David Kingman reports on the recently-published report from the Department for Business, Innovation and Skills (BIS) select committee into the post-2012 student loans system, which sharply criticised the Coalition Government’s higher education policies
The Coalition Government has been sharply criticised by a cross-party select committee of MPS who have been carrying out an investigation into the post-2012 higher education policy. Their report is especially damming in its conclusions on three extremely important areas of the new reforms, which it strongly recommends the Government should reconsider as a matter of urgency.
The first area of higher education policy which the BIS select committee singled out for particular criticism was way estimates of the overall level of student debt have been calculated. Under the post-2012 higher education funding reforms, UK students studying at English universities can now be charged up to £9,000 per year in tuition fees. The government loans students the money they need to pay for this upfront, and then expects to collect repayments in the form of a 9% surcharge on all their earnings above £21,000 per year once they are working; repayments continue either until the entire debt has been repaid or 30 years has passed, at which point all outstanding student debts will be forgiven.
As many graduates will never earn enough money to repay their student debts, the Government is effectively providing a subsidy. Current estimates suggest that the Treasury stands to lose 45p on every £1 it pays out in student loans.
In their report, the BIS select committee was highly critical of the fact that this estimate has already had to be revised upwards several times (initial estimates suggested the government would only lose 28p in the pound when the policy was first announced), while they also pointed out that BIS has continued to use the same methodology in quantifying these estimates even though several outside bodies (including the Higher Education Policy Institute, a think tank) have identified significant flaws with it.
The BIS select committee emphasises that it is extremely important for the government to produce the most reliable estimates of future student loan debt that it can, as on current projections the total student loan debt will be worth £330 billion in 30 years’ time. Labour MP Adrian Bailey, who chaired the committee, gave the following quote to the BBC:
“The government needs to get its act together and properly calculate how much of these student debts are ever likely to be paid back. The government needs to set out a clear timescale for pushing ahead with a review of the overall student loans system because the alternative is an unfunded model which would leave students, universities and taxpayers with a very raw deal indeed.”
Government “struggling to collect student loans efficiently”
The BIS select committee’s second major criticism of the Coalition Government was that they system they have set up to collect student loan repayments hasn’t worked as well as it should have done.
In particular, they highlight the fact that BIS seems to have lost contact with significant numbers of graduates who move overseas after finishing their studies, as well as international students who return to their countries of origin. Given how much public money the student loan scheme has riding on it, the BIS select committee made a strong case that the government needs to do everything in its power to ensure as many people who should be making repayments as possible are doing so; they recommended that BIS should look at international examples of best practice to see whether other countries have been more successful in this area.
To sell or not to sell?
The BIS select committee reserved its strongest criticism of the Government for a third area, its policy towards whether to sell-off the “book” of outstanding student loans to a buyer in the private sector.
Whilst the select committee’s report acknowledges that selling this asset could provide a significant windfall for the public sector, they argue strongly that BIS needs to make a much more persuasive business case than it has done so far that this is right policy for the Government to follow. Although the public sector would gain a large cash sum in the short-term, the downside for the Government would be that it would lose out on the future stream of income from graduate repayments. Of course, the private sector would also be taking on the risk that too many graduates won’t repay their student loans, but the report argues that they would almost certainly factor this into the price they are willing to pay for the loan book, which could significantly dent its present-day value.
IF has previously argued that a sell-off would need to accompanied by strong consumer protection for graduates, who could be left vulnerable to changes in the terms on which they borrowed the money if the private sector buyer sought to achieve higher repayments. A clause in the current student loan agreement that borrowers have to sign enables the terms of their loans to be changed retroactively.
The BIS select committee also pointed out that there appears to be some confusion over the Coalition’s current policy towards selling-off the student loan book. In his 2013 Autumn Statement, Chancellor George Osborne pledged to remove the cap on the number of places in higher education using the proceeds from a sell-off, a policy which BIS estimates will cost £5.5 billion over the next parliament. However, the Minister of State for Universities, David Willets (who was replaced in the cabinet reshuffle which took place shortly before the report came out) has subsequently claimed that the expansion in the number of places will be funded regardless of whether the loan book is privatised or not; and a recent statement from BIS said that they no longer plan to conduct a sale.
As the BIS select committee argued, this leaves the crucial question of where the money to fund the expansion in places will come from, with many in higher education concerned that universities may be asked to stretch their existing budgets further, to the detriment of providing a quality service. As the committee said, “it is vital that the Government sets out clearly where and how it will raise the £5.55 billion required to fund this policy for the next five years.” Until this question has been answered satisfactorily, universities and students will be left with an appalling degree of uncertainty.