A Libertarian Approach to Student Debt

Chrissy Benson February 23, 2018 0
A Libertarian Approach to Student Debt

Both the Tories and Labour Party have attacked the current higher education funding system for leaving thousands of students in debt that they can never repay. While Corbyn admitted he could not promise to wipe debt, Theresa May has launched a review into student debt and tuition fees. At the moment, fees are capped at £9,250, but come with a punishingly high interest rate of 3%above RPI. This interest begins to accrue from the day that students start university. How can we ensure equality of opportunity for young people of all backgrounds without leaving the next generation of workers in enormous debt?

Reducing Interest Rates

The simple fact is that the loans offered to students are too expensive, with three quarters expected to never repay the full amount. The burden of paying back this debt therefore falls onto the taxpayer, so that those who never went to university are paying for those who did. A true libertarian approach would cut interest rates to be in line with market values.

Senior economic advisor at PwC, Andrew Sentance, argues that 2018 could see interest rates triple, due to high inflation and global economic growth. To charge students an extra 3% above inflation is creating unnecessary debt. This is caused by state intervention rather than the invisible hand of the market.

Diversifying the Market

The UK has one of the highest tuition costs in the world, largely due to an unfree market. Almost half of school leavers now go to university, even if it isn’t the right option. For a genuinely free market to keep costs down, there needs to be a wider range of options.

This can be achieved through the use of apprenticeships or work placements for those who thrive in a vocational sector. Not everyone is suited for university, but many see it as the only option. Furthermore, many courses are charging the same amount despite varying in costs. Different courses should set different prices according to market forces.

Encourage Private Sponsorship

The most effective way to lower costs and the debt burden on students is for the state to be rolled back. Instead, private companies should provide sponsorship and bursaries where they see potential in students. More debt reduction and consolidation companies may enter the market in order to further ease the burden without the need for state intervention.

Successive governments have done a great disservice to our young people in the way they fund tertiary education. Interest rates should come in line with the market and private companies should be given greater freedom to sponsor students. By diversifying the education market for over 18s, overall costs and therefore debt can come down.

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