There is a crisis looming. Adolescents barely old enough to vote, drink, or drive, are being forced into debt they do not understand and, frankly, cannot afford. This is a demographic that has no experience of managing their own money and it is being hard-sold a misleading, debt-laden promise of a better life; the university degree.
I am an advocate of higher education and ardently believe in the experience of pursuing a degree. However, the problem arises when governments and policy-makers paint all higher education with the same brush. On average, a graduate with an engineering degree will earn more, and therefore be less indebted, than their business & finance counterpart. There are, no doubt, exceptions to the rule, but the fact remains that the average engineering degree yields higher returns. It comes down to supply and demand – someone with a highly-specialist degree (which often goes hand in hand with a vocation) is likely to get a job in that specialist sector, whereas the majority of generalist graduates will be forced to take whatever they can get. That is why, in real terms, the average university graduate now is not earning any more than they would be thirty years ago. In the United States, 48% of employed college graduates resort to doing jobs that do not require a degree at all. Despite this, the majority of them will still have interest payments to make; slowly servicing the debt for a degree they are not even using. It is no surprise that in the US, there is a 12% default rate on student loans. This problem perpetuates itself as the oversupply of college graduates floods the market and lends more power to the employers. The employers, if only to make their recruitment process easier, continue to increase the pre-requisites for entry-level jobs. This is what causes that 48%. In the case of higher education, more is not always better.
Recent data suggests this problem not exclusive to the US. Of total UK graduates, STEM graduates make up just 10%, whilst ‘creative design and arts’ (a subsection of the non-science subject areas in the survey) make up almost 25%. It can be said with a strong degree of certainty that ‘creative design and arts’ does not represent 25% GDP, the labour market, current vacancies, or any other measure of demand that you might choose. In other words, hundreds of thousands of students are graduating with expensive degrees that yield little-to-no returns. A quarter of all undergraduates in the UK are studying for a degree that will never deliver the lifetime-earnings premium necessary to justify the typical £50,000+ student debt. 10% of all UK graduates do not earn over £25,000 10 years after graduation. These statistics are a testament to the odds being stacked against students as soon as they graduate. If 1 in 10 students are defaulting on their loans means that they are most certainly not getting onto the property ladder, buying cars, or making investments for the future. The full effect of this generations indebtedness is yet to be seen.
The business of education is breaking the laws of economics; it is completely violating the elasticity of demand. There is no risk-based pricing incorporated into student loans. An engineer is less likely to default on their debt, therefore, their debt financing should be vastly different to that of their generalist counterpart- a higher interest rate should reflect the higher risk of default associated with a less sought-after degree. This is not to mention the real disparity in the facilities, teaching and experience they get for that borrowed money. A revision of the student loans market would be a necessary start to correcting this imbalance in supply and demand. Yet, it is so clear why this appeals to the industry. University are privately owned businesses driven by profits. What you do with your degree after you leave, and whether or not you service that mountain of debt is of little interest to them.