With tuition fees soaring at Englands universities, are we seeing a bubble emerging that, like the housing market, could burst, leaving students with unpayable debts and universities bankrupt?
It is possible to make this argument sound plausible, as the Guardian has done this week. Fees are rising fast. Applications to university are going up. Credit for this kind of purchase is easy to find. And there are question marks about the real market value of a degree. Indeed, Peter Thiel, the US venture capitalist who backed Facebook and has popped bubbles before, is warning of just such a bubble. It can all sound like a classic bubble. But it isnt.
First, Thiel is talking about the situation in the US where students generally pay for their higher education with their own money, albeit by taking out loans. But their loans are usually straightforward commercial debt. There the genuine bubble in law degrees is already popping as the job market for lawyers becomes saturated, computers take on white collar tasks and students realise that even $200,000 of debt does not guarantee a lucrative career any more.
Here in the UK, the situation is different. The cost will continue to be significantly subsidised (for now at least). And if you dont earn enough, youll never pay back a penny. The state, even by its own calcluations, will be writing off 30 per cent of the debt. The term for this is not bubble but moral hazard. As with the banks, the state is spending taxpayers money to insure students against economic failure.
Furthermore, it is relatively easy to ascertain the value of a house and to establish that you are (or are not) in negative equity. For most degrees, a straightforward cash value has always been impossible to establish. The vagueness of a calculation drawn out over decades makes a pop harder to envisage.
And overseas students have long paid their high fees. That is evidence of high demand and a sustained willingness to pay consistently high prices – the opposite of a bubble. If those prices make sense for Indians, why not Brits?
Second, obviously, demand for places this year is artificially inflated by students rushing to get a place before fees of £9,000 a year kick in next year. Again, thats not a bubble, its consumers rationally trying to take advantage of a disappearing subsidy. And the actual figures weve seen this week show applications from 18-year olds in England about flat. Factor in those abandoning plans for a gap year this year and those extra ones next year who could choose to take a gap year before plunging into debt and the stats seem to suggest a dip in applications next year (though theres still likely to be many more applicants than places).
Third, there are indeed question marks about the real value of a degree in the world new students will be going into. But the big picture is one of surprisingly little change. The (admittedly pre-Browne) assessment by Lancaster economist Ian Walker of rates of return to undergraduate degrees concluded that the people who studying unprofitable degrees under the new regime would be men on courses such as philosophy without an obviously lucrative career – but these are already precisely the people and courses that dont make economic sense even under the old regime.
Undergraduate education in England may be suffering in the swamp of a policy nightmare. But a bubble this aint.