The shock Labour party manifesto promise to remove tuition fees, as part of a pledge to young people in the recent General Election, has led to increasing scrutiny of the higher education finance system over the summer. Liz Emerson, IF Co-founder, investigates
This has been a summer of discontent in higher education following the torpedo that was shot through the bows of the Conservative party’s higher education finance policy by Labour in this year’s General Election.
Challenging times
Suddenly the post-2012 mantra that students should bear most of the cost of gaining a higher education qualification is starting to be challenged: Theresa May’s top aide, Damian Green, has admitted that student debt is a “huge issue” now that English graduates having the highest student debts in the developed world ; George Freeman, Chair of the Conservative Policy Forum, has called for a “hard look at the interest rates charged on student loans”; Nicholas Barr, LSE professor who was once an advocate, now believes that “we now have the worst of all worlds – a scary sticker price for a degree, coupled with a scary sized loan book, of which only slightly over half ever gets repaid”; Jonathan Wolf, Blatvatnik Professor of Public Policy at Oxford University, said that “penalising this generation of students with decades of debt…leaves a bad smell”; and even the Russell Group, which represents the interests of England’s most prestigious universities has “joined calls to make funding fairer for students” now that English graduates are “saddled with the highest student debt in the developed world”.
These influential voices are joined by increasing numbers of parents and grandparents concerned about the level of debt their younger relatives will have to carry through most of their adult lives.
Tripling of tuition fees
There are a number of good reasons why higher education is so much in the spotlight beyond the post-election handwringing of politicians over lost votes. First off, there is the tripling of tuition fees – an intergenerationally unfair policy introduced by those who, on the whole, either got their higher education for free or paid much less for it than today’s students. Policy-makers should have foreseen that attempting to create a university market of differentiated fees (as they intended) would not work. The near-universal tripling of fees was never supposed to happen. But, rather than step in and demand change, policy-makers, and the many commentators involved in creating the policy, are now conflicted and continue to bang the drum for higher fees with scant regard for their student victims.
Sky-high interest
Then there is the sky-high interest rate pegged to the Retail Price Index (RPI), which was called a discredited measure of inflation back in 2015, but which conveniently averages 0.5% to 1% above the Consumer Price Index (CPI) over time. The government can, after all, borrow at much lower rates. Proponents argue that the government has to recover the lost repayments from those who do not repay their student debt before the 30-year write-off, so the use of a front-loading high interest rate captures higher income earners over 30 years. But if the government really cared about low earners then why has it gone back on its word to increase the threshold of repayment in line with inflation? Instead it has done quite the opposite by freezing the repayment threshold at £21,000 (which pulls more low earners into repayment), and increasing the burden of student loans the most for low and middle earners. It just doesn’t stack up.
A quick sale?
Is it instead, as some critics suspect, more to do with front-loading student debt in order to make it a more appealing proposition for private banks or “consumer debt management organisations” to purchase? Is it a coincidence that the government, in spite of an onslaught of criticism, has held fast and refused to budge over increasing calls to look again at student finance?
Rising further
Then we have the increase in fees in line with inflation until 2020. Again, the mood of the nation is changing as parents and grandparents become increasingly concerned at the 41% marginal tax rates their younger relatives are likely to have to face for the next 30 years: an extra 9% tax on earnings over £21,000 on top of 12% National Insurance and 20% basic rate Income Tax as they try to ignore the £50,000-plus long tail of student debt hanging over their heads.
Credit ratings
Remember the mantra and promise to students that this debt would not affect their credit rating? The tightening of mortgage lending following the Mortgage Market Review means that monthly student debt repayments are already being taken into account in mortgage affordability criteria, undermining the argument made by income-contingent loan supporters that it really doesn’t matter what you borrow and what you will have to pay back.
VC pay…
It must be particularly galling for students to find out just how nicely Vice Chancellors have been enriching themselves in the new world of £9,000-plus fees, while underpaying the many younger, more junior staff who provide most of the teaching. Andrew Adonis, a born-again student debt campaigner, is attempting to lift the lid on the murky world of remuneration committees and should be supported.
…and pensions
How long before the iceberg that is the Universities Superannuation Scheme (USS), with liabilities of £17.5 billion, is used to justify yet higher student fees or a reduction in teaching time to plug a poorly managed, underperforming and over-generous pension scheme? And yes, it is already happening. John Ralfe, pensions expert, has already stated that it was “inconceivable” that “student fees will not have to be diverted into plugging the pension deficit.” Thankfully MPs such as Frank Field, former chair of the 2016 parliamentary Select Committee inquiry into intergenerational fairness, are demanding answers.
Time for reform
So who is going to stop the run-away student finance train in its tracks? Labour has fired the first salvo. The Conservatives are sticking to their guns. But there are a number of ways that the financial position of students could be improved. Professor Albertson’s recent paper explains that the public good of higher education has been forgotten and calls for a return to a more equitable share of the cost of higher education with the State funding the cost of education and students funding their living costs. Professor Andy Green of the Institute of Education is more challenging in demanding an all-age graduate tax to be levied, though his model is limited to the under-65s – so older generations, many of whom were paid to go to universities, get away scot free, again. But, at the very least, lower interest rates, the removal of RPI, and the return of maintenance grants should be top priorities for a fairer student deal.