The ill-conceived attempt to marketise universities has been a major contributor to the current difficulties in our universities. Whatever your view of the ideology it is difficult to argue that it has been a success and the problems were foreseeable (see for example ‘English Universities in Crisis’, Frank, Gowar, Naef, Bristol University Press, 2019). Without going into an extensive analysis of the damage to the system as a whole the student fees and loan policy is in urgent need of attention. This commentary assumes that returning to free tuition is off the table.
The Browne Report of 2010 recommended safeguards against some of the obvious possible deleterious effects but these were ignored by a government which thought it knew more about markets than those who had been asked to advise. The most glaring misjudgement was the assumption that not all universities would charge the maximum £9,000 but would advertise themselves as less good and charge lower fees. And then the poor design of the loan system when the market had free reign has led to an entirely predictable unfairness between graduate cohorts as the rules of the game changed. And the public debt rises inexorably as ONS statistics show it running at around £120bn. This is the debt that arises from write-off from student loans and has been averaging around £!0bn per year over the past five years. The total debt arising from loans that are projected to be paid back runs at a much higher rate but are treated as net worth because they ‘will’ be paid back.
Source:
CG: AF4 A: Net Lending to Private Sector: Student Loans (£m NSA)
At an individual level there is a built-in inequity between graduate cohorts. It might be argued that there will be a difference in debt between student cohorts if the level of fees changes but the level has changed only marginally. The inequities have arisen because of the changes to the interest regime and the write off dates. This is grossly unfair.
The irony is that interest charges simply add to the public debt all the while they exceed repayments and even when incomes rise debt is paid off more slowly because of the large accumulation of increases in debt arising from the compounding of interest (which starts from day one of year one at university only adding to the years before the earnings threshold kicks in with no inroads into the debt). And of course there is the further irony that the public debt itself accrues interest to be paid from the public purse. The taxpayer is paying interest on the interest charged to graduates – who are therefore paying twice.
These two problems – unfairness between cohorts and increasing public debt – can both be addressed by the simple policy of zero interest. Public debt would rise only as a result of an increase in graduates in the system or an increase in fees but that increase would be abated by debts being paid off more quickly. The number of graduates paying off debt would soon balance the new ones coming into the scheme. The write off of debt after whatever period is decided (in itself a moveable feast adding more intergenerational unfairness) would be minimal. There remains the issue of the interest being paid on the public debt not being offset by interest being paid by students, but with more rapid repayment of debt and practically no write off, the cost would be marginal and worth the benefit and certainly be better than raising fees under the present system.
The question then arises of deciding on the mechanism for repayment. At present there are two fingers in the pie – the Student Loans Company and Inland Revenue. This is a typical British muddle. One outfit distributing the loans on behalf of the public purse, another collecting money through taxes and passing information back to the first to keep records of repayments, interest charges and amounts outstanding. All this comes at a cost.
A simpler option would be a straightforward graduate tax, but with some variation on models previously considered. First, instead of a lifetime tax as in most models of a graduate tax, the surcharge would cease once the loan is repaid. A lifetime tax is simply a system for charging for the privilege of going to university and runs counter to the (admittedly failed) notion of creating a market in which different universities charge different fees. It is a selective form of general taxation. There is more logic to stopping the surcharge once the loan is repaid. A second variation would be to calculate the surcharge on the tax bill of the individual rather than the salary. This would be more progressive. In either case higher earners would pay off their debt sooner than others. But this is no detriment to lower earners because with zero interest they are simply being given longer to pay. The faster rate of repayment from higher earners would be a considerable advantage to the public debt as would the considerable reduction in the £10bn per year write offs arising from low earners.
There remains the issue of how to administer the system. In the era of free tuition and maintenance grants money was channelled through Local Education Authorities but it could equally well come through the Department for Education. This would require extra resource to the Department but it would be a non-judgemental straightforward administrative task (unless means tested maintenance grants were reintroduced) and the Student Loans Company could be disbanded at considerable saving. In the past student eligibility was based on A level results, now it is based on acceptance by a university whatever the grades, so the process would be straightforward since no judgement for eligibility would be required. Records of loans issued would be passed to Inland Revenue who would keep a running total of amounts outstanding – a simple matter of subtraction until zero is reached without complications of interest repayment or political intervention to decide the interest rate. The role of the Department for Education would be only the distribution of fees and maintenance loans and passing these records to Inland Revenue.
The gross intergenerational unfairness of the current system would be confined only to an increase of fees and not the terms of repayment. It would then be possible to negotiate with universities a ‘fair’ fee under the present situation and then an agreement to increase it at the rate of inflation giving some certainty for planning and acceptance by students. Maintenance loans could increase at the rate of inflation or CPI. There remains the question of whether any financial help to universities made possible by such a reform should be provided by a fee increase or targeted in some way to improve the system as whole rather than following student numbers with no influence on how the money is spent. This would have been impossible with the previous government’s belief in the infallibility of the market and more difficult without a body such as the old University Grants Committee but not impossible.
But even without such a more radical proposal, if a ‘fair’ increase in fees could be agreed with subsequent inflation linked increases, universities would have to live with it and a policy of zero interest would make an increase more palatable to students and remove inter-cohort inequities
Norman Gowar is Emeritus Professor, University of London, Founder member of the CDBU, former Deputy-Vice Chancellor, Open University and Principal, Royal Holloway, University of London, 1990 – 2000.