fees. While comparably high public contributions may attract students from abroad, high tuition fees can prevent young people from studying in a foreign country. The empirical evidence is however not fully clear. The contradictory state of research in this area motivated us to analyse whether the second causal link – namely, that student migration induces changes in governmental policies – may also be possible. Continue reading →