KPMG has come up with the idea that only students doing courses that "benefit the economy" should receive interest-free loans, agriculture being a example of such a course. In response to this MacDoctor takes up the keyboard and writes,
While I have sympathy for the agribusiness sector, because it is increasingly difficult to interest young people in the sector, I have nothing but horror for the idea of government attempting to pick winners in education. Exactly how will politicians and educationalists determine which degrees would be “useful”? The very fact that both I and the sub-editor at Stuff need to place the word “useful” in inverted commas tells the story. Trying to determine what part of tertiary education will have the most economic impact is an exercise in gross stupidity. Governments are notoriously bad at picking winners.and
I have little problem with the current interest-free student loan scheme and believe that, in the long run, the large expense involved will prove to be worthwhile.Now on the first point he is right: governments can not pick winners, in education or anything else. Markets, by and large, do a much better job of sorting out the wheat from the chaff, sorting out the valuable or worthwhile and rejecting what is useless or worthless. But on the second point he is wrong. If markets are to do their sorting then prices must reflect opportunity costs. This is just as true for loans as it is for bread or cars or pens or ... There may be a case for the government providing loans to students, problems with borrowing against human capital, but pricing these loans at zero will missallocate resources. When taking out a loan one of the questions a student should ask is, How will I pay this back, including interest. If the returns to the education can not pay for the loan and interest then that loan could be better used by someone else.