Norman Gowar was unimpressed by the Augar Review’s recommendations on student finance. He lays out an alternative proposal that would work for students, universities and taxpayers

 

It is sad that the government’s attempts to marketise universities received scant attention by the Augar Report, but I do welcome the recognition that there has been a failure to achieve effective widening participation.

There are strong arguments in favour of free tuition, but in the face of no cap on numbers and competing priorities perhaps attention should be given to a fairer fees regime. Augar is right that means-tested grants should be restored since they are the most effective way of encouraging students from lower-income backgrounds to go to university. But his proposals are far too modest. This is possibly because he does not want universities to have a diminished income, yet some rough-and-ready calculations show that much more could be done even without additional government funding.

Universities are already devoting £800 per student on efforts to achieve widening participation, according to Augar. University submissions to the Office for Fair Access (Offa), now subsumed into the Office for Students, put the figure at £1,000. That money would not need to be spent if a more effective, means-tested grant system were put in place.

 

A small but manageable drop in university income

Suppose, with Augar, that fees are reduced from the current level of £9,250 to £7,500 – a reduction of £1750. Let’s see what would happen if, in addition, 10 percent of students received a means-tested 50 per cent discount, and a further 10 percent received a 25 per cent discount. This would be a pretty generous scheme.

A simple calculation shows that the total cost of the discounts, for fees and maintenance, would be £1,125 per student per year, spread across all students. This figure is not a million miles away from the £1,000-per-student widening participation spending reported to Offa: spending that would be rendered superfluous and submission of plans (essentially essays written by highly paid administrators) for central approval, with all the associated costs, not required.

Assuming that the Treasury bore the cost of the discount, that would reduce universities’ remaining shortfall to £750 per student – about eight percent of the £9,250 fee. If fee income from home and other EU students is about half the total university income (widely variable but take that as an example) then this would amount to a four percent drop in university income. A reasonably well-managed university could easily cope with this. There is considerable fat in administrative costs – in particular, in the high number and salaries of senior managers.

 

Lowering fees will generate net revenue

But is it fair that the Treasury should pay for the discounts? I believe that it is. I do not agree with Augar that other students, of middle incomes, should be made to pay by lowering the threshold for repayments or increasing the repayment period. It can be funded from the public purse largely within current expenditures.

Lowering fees automatically generates net revenue under the accounting rules recently dictated by the Office for National Statistics. At the moment, roughly 50 per cent of student debt (Augar uses the figure of 45 per cent) is expected never to be repaid.  Cutting fees by £1,750 means, therefore, that the saving to the Treasury in unpaid debt is at least £875 per student.

In addition, students from lower-incomes receiving the grants are likely – based on empirical studies – to have relatively low incomes as graduates. This means that under the current rules they repay less than average. So eliminating their debt from the equation raises the savings to the Treasury even more.

 

A mortgage-type repayment system

Some modification of the contingent-repayment scheme could help further. Examples include changing the salary threshold for repayment (currently £25,725), the rate of repayment (currently nine percent of income) or the upper cap on loan repayments and reducing the interest rate to the retail price index (RPI).

Moreover, if the least well-off entrants were protected by means-tested grants, some of the insurance in the contingent-repayment loan scheme could be lessened. Indeed, one could move to a mortgage-type repayment system or a graduate tax. Under the former and with interest rates at RPI, it can be calculated that over 30 years a student with a 50 per cent means-tested grant will be repaying only £25 a month on their remaining fees and a student with no grant is still only paying £50 a month (multiplied by two if the full maintenance loan is taken).

These are broad brush calculations and many other models are possible but I do think they demonstrate possible approaches. Such straightforward schemes would be likely to reduce the long-term unpaid debt to minimal amounts, arising only from eventualities such as serious illness or disappearance overseas, and means testing would be cost neutral to the public purse.

The whole contingent-repayment scheme uses a sledgehammer to crack a nut, and it is a pity that Augar did not see fit to question it.

Norman Gowar is the former principal of Royal Holloway, University of London. He is co-author of English Universities in Crisis: Markets without Competition