Cheap credit creates an education bubble

Sturt Krygsman

IT is virtually a rite of passage for Labor figures to boast that, but for the education reforms of Gough Whitlam, they would never have got to university. Julia Gillard made the claim in her maiden speech in 1998, and last year the Treasurer, Wayne Swan, talked nostalgically about his time at university during the Whitlam years.

"I and many caucus members came from working-class families and got the chances our equally talented brothers, sisters and friends often never got," Swan said in his John Button Lecture.

For the record, Swan matriculated in 1973, the year before Whitlam abolished up-front fees. Instead Swan qualified for a Commonwealth scholarship, a legacy of the Menzies government.

Menzies' contribution to higher education has been airbrushed from the Labor narrative, and so too has that of John Dawkins, Bob Hawke's education minister. Yet Dawkins beats Whitlam hands down when it comes to education revolutions. In 1975, Whitlam's final year in government, a mere 92,000 students enrolled at Australian universities; by 1991, when most of the reforms from Dawkins's 1988 white paper had been implemented, 473,000 students were studying for a bachelor degree or higher qualification.

It has become unfashionable to suggest there was anything worthy in the Dawkins reforms. Yet if the goal is to democratise education, the Higher Education Contribution Scheme loans he introduced were a brilliant success. The Bradley review's audacious target of educating 40 per cent of 25 to 40-year-olds to bachelor degree level or above by 2020 would drive the government broke without Dawkins's HECS magic pudding. As long as students are prepared to borrow money and universities are willing to take it, higher education can grow at relatively little cost to the government.

The terms are generous. No repayments are expected until the income threshold is reached, currently $49,095. No interest is charged; instead the debt is adjusted according to the cost of living, currently 2.9 per cent.

Let us imagine, for a moment, what would happen to the Australian Securities Exchange index if margin loans were offered on similar terms. There would be nothing to pay unless there was a return on shares and if stock prices increased, the loan could comfortably be repaid from capital gains. It is a fair bet that if the system began operating tomorrow, the market would double by lunchtime. Why should we assume that the education market operates any differently?

Glenn Harlan Reynolds, who teaches law at the University of Tennessee, put that question in The Higher Education Bubble, a pamphlet published last year in the US. Reynolds says the amount families pay for college education has risen by 439 per cent since 1983, but parents and students have been prepared to keep borrowing in the expectation that the value of a higher education, realised in higher wages, will continue to increase.

"Buyers see that everyone else is taking on mounds of debt, and they are more comfortable when they do so themselves," Reynolds writes. "For a generation, the value of what they buy has gone up steadily. What could go wrong? Everything continues smoothly until, at some point, it doesn't any more."

Since repayments on education loans in the US cannot be put off until a graduate finds a lucrative job, there are plenty of hard luck stories in a soft employment market. Reynolds retells the story of Cortney Munna, who told her hard luck story to The New York Times. Munna, 26, graduated from New York University with a debt of nearly $100,000 and nothing to show for it except a degree in religious and women's studies. Her job as a photographer's assistant earned her $530 a week, from which she was obliged to pay $160 towards her debt for an education she said she would happily give back.

In the US, the law allows the consumer to walk away from a bad debt on a house, but not on an education. In Australia, the opposite applies; graduates in feminist theology can relax, safe in the knowledge that the taxpayer will pay the interest on their loans forever if necessary. When the moral hazard is removed, the temptation for consumers to over-invest in higher education is surely even greater.

The result is the rise of credentialism: the inflation of educational requirements to obtain a particular job. The list of occupations where applicants are required to furnish degree certificates is growing all the time. If every applicant has a degree, the ambitious young careerist who wants to stand out from the crowd gets a second degree, or perhaps even a third. The value of the second or third degree to the employer is usually negligible; in many cases even the first degree is open to question. But hey, with HECS loans on such favourable terms, what is there to lose?

The accepted wisdom is that every dollar spent on education is an investment in national productivity, but it would be bold to make such a claim without reference to the quality of that education or the marginal benefit a graduate can bring to the workforce. Analysis of 2006 census data last year by Mike Dockery and Paul Miller from Curtin University found that more than one in 10 workers has spent longer in education than they needed to qualify for their job. Among clerical and administrative workers, up to 35 per cent in some occupations have spent more years than required in education.

Thus, even before we reach the Bradley review's 40 per cent target, we find ourselves in the dystopia of ubiquitous higher education described by Pierre Ryckmans in his 1996 Boyer Lecture. The reckoning would be complete, warned Ryckmans, "on the day - now not very distant - when we shall see universities of catering, car driving instruction and carmaking".

Too much education seemed barely enough in 1957 when Keith Murray delivered the report that prompted the rapid expansion of the academies. "High intellectual ability is in short supply and no country can afford to waste it; every boy or girl with the necessary brain power must in the national interest be encouraged to come forward for a university education," he wrote.

Murray would have no complaints on that score today.

What he would have made of the quality of the education being dispensed is another matter altogether.