All they taught you at school/Was how to be a good worker/The system has failed you, don’t fail yourself

My wife’s telephone conversation this morning reminded me to discuss student loans and student debt. Specifically, she was calling up whoever has purchased her student loan most recently to explain that, although she just was awarded an MPhil, she is in fact a full-time registered PhD student, and hasn’t actually graduated. So we’d rather like not to have to start paying them back.

I had the good fortune of scholarships to cover my MPhil and PhD, and got my undergraduate degree under
Australia’s  Higher Education Contribution Scheme. After which I went to Canberra for my MPhil, then to England for my PhD. In other words, I’ve never paid it back. And until I return to Australia, work and earn an Australian-taxable income, I will not have to.

Internationally, how do student debts shape up? My 4 years at Sydney University came to around AUD20,000. Four years here would come to a hell of a lot more. Including accommodation, my University now charges something near USD40,000 per year. I’m not saying they aren’t worth it, but if I ever discovered my wife was pregnant we’d be on the first flight back to Medicare and public Higher Education, the open arms of Gough Whitlam (to whom history dictates we give credit for such things). In fact, not only do Australians have the cost side pretty easy, but the repayment side is University-friendly as well:

There are some neat differences there. Australia, for example, has a higher income threshold, compared to New Zealand, but New Zealand uses a kinder calculation of the amount to be repaid. Other countries use mortgage methods (a proportion of the debt, rather than a proportion of the income – this is a reason why we worry less about our debt than our UK or Us counterparts).

From the same report (it’s Canadian, from 2005), estimated/average salaries for graduates:

So Sweden is actually the worst – average salaries for recent graduates are only 1.26 x graduating debt, followed by the US at 1.77 x graduating debt. Germany is the best at 7.35 x graduating debt. Other differences can affect this, though, including amortisation periods, subsidised interest repayments, etc. (the appendix of Usher’s report contains detailed information).

This only includes undergraduates, of course – if you’re taking out student loans for higher education or overseas education (or both), particularly in the US, you are going to have a level of debt awfully greater than USD19,300.

This comparison doesn’t gel too well with the news, particularly in the UK, of late, that student debt is crippling, young people are avoiding university, etc. We hear in the UK similar arguments to those heard in Australia when I was there, concerning the hypocrisy of government ministers, who went through with grants and free education, lumping fees on us. It ignores the realities of the costs of education, and the number of people receiving it, both of which statistics are increasing.

This report also preceded UK fee increases. The latest graduating debt averages for UK graduates are nearer to GBP13,200 – a combination of fees, no grants, higher costs of living and student bloody credit cards. Allowing still for no change in starting salaries, the ratio for the UK would be 1.67. That’s still worth it (again, bearing in mind inter-national differences in how repayment/servicing is calculated).

The key for higher education, like any other investment, is cost-effectiveness. There’s a fair amount of variation: non-graduates will/should have uniformly lower incomes, on average, but university graduates can leave school with valuable qualifications or …not so valuable qualifications (you can read Economics or Law for 4 years or, say, Poetry – there will be variation in your employability and income).

One of my master’s students this semester actually looked at this for our cost-benefit analysis class (he found, for example, that Lehigh’s tuition is almost 6.5 x the national average for 4-year degrees at public colleges – impressive). For degrees computing, economics, finance, international relations, psychology, and so forth (so, not liberal or social studies), lifetime earning were, at their lowest, at a Net Present Value of nearly USD1m up to USD1.9m. The higher estimates were USD1.7m up to USD2.4m. It comes out ahead of the tuition costs, making university a positive investment.

Incrementally, the same is – or should be – true for graduates elsewhere: the difference in lifetime earnings between graduates and non-graduates is greater than the costs of a university degree, at present values (at least for undergraduates. Again, higher degrees may or may not have such a great payoff, especially if it means you stay in academia). You will absolutely pay a premium for the degree, but you will on average earn far and away more. Moreover, your incomes are far more likely to keep up with inflation, meaning the payoff stays with you. It’s the same in the UK, although the gain is less – inline with much lower levels of income inequality. It’s the same in Australia. It’s the same all over. Private rates of return on university educations are easily high enough to make borrowing for one worthwhile.

If you take a degree in something or other, then move to London or New York, trying to find work in politics, fashion, writing for newspaper or something, then you will not follow this basic comparison, and servicing your debt will probably be a real hassle – particularly for Americans, where the threshold for repayment is so low. It’s hard to say what that means. If you are nevertheless pursuing something you would only attain with a university degree, then that goes into your own willingness-to-pay for the opportunity (that sounded unsympathetic – I’m not. But these are the economics of higher education).