Applying the investment approach to tertiary education 

By Linda Meade

Today’s Budget provided $256.5 billion of new funding over the next four years in tertiary education, in addition to related announcements to support research through the Health Research Council amongst others.   All well and good.  But how do we know that this investment will deliver long term benefit to New Zealand?

The Productivity Commission recently published “New models of tertiary education: Issues paper[1].” which outlined some startling statistics. In particular:

• Between 19% and 28% of students at our tertiary education institutions (TEIs) –  including universities, institutes of technology and polytechnics, and wānanga – start but do not complete their qualifications (2014 data)
•  In 2014 the government lent $1.6 billion in student loans, of which 39% was written down at year end to reflect the true recoverable economic value of those loans

This means large numbers of students end up with a debt that has been drawn down without resulting in a qualification.  And further that government has not only subsidised the study in the first place, but then ends up only recovering part of the value of the debt advanced.  This is largely due to the loans being interest-free, thereby providing the student with a substantial fee discount in real terms.

No one doubts the value of tertiary education.  Even studies that do not result in a completed qualification must have some value if they result in students that contribute more to the economy and society than they otherwise would have done.

But imagine if all that investment into study could be translated into higher levels of productivity, innovation, job creation and ultimately a better standard of living for New Zealanders?  It is paradoxical that the very organisation which has lead the charge around social investment with a focus on beneficiaries – the Ministry of Social Development – is also the same organisation that administers student loans, under the trading name StudyLink.  And yet the contrast couldn’t be starker.  StudyLink has much more in common with a bank than a social investment agency, with an emphasis on processing transactions rather than a focus on the people applying for the loans.

For the most part TEIs are funded for the number of students enrolled, with some limited adjustments made for non-completions.  There is almost no incentive for these institutes to consider the employability of their graduates, and none at all to consider the extent to which the education programmes result in graduates with the skills to meet local demand from employers.  In a perfect market, the students themselves would create demand for programmes, but the reality is that the vast majority of students have a very imperfect knowledge of the in-demand skills wanted by employers.  Meanwhile employers tend to have relatively modest linkages or ability to influence the programmes offered by TEIs.

What is quite striking however is that around the world there are a number of examples of highly successful cities and states where the linkages are much stronger and more obvious, where both the universities and the cities are high performers.  Obvious examples include London, Boston and San Francisco. Perhaps less obvious are Zurich, Canberra and Manchester.

Imagine what difference it would make over the long term if employers had available to them a ready pool of skills that would support business growth and delivery of organisational strategic objectives.  And if those businesses also had access to world class research which helped them diversify and grow without having to look offshore, what more could that achieve?

Certainly our tertiary system is ripe for change. An investment approach to student loans could be an obvious first step, so the people who are receiving the loan are placed at the centre of the process, rather than on the receiving end of a transaction. And the onus is on both TEIs and businesses to have serious conversations about how each sector can help the other.