Free tertiary education policy has a cost for society

Universities have responded to Labour’s announcement by warning of an influx of entrants, and a [drop] in education quality.

The Labour Party’s latest election lolly is free tertiary education. They want to give students three “free” years of fulltime study, with the first year becoming zero fees from next year.

On the surface, the policy seems appealing. Labour claim it will make education more accessible to everyone. But is that what will actually be achieved, or is this just a bribe aimed at catapulting Labour into Government, as Helen Clark did in 2005 with interest-free student loans?

Any perception that the current government doesn’t generously support students is misguided. Taxpayers currently subsidise the costs of tertiary education by about 84 per cent, and all initial up-front costs of university can be covered by the generous student loan system. This scheme enables all individuals, irrespective of their socioeconomic background, to pursue higher education and gain tertiary qualifications.

Loans are interest free and the balances aren’t even inflation adjusted — so taxpayers heavily subsidise borrowers over time. They are paid back only if, and when, a graduate earns over an income threshold.

The current system imposes a financial burden on the borrower, meaning that anyone heading to university will need to consider whether their decision to invest in tertiary education will provide them with a positive return in the future. Labour plans to abolish these financial consequences, which currently guide individuals into pathways suited to their ability.

After five years working, university graduates earn on average 43 per cent more than those without a degree. After 10 years, those with a bachelor’s degree earn an average of $64,600, compared to the average of $45,000 for those with NCEA level 1-4 certificates. This shows a graduate’s annual salary is more than sufficient to repay the cost of their tertiary qualification under New Zealand’s current student loan system.

While more tertiary qualifications have some societal benefits, such as improving economic growth, overwhelmingly the benefits are in the form of private returns. Higher-paying salaries benefit the individual graduate, not the general taxpayer.

Labour’s policy will cost $1.47 billion a year when it is fully implemented. That’s equivalent to $852.57 in additional taxes every year for a New Zealand household.

The overall impact of the policy sees money shifted from low and middleincome earners to tomorrow’s wealthy. Other than for votes, why is the centreleft Labour Party wanting to implement a scheme that takes more money from blue-collar battlers for law and politics graduates?

Labour’s scheme will see fewer tradespeople, and more free-riding students. Without the financial disincentive, it would be irrational for someone being offered three years free tertiary training not to use it on a more valuable university degree.

Universities have responded to Labour’s announcement by warning of an influx of entrants, and a decrease in education quality. The policy incentivises bums-on-seats type courses.

Reducing the price of tertiary qualifications will not only undermine their value, but will make tougher standards for tertiary entrance inevitable. Scotland’s zero fees policy introduced in the early 2000s saw their Government cap the number of students that could be accepted, tightening entrance criteria.

This has seen disadvantaged students as the first ones to be shut out of Scotland’s universities because, as in New Zealand, school grades are on average better at higher decile schools.

Scotland’s “zero fee” policy was supposed to help the poor. Instead, England’s universities are now better at welcoming students from lower decile schools into higher education.

Public policies should be assessed against likely results, not political slogans and good intentions. Costs must be weighed against benefits. Offering a free ride for students to take university courses they are not suited for is likely to see job shortages in crucial skills-based areas, lower-quality tertiary education and less access to higher education for disadvantaged students.

As seen in Scotland, the policy actually hampers social mobility and entrenches income inequality.

That’s not what anyone wants from this election.