New research shows claims about student debt over blown

Testing policy options with actual evidence is a novel idea and is generally absent from the often inane, evidence-free suggestions we have to put up with in New Zealand.

All sorts of claims have been made by politicians regarding student in New Zealand, but the funny thing is none of their claims are new. They are just recycled attack points from overseas. The most recent claims are of course from Labour who have variously claimed that student debt affects home ownership and their new policy of free degrees is to help stop the “problems” of student debt.

I expect we would see echoes in New Zealand of the ‘Evidence Speaks’ findings from the US, which contradicts all of Labour’s claims.

1. Student loans aren’t pushing down homeownership rates
For several years, leading economic thinkers such as Larry Summers and Joseph Stiglitz have proposed that high levels of student debt are creating a drag on the housing market.

New Evidence Speaks research from Nonresident Senior Fellow Susan Dynarski challenges that assumption, finding that student debt isn’t the reason homeownership rates are dropping. Rather, the main division between the home ownership “haves” and “have-nots” is their education level—not their debt.

Dynarski finds that while those without a college degree are more likely to own a home at an earlier age than those who went to college and accrued debt, the college-educated catch up fast. By 27, those with a college degree overtake those without degrees in homeownership. By 35, the gap in homeownership between those with and without a college education is about 14 percent.

“The college-educated—even those with student debt—are winners in our economy,” Dynarski concludes.

chart1evsp

That’s one myth busted. What about free university education helping the poor? That’s Labour’s new policy, three years free university:

2. Free college proposals like Bernie Sanders’ would help the rich more than the poor

On the campaign trail, Bernie Sanders’ plan to make tuition free at public colleges and universities has received a lot of attention. It caught the eye of Evidence Speaks contributor and Urban Institute Senior Fellow Matthew Chingos, who sought to uncover who would really benefit from the plan.

Chingos’ analysis of the free college proposal found that families from the top half of the income distribution would receive 24 percent more in dollar value than students from the lower half of the income distribution, largely because the wealthy tend to attend more expensive institutions.

chart2evsp

Making tuition free, Chingos notes, wouldn’t cover the other costs of going to college, such as living expenses, that are often larger than the costs of tuition and fees for most students attending in-state schools. These annual out-of-pocket college costs would still leave families from the bottom half of the income distribution with nearly $18 billion that would not be covered by existing federal, state, and institutional grant programs.

Chingos writes: “It is important to emphasize that this analysis is only a starting point for considering the potential distributional consequences of making college free. The most significant limitation of this analysis is that it does not consider the likely impacts on enrollment of eliminating tuition and fees…but the ultimate design of proposals to change how students and taxpayers pay for higher education should carefully consider their likely distributional consequences and the tradeoffs between targeted and universal programs.”

Ouch! So both of labour’s big tertiary education claims aren’t supported by any evidence. In fact the evidence suggest the opposite.

Wouldn’t it be nice if some academics conducted some similar research here and looked at the results instead of relying on the words of opposition parties.

 

-Brookings

 


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  • Whitey

    It would be very interesting to see NZ data both before and after the RMA was passed. I’d also like to see NZ data by region because outside Auckland housing is reasonably affordable. Someone with no tertiary qualifications living in Southland and doing an unskilled job might only be making 35K a year, but they might also be able to get a house for 100K.

  • XCIA

    Listening to 1ZB today, they were blaming the housing crises for children not leaving home. I call BS on that one. Since the 90’s when the FWB’s came to the fore, the mindset seemed to change from having a family to having a career and from owning a house, to owning all the toys, clubbing and generally having a good time. All this was achieved by staying with the parents and of course the premium FWB was one that had its own apartment.

  • Woody

    Am I the only one confused here.
    The lefties say that student loans are depressing the housing market.
    The lefties say that the housing market is rising out of control.
    Logic (absent from leftie thinking I know) suggests then that we should have more student debt as one mechanism to help control the housing market.
    Do these people never listen to themselves? I know the answer to that.

  • Andy

    One thing I would worry about is the quality of qualifications – young students may be using their student allowance time limits for useless certificates and diplomas.

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