Tuition fees: still a good policy

by Stephen Tall on April 10, 2014

It’s a little over 9 years since I first wrote about tuition fees and specifically the Lib Dems’ then commitment to abolishing them. I criticised the party’s anti-fees policy as “seriously flawed, and risks condemning British universities and students to an increasingly mediocre future.”

It’s a little under three years since I praised the Coalition’s fees reforms package for successfully achieving two seemingly impossible goals: lowering the amount that students re-pay in loans while simultaneously increasing the amount that universities can spend.

The Coalition’s reforms have come under assault in the last month.

“But it costs more”

First came the headlines that the student fees policy is ‘likely to cost more than the system it replaced’. This was widely anticipated (at any rate, it was in my piece of 3 years ago). What that headline misses are two key facts:

HE income england1) Higher education budgets would not have been immune from the government’s austerity programme had they remained funded by taxes alone. As it is, funding for universities has continued to rise and is forecast to continue to do so, as the graph shows.

(Graph source: The Funding Challenge for Universities, 2013.)

2) A key driver of the reforms was that universities would be accountable to students not to the Treasury – indeed, those who believe in independent universities should welcome this. As I wrote in 2011:

Rather than the government advocating the abolition of so-called ‘Mickey Mouse degrees’ (the ‘golf course management’ type degrees the Daily Mail loves to hate), it will be left to universities to prove they are of worth to those who’ll foot most of the bill: the students. The fate of universities themselves will no longer be a matter for the government: it will be for universities to demonstrate through their own ability to attract students that they are successful.

“But students pay back for ages”

Today’s headlines are different: ‘Students could be paying loans into their 50s’ according to an IFS report. This is undeniably the case. Of course, if fees were abolished and replaced with a graduate tax I could equally well write, ‘Students could be paying grad tax until the day they die’. A contributory system, whether funded by loans or taxes, has to be re-paid by someone. As Emran Mian, now at the Social Market Foundation but previously a civil servant leading on the Browne Review, pithily noted:

The primary reason to reject a graduate tax is that it replaces the finite and time-limited “‘debt burden” of tuition fee loans with a tax burden that is unlimited both in terms of the total amount due and the period over which it is to be paid. I have always struggled to understand why this would be better for students. Wouldn’t most graduates prefer a time-limited repayment of a fixed amount?

Two problems remain, though

Overall, then, the tuition fees package still ranks as a success. More students – and more students from disadvantaged backgrounds – are entering higher education. More money is going into universities than would have been the case without reform. No students pay anything up-front, and then only when they’re earning more than £21k – the lowest third of graduate-earners will pay less than they used to.

But there are two groups who deserve more attention: part-time student applications to university have fallen sharply, as have applications from mature students. Some of this may be a rational decision: adults deciding a university course isn’t worth to them the money they’d have to pay. But it does concern me that many adults who would be better-off – personally and as contributors to society – by going to university are now being put off.

Clearly the system isn’t perfect. But let’s focus on solving the problems it’s thrown up, not invent problems that don’t.

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5 comments

The fact that around half student loans are expected to end up being written off shows that we expect to waste money on education that does not pay for itself. The only benefit of tuition fees has been the need to make that forecast explicit. It has yet to result in a change in higher education policy that will see a much better return for taxpayers and our youth alike. It is provoking distortions in that it does nothing to discourage those who know that their fees will be written off, while discouraging those who would perhaps only just pay them back, who could probably expect better lifetime earnings after tax by avoiding the debt. It is also failing to provide sensible routes for those who really aren’t university material to make the best of themselves, and making the more able waste more time proving themselves in academia so as to stand out to employers in the general pool of graduates.

The only way to improve the proportion of those from poorer backgrounds making the grade at university that makes any kind of sense is to improve their schooling. That almost certainly entails giving them an opportunity for selective education based on their ability. It is inconsistent to provide streamed education at tertiary level and ignore it prior to that.

All that present policy demonstrates is that Stiglitz was right (“The Theory of Screening” 1973 http://cowles.econ.yale.edu/P/cd/d03b/d0354.pdf ): public education tends to result in wasteful expenditure by governments.

by It doesn't add up... on April 10, 2014 at 3:16 pm. Reply #

The UK higher education system is completely broken, and the student loans company is leaving students broke.

We warned, back before the Browne Review, than an increase in fees would lead to more money out of every pound loaned out never being recovered.. and we see this now with the RAB on a critical implosion point.

A graduate tax (http://goo.gl/4EQkVn) is a constructive and progressive answer to this funding problem, and would prevent students still being in debt into their retirement age.

by Tommy on April 10, 2014 at 3:35 pm. Reply #

“A contributory system, whether funded by loans or taxes, has to be re-paid by someone.”

But of course, Lib Dem policy at the last election was to fund higher education through general taxation, not graduate contributions.

by Chris on April 10, 2014 at 4:47 pm. Reply #

Lib Dem policy at the last election was to fund higher education through general taxation, not graduate contributions.

That’s actually a much more sensible policy, so long as you have a mechanism to restrain places offered so that taxpayers can expect a good return on the investment in the next generation. The return will come in the form of higher taxes on higher incomes, and the extra value added to the general economy from successful graduates.

by It doesn't add up... on April 11, 2014 at 3:26 pm. Reply #

[…] 2) That’s not to say there aren’t issues with the new system that need attention. Most notably, there has been a sharp dip in part-time and mature students (most of whom won’t be picked up in these data). It is also quite possibly the case that the rate of increase would have been higher without the new fees system. However, that universities’ income has continued rising throughout the unprecedented austerity of the last four years has only been possible because of the Coalition’s reforms — as I pointed out here, Tuition fees: still a good policy. […]

by new UCAS figures reveal highest ever rate of applications to university from poorer students on July 25, 2014 at 4:32 pm. Reply #

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