University is too cheap in the UK?

Contrast two common newspaper headlines about the university experience in the UK:

1) It’s horrendously expensive. The average graduate leaves with £25k worth of debt. It’s terrible and will put people off applying.

2) The number of people wanting to go to university exceeds the number of places. Universities are currently turning people away.

Hmm. These statements do appear to be somewhat inconsistent, if not outright contradictory. The “high” prices clearly aren’t putting students off.

In economic terms, the market isn’t clearing and demand exceeds supply, because the price is being held at an artificially low level. If we were talking about gold, the price would have risen a time ago. If I believed blindly in free markets, I would suggest that university is simply too cheap. 

Of course, there are wider social benefits of university. Having a large proportion of skilled, well-educated workers is good for productivity and innovation. And many professions such as teaching, medicine and science all have large social benefits.

So my proposal is this – if Governments must meddle in prices they should at least make some attempt to achieve optimal ones. Hike up the standard price of going to university, and use the extra funds to subsidise and invest in places for socially useful subjects, like science (and economics!).

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