ISET

ISET Economist Blog

A blog about economics in the South Caucasus.

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

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.

Table 1: Country Statistics

Country Number of Students Average GPA Average salary in USD
Azerbaijan 14 2.9686 1,250
Armenia 21 3.2600 893
Georgia 157 3.2051 1,116

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 USD1. The average salary of all ISET graduates combined is 121%-134% higher than the average salary in all three countries23.

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.


 1 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.

2 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.

3 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.


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Tamta Bibiluri on Tuesday, 24 January 2017 00:07

Should we expect that all schools in Georgia are as credible as ISET. There is clear threat of corruption, would the government be able to control the process, what about related costs. Furthermore, the GPA obtained at ISET is not any sense comparable GPA obtained at GTU. What I mean is that a student in ISET does not get a scholarship and a student from GTU gets it with a minimal effort and ability. Does not it incentivise good students to apply to universities where it is easier to get higher grades?

Should we expect that all schools in Georgia are as credible as ISET. There is clear threat of corruption, would the government be able to control the process, what about related costs. Furthermore, the GPA obtained at ISET is not any sense comparable GPA obtained at GTU. What I mean is that a student in ISET does not get a scholarship and a student from GTU gets it with a minimal effort and ability. Does not it incentivise good students to apply to universities where it is easier to get higher grades?
Salome Deisadze on Tuesday, 24 January 2017 11:25

Tamta,
I agree that it creates a lucrative opportunity for corruption and this process needs to be monitored very strictly. Related costs might be high, but, at least, money wont be wasted. On the one hand, the idea is that good students shouldnt be afraid of competitiveness; they must realize that it does not matter whether you pass the exam, but how well you pass the exam. In other words, what matters most is what students get from universities with their diplomas.

Tamta, I agree that it creates a lucrative opportunity for corruption and this process needs to be monitored very strictly. Related costs might be high, but, at least, money wont be wasted. On the one hand, the idea is that good students shouldnt be afraid of competitiveness; they must realize that it does not matter whether you pass the exam, but how well you pass the exam. In other words, what matters most is what students get from universities with their diplomas.
Tamta Bibiluri on Tuesday, 24 January 2017 18:29

Children from poor family are less likely to take such a risk given their family livelihood at stake and uncertainty of reward of better education (and, actually, how much better?).

Children from poor family are less likely to take such a risk given their family livelihood at stake and uncertainty of reward of better education (and, actually, how much better?).
Salome Deisadze on Thursday, 26 January 2017 12:23

Well, poor families, who cannot afford to private tutors to pass the UEE with high scores and get scholarship (most schools do not provide enough knowledge for that), are disadvantaged under current system; some of them even do not register for the UEE, because they think they will not get a scholarship. If such people are given an opportunity to pay tuition fee based on their performance at university they will be motivated to pass the UEE and do their best while studying.

Well, poor families, who cannot afford to private tutors to pass the UEE with high scores and get scholarship (most schools do not provide enough knowledge for that), are disadvantaged under current system; some of them even do not register for the UEE, because they think they will not get a scholarship. If such people are given an opportunity to pay tuition fee based on their performance at university they will be motivated to pass the UEE and do their best while studying.
Quji Bichia on Thursday, 26 January 2017 11:52

The current system has about dozen of shortcomings. I agree that scholarships should not only depend on admission results but the performance during studies too. But in this case simultaneously the issue of proper assessment of performance should be solved in universities too . The problem is a) different lecturers dont grade in same way so unlike ISET where theres 1 group, in other universities students will have preference for teachers who write grades easily; b) in Georgia there is this general agreement that teachers should not fail students in their subjects and they think they are helping students with this, while its the other way around. If students will need to meet certain grades to keep scholarship it may not exactly reflect the knowledge they get; c) right now the national exams mostly guarantee that scholarships are distributed fairly but if the grades will determine who keeps it then its hard to fight the corruption opportunities.

Not saying its not a good idea, if a merit-based scholarship system is introduced I believe it should come in a package with many other changes.

The current system has about dozen of shortcomings. I agree that scholarships should not only depend on admission results but the performance during studies too. But in this case simultaneously the issue of proper assessment of performance should be solved in universities too . The problem is a) different lecturers dont grade in same way so unlike ISET where theres 1 group, in other universities students will have preference for teachers who write grades easily; b) in Georgia there is this general agreement that teachers should not fail students in their subjects and they think they are helping students with this, while its the other way around. If students will need to meet certain grades to keep scholarship it may not exactly reflect the knowledge they get; c) right now the national exams mostly guarantee that scholarships are distributed fairly but if the grades will determine who keeps it then its hard to fight the corruption opportunities. Not saying its not a good idea, if a merit-based scholarship system is introduced I believe it should come in a package with many other changes.
Salome Deisadze on Thursday, 26 January 2017 12:49

Thank you for your comment; I try to follow-up your suggested potential problems:
a) Universities vary from each other by teaching methodology and evaluation system. Professors have different ways of evaluating students; some of them use evaluations based on ratings, while others have their own methods, for example, fixed ranges to evaluate students. This means that sometimes grades can be overvalued and undervalued according to professor’s attitude. It is the same under current system: students register for “easy” course with “tolerant” professors to pass the course and we cannot do anything about that.
b) Again, this depends on professor’s individual attitude. We cannot do anything about that except allocating money on improving the quality of teaching and teaching methodology.
c) Of course, it is hard to fight the corruption opportunities, but not impossible. Those who can afford to bribe professors do the same under current system. The point is to give an opportunity to study to those who cannot afford it and professors should not disadvantage them. If this happen there must be some “kind-of-appellation” center who will help such students.

All I wanted to say is that education system should encourage students to study and learn; it should open the opportunities for them rather than discouraging them from studying.

Thank you for your comment; I try to follow-up your suggested potential problems: a) Universities vary from each other by teaching methodology and evaluation system. Professors have different ways of evaluating students; some of them use evaluations based on ratings, while others have their own methods, for example, fixed ranges to evaluate students. This means that sometimes grades can be overvalued and undervalued according to professor’s attitude. It is the same under current system: [b]students register for “easy” course with “tolerant” professors to pass the course and we cannot do anything about that.[/b] b) Again, this depends on professor’s individual attitude. We cannot do anything about that except allocating money on improving the quality of teaching and teaching methodology. c) Of course, it is hard to fight the corruption opportunities, but not impossible. Those who can afford to bribe professors do the same under current system. The point is to give an opportunity to study to those who cannot afford it and professors should not disadvantage them. If this happen there must be some “kind-of-appellation” center who will help such students. All I wanted to say is that education system should encourage students to study and learn; it should open the opportunities for them rather than discouraging them from studying.
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