Prof Patrick McGhee

Archive for August, 2011|Monthly archive page

3 Steps The Government Can Take Now to Improve the Tuition Fee Scheme

In Blogroll, Politics, Uncategorized on August 12, 2011 at 9:39 am

Next week’s A-level results will get higher education back on the mainstream news agenda.  Those students enjoying examination success will look forward in most cases to university enrolment. The front pages of most newspapers will be filled with pictures of happy smiling students.

They will of course be the final cohort before the new fees regime is introduced, with tuition fees set in most cases at or near £9,000. As I have made clear as co-signatory to a letter in the Telegraph last year I am opposed to the Coalition’s new fees arrangements for university tuition.  My opposition is both on the grounds of principle and practicality. As I highlighted in a recent article in the Guardian online, I am particularly concerned about the way in which the values of the parameters of the new system could be changed in the future, particularly if this, or any future administration, comes under financial pressure.  For example, the parameter ‘Amount to be Paid Up Front’ could be changed from its present value of zero to something much higher.

The vulnerability of student repayment arrangements to direct financial pressure, or to pressure refracted through a polarised bipartisan political agenda, can be seen in the concessions extracted by the Republicans from the Obama administration as part of the larger settlement on the US Debt Ceiling crisis. Subsidised loans are effectively abolished and, even with a $17bn cut, the Pell Grants Scheme potentially faces a $1bn shortfall in 2012. The impact of the settlement affects students in many different ways, as this analysis by Candice Choi highlights, but, as usual, it is the disadvantaged and underrepresented who will be most badly affected.

It is essential therefore that in the UK we make sure that we look carefully at the system that has been set up for student repayments. What can we be doing now to make the system being put in place fairer, more robust and less vulnerable to political reshaping?

There are three specific areas of reform which I would like to propose. They reflect a need for greater stability, focus and consistency.

  1. Make a commitment to stability in student financing arrangements. The Coalition should commit to a no compulsory upfront payment requirement for the rest of this Parliament and enshrine in law a three-year notice period of any changes to the values of the key parameters in the model that are detrimental to students, their families or sponsoring employers. This is important because the preparatory work for HE students prior to enrolement is signficant be it A-levels, access to HE programmes or other routes. Further, sponsors after all need a degree of stability in the thing they are being encouraged to sponsor. Additionally, such a commitment would provide a greater level of predictability for universities. The last thing we want right now is further complications or deterrents for students, or even just the prospect of such a changes.
  2. Encourage optional early repayment.  One of the cuts made in the US deal was the abolition of a discount for early repayers of Federal loans. In the UK this is a touchy subject. In the lead up to the fees debate in November 2010 Liberal Democrats generally were against the idea of any upfront repayment at all as it enabled wealthier students and families to avoid any accumulating interest on the tuition fee ‘debt’.   I have an open mind on this. We don’t get exercised about the fact that people can pay upfront for a whole range of other goods and services. Furthermore, sponsors don’t want to be making payments towards interest or to have payments structured complexly over time. They often want to make a one-off up front payment. Making everyone pay more and taking longer to do it is not self-evidently an optimal arrangement.  In any event, there are larger issues of fairness and transparency to be addressed. So let’s put that matter to bed and create space for the wider debate.
  3. Include all graduate income in calculations. At the moment the key feature of the repayment arrangement is that graduates only start to repay their loan liability at a rate of 9% on earnings above £21,000. I take the view that if we are to have a repayment system with these parameters, then these values, (9% at £21k)  are manageable for graduates. However, as far as can be determined from the DBIS website on student financial support ‘income’ is only considered in terms of salary earned through paid employment. Surely all taxable income, including unearned income from shares, rental properties and trust funds should be included? This would be affordable (it’s actual income for the graduate) it helps the Treasury (faster rate of loan recovery) and, even if objectively the financial benefit was marginal, it’s fairer.

This time next year we welcome students under a very different financial model. As misconceived as it is in my view, we can still make that model more stable, more transparent and more fair. More to the point, we need to be seen to be doing so.

Of course, what we should really do is rework the model and its parameters, and not just the values of those parameters. Teaching funding should be subject to a cut of no-more than the 25% or so being visited upon other Government Department’s spending budgets, with the balance made up of revenue from a Graduate Tax. But to have that, in turn, as an interim position until such time as we can construct a model of free higher education at the point of use for all who can benefit from it, given that UK society as a whole enjoys such a significant and enduring dividend from high participation in one of the best higher education systems in the world.

That would indeed be something for us all to smile about.

Professor Patrick McGhee

Twitter: @VC_UEL