Money for Nothing: Why Don’t Georgian Students Act Like investors?

Money for Nothing: Why Don’t Georgian Students Act Like investors?

The FINANCIAL -- Back in 2005, the Georgian government introduced the Unified Entry Examinations (UEE) for admittance into universities. Before the UEE, each university had their own set of entry examinations and examiners, which opened the system to abuse and corruption.

With the introduction of the UEE, the government of Georgia managed to make the system fairer and more transparent. As part of this process, the government provides merit-based scholarships to students, based on standardized test scores. The very best students can get up to 2,250 GEL per year for all the years they are at the university (this sum is the equivalent of a full scholarship at a state university, such as TSU). 

Since 2005, the government allocates a significant amount of higher education spending every year for student scholarship grants. In the 2016-2017 academic year, for example, the government allocated 12.6 million GEL for student grants (Ordinance of the Government of Georgia, 158). 

GEORGIAN SCHOLARSHIP SYSTEM: IS IT WORKING?

How well does this system of student scholarships function? The system currently in place unfortunately has at least two serious shortcomings. 

Most importantly, this system does not create incentives for students to study hard while at the university. More specifically, when an individual gets 100% government funding, they will not have to pay anything even if they fail their exams. There is even anecdotal evidence that boys fail exams intentionally in order to stay at the university longer and avoid the mandatory military service (this problem gets even more complicated, but that is beyond the scope of this article). Those students waste not only their time at universities, but they also waste their government grants. It is perhaps ironic that the same students who studied very hard to pass the UEE with high marks no longer treat their education at the university as an investment once they receive full funding “for free.” 

Of course, not all recipients of government grants behave in this way. Some will continue to study hard, realizing that a diploma may be given “for free”, but education is never “free” – it is always an investment of time and considerable effort. Unfortunately, most students will respond to the economic incentives of the system and invest only the bare minimum of effort to stay in school. 

The second failing of the system is that it creates a lucrative opportunity for “shadow education.“ As described in an earlier article on ISET’s blog, school teachers do not provide their students with the necessary knowledge to pass the UEE, and urge them to hire private tutors. This means that children in low-income families who cannot afford to pay for private tutors cannot receive high-quality education; they are doomed to failure. For the sake of brevity, in this article I will not focus on the latter failing, but will discuss the ways to overcome the former. 

THE EXAMPLE OF ISET: WHAT POLICY MAKERS SHOULD TAKE INTO ACCOUNT   

It is now time for Georgia to move forward with a new merit-based scholarship system which does not distort student incentives.  How can this be achieved? ISET can provide a good example of a successful merit-based scholarship system that works in Georgia. ISET is an institution that offers a two-year Masters program in Economics, following international standards. The ISET evaluation system is built on ranking on a standard A-F scale; tuition fees are determined by a student’s performance (the first mini-term is free). In this system, improving your GPA by a couple of decimal points can at the very least shave a few hundred dollars off your annual tuition fee. As a result, ISET students work hard to improve their performance.  Such a system indirectly affects and improves the quality of education: paying your tuition based on grades (together with the chance of receiving a monetary reward for improving your performance) motivates students to meet higher standards and put great effort in studying. This, in turn, helps to increase human capital and positively affects individuals’ future earnings.

In Table 1, there is information about the salaries of ISET graduates (192 out of 247 ISET graduates from Class 2008 to Class 2015) by GPA and nationality.  

It is notable that, on average, Azerbaijani graduates have the lowest GPA, but the highest average salaries, while Armenians have the highest GPA but the lowest salaries. Georgian graduates are in the middle. This can be explained by the differences in average salaries in these three countries: in 2014, the average monthly salary in Azerbaijan was 566 USD, in Georgia, 463 USD, and in Armenia, 382 USD. 1  The average salary of all ISET graduates combined is 121%-134% higher than the average salary in all three countries.  23 

It should be mentioned that high salaries among ISET graduates can be explained both by the level of education they receive at ISET (MA students receive higher salaries than BA students in general), and by the quality of the institution - the name and popularity of ISET acts as a signal for employers in the labor market. 

ISET presents a good example for policy makers: such a merit-based scholarship system, if introduced on the national level, would significantly increase the motivation of students to pass not only the UEE, but also do well at their university.  

I graduated from Tbilisi State University (I received a 100% government grant) and studied in an environment where students had no motivation to learn and work hard. Most students did not attend lectures and they were only just passing the exams (acquiring 51 points out of the total 100 is enough to pass a subject). Most of those students had full or partial government grants. Such students wasted not only their own time, but also taxpayer money, while at the university. In contrast, studying at ISET was an experience that helped me realize what it means to work on your performance and pay tuition based on your grades. 

To sum up, by introducing scholarships that are based on students’ achievement at university, policy makers can address two problems that the Georgian education system faces. First, this system would create incentives to study in a competitive environment, which would improve the quality of education. In addition, students would be rewarded based on their performance, and they would no longer waste the taxpayers’ money. That would make learning process much more meaningful. 

Some of you might remember the bus scene from the movie “A Bronx Tale,” where the father says to his son, “The saddest thing in life is wasted talent.” Well, as an economist, I cannot help but agree, and I would also add that the worst thing in life is wasted resources, material or human.

Data was obtained from the national statistics offices of these countries: http://www.armstat.am/, http://www.stat.gov.az/ and http://www.geostat.ge/. Salaries were converted to US dollars using official exchange rates.

As there is no data available on average salaries of graduates with a Master’s in Economics, I took the average salary within countries instead; of course, those indicators are not the same, but a pattern is noticeable.

Some might argue that fluctuations in USD/local currency exchange can cause some distortions in the difference between the average salaries of ISET graduates and the average salaries of countries.