I have been engaged in a series of discussion about university tuition subsidies in 1-2 mailing lists. Once again, I raised my arguments from my previous post. But I also came up with a new proposal: credit market (establishing education loan schemes).
Here is the basic idea. We know that on average, university student are from the middle class family, or above. So, it is not also ineffective to provide tuition subsidies for them. It is also injustice and immoral. If we want to subsidize, let it be targeted. Provide scholarship for the needy ones.
But the problem is: what about those who are not-so-rich but also not-so-poor-to-receive-subsidy? Well, one thing is that they may be poor now, but most likely be rich in the future. The education loan scheme then should bridge this intertemporal consumption problem.
Another advantage for education loan is it can also be combined with a loan repayment scheme. And the the loan repayment can be tied to some conditionals. For example, it can be granted for the alumni who work in low-paid jobs. Or for those who want to commit in certain careers that is important for the society, but the market rewards are low, such as school teachers, SME promotors, NGO-education activists, agrobusiness developers, etc.
Loan repayment can also be seen as ex-post subsidy. Unlike ex-ante subsidy, we can tackle the problem of adverse selection because the 'subsidy' is given after the recipient have shown their commitments in the prioritized jobs. We can reduce the possibility for cases like, for example, agriculture student who is subsidized and supposed to promote agriculture, but instead go to the banking sector after graduating. Private sector can also participate by providing loan repayment for the best accounting/management graduates who want to work in the capital market. Etc.
So, education loan/loan repayment schemes can achieve several targets: providing access to finance tertiary education; providing full subsidies for some students; and providing incentives for students to work in certain 'dry, low-paid' sectors. All work while at the same time minimizing distortions.