Moral Hazard in Higher Education

Warming to my theme of Finance / Banking related concepts being useful in the consideration of Higher Education I turn, this week, to MORAL HAZARD - or the concept that risks can shift over time and that the provision of a "safety net", like an insurance policy, can actually increase the likelihood of risky behaviour.

COURTESY OF JUDY BLINK'S HUSBAND WHO HAD TO GO TO BARCELONA TO TAKE IT

Take, for example, the Moral Hazard set up in the run-up to the 2007/8 credit crunch.  The term "Too Big to Fail" hid an enormous Moral Hazard.  Reckless banks had gambled their depositors' money in ever risky and poorly understood ventures, safe in the knowledge that if their gambles did not pay off the government would bail them out, and so they did.

So if student satisfaction and retention rates are used to measure University success in TEF there would be motivation by HE institutions to do everything possible to make life pleasing for students and make it difficult for them to fail.  Giving a safety net to students can easily drive down standards in a race to the bottom.

Now how can we possibly avoid that?