Nick Clegg in Bath - "more progressive"

"It will prove to be a fairer system". Nick Clegg assured the tame Lib Dems and slightly less house-trained students that the reform to student fees is "more progressive. More people will pay nothing back at all and a large proportion will never have to pay the fees off." With fees increasing almost 300% can the system really be fairer? As you have probably realised, student fees are a complicated business. However, whether you are a young person about to enter university or a parent with children who want to attend university, this issue is going to come back and bite you. 

The Browne Review, initiated under the Labour Government, reported in October 2010. It was asked to develop proposals to tackle the following issues: widening university participation, affordability of higher education for students and the taxpayer, how to simplify the current system of support and, given the current economic circumstances, how to ensure the financial sustainability of the system. Browne recommended that the Government should allow universities to charge whatever fees they liked, ensure all students have access to a maintenance loan and charge a 2.2% rate on loans, and start repayment after students start earning. 

As we now know the Government has made changes to the Browne recommendations. With grants from central government to universities being cut by 80%, widening university participation means making students pay higher fees. However, not setting a fee 'cap' would have been politically untenable at the moment, although I suspect it will come, so universities will be able to set fees up to £9000. Affordability was addressed by means-tested rather than the recommended universal maintenance loans and grants for students from poorer households. 

In order not to discourage students from deprived backgrounds, the children from 'free school meals' households will get scholarships that will pay the final year tuition fees and if universities charge over £6000, they will have to provide a scholarship for the first year's fees. In terms of repayment the government has introduced a sliding scale of interest charges on loans. 0% on earnings of less than £21,000 and 3% over £41,000. 

So is the system more progressive? According to the IFS, yes(ish). Compared to both Browne's proposal and the current system, the Government's proposals are more progressive when looking at repayments across graduate lifetime earnings. So the more you earn, the higher rate of interest you pay and the more you will pay back. In fact, the top 10% earners will pay back more than they borrowed.  However, because of the rather complicated system of maintenance grants the highest burden will fall on those from the middle income families because they qualify for the highest loans but without benefiting from the scholarships so their debt will be higher. 

Also, because of the increased repayment threshold of £21000 per annum, up from £15000, Clegg is correct to say that more of the lowest earners will not pay anything at all. Although, it should be noted that the threshold figure - the income level at which graduates will have to start repaying debts - due to be increased annually in line with earnings growth, not inflation, will not be increased until 2016, making it less generous in real terms.  Students will pay for 30 years and then have the remaining debt written off. The Government have assumed that 23% of the debt will be written off. Roughly the same amount as is written off now, however, the total debt will be much higher. 

The Higher Education Funding Institute have argued that this could be the sting in the tail. Based on historical data, the Government has projected graduate income to increase to an average of £100,000 per year over 30 years. HEFI suggest that because the number of graduates is increasing so fast the historical trend is not a good indicator of future pay growth and, also, because loans are being opened to part-time students, who have a higher drop out rate, then the 'government is more likely to lose over 50%. HEFI concludes that the reforms cannot be expected to save money in the long term and that the Treasury is likely to demand changes which may include raising loan interest rates, reducing student numbers or a further fees hike.

Another possible problem is that universities charging over £6000 will have to fund pupils from 'free school meal' households for their first year. Clearly a disincentive to accept those pupils. Clegg has been insistent the Office of Fair Access will ensure the top universities actually take a higher proportion of these students. We await the outcome of their efforts to impose 'quotas', but there is already signs that they wil face strong opposition. Also, as the IFS have pointed out, an increase in fees reduces the level of applicants at double the rate a corresponding increase in finance through grant or loans encourages applications. Quite simply putting fees up discourages applicants. Inevitably, poorer students will be the most disadvantaged. 

In effect, the changes mean students will be paying a 9% 'graduate tax'. The majority will not pay off the debt, and will pay 9% of their income over the £21000 threshold for the full 30 year term. A pretty hefty reduction. The Institute for Fiscal Studies concludes that under the proposed system, the average cost to each student will increase by £9500 and 78% of students will be worse off. Most of them significantly worse off. In this context, although Clegg is largely correct when he says the system is more progressive, that many students will never pay off their loan and that there will be a huge proportion who never pay their debt off. But, does that tell the full story? Clegg may be speaking the truth but does that make it a fairer system? Much higher debts and 30 years of repayments suggests not.


Are they putting up the fees to the University of Life?