The end is nigh for monster university tuition fees

One of the most unexpected outcomes of a General Election has been the way that it has returned university tuition fees to our front pages. The Conservatives went into the election having already pre-approved inflationary rises in fees, to £9,250 per year. Jeremy Corbyn’s Labour Party campaigned for their complete abolition. This promise was undoubtedly a factor in the increased turn out of young people, which helped swing the election.

The Tory majority is gone, with seats such as Canterbury – home to three universities – turning red for the first time ever. Now concerned heads within the Conservative Party are reflecting on what went wrong. The de facto Deputy Prime Minister, Damian Green, has called for a ‘national debate’ on fees.

However, the striking feature about this national debate is how little most politicians, let alone the general public, understand about how they actually work. How are we to judge whether Corbyn’s proposal to spend £11 billion per year on free higher education has merit or whether it is just the latest in a long line of undeliverable promises on fees? In 2005 the Conservatives campaigned to abolish them as ‘a tax on learning’, while the Liberal Democrats made a ‘solemn vow’ to do the same in their 2010 manifesto.

England is an outlier when it comes to paying for university, with the most expensive public higher education system in the world. Since 2010 in England undergraduates have paid nothing up front but have had to borrow the full costs of their course and living expenses from the Student Loan Company. Interest starts to accrue from the day the loan is taken up, charged at RPI + 3%, currently 6.1%. Graduates do not start to repay their loans until they are earning £21,000 and any outstanding loan is written off after 30 years.

When tuition fees rose to £9,000 in 2010 this was accompanied by a promise that the threshold at which loans start to be repaid would rise with average earnings. The Conservatives abandoned that commitment in the last parliament, introducing a retrospective change to the terms and conditions for borrowers.

A recent report by the Institute of Fiscal Studies has once again raised the question of repayment of loans. It suggests that the average student graduates with £50,000 worth of debt and that 75% of borrowers will never pay back the cost of their studies.

Those who defend the current system say that student loans are a unique financial product and simply cannot be compared to other types of debt. They say loans are progressive because they enable access to universities without upfront costs and help the poorest graduates once they leave university. But how can a system based on accrued interest and unpredictable repayment be more efficient or cheaper than direct taxation?

There is at the same time belief that universities have grown rich on the back of increased tuition fees. This is untrue. In 2010 the rise in fees was matched almost exactly by the withdrawal of other government funding to universities. This was the whole point of the policy. This accountancy trick helped bring down the deficit but added considerably to the national debt, as the government must first borrow the cost of the fees by selling gilts. The value of the student loan book has reached £100 billion and heading towards twice that as the system matures.

Consecutive governments have sought to mitigate the outlay on student finance by selling off tranches of student loans. All pre-2010 student loans have now been sold, at less than face value, to private investors who reap the rewards of graduate repayments. The performance of post-2010 loans is so poor that the government has been unable to find a commercial buyer who does not also want an extra public subsidy to guarantee a profit from the sale. The new parliamentary arithmetic has surely put paid to any attempt for the moment to sell off more of the loan book.

While all of this is bad news for the taxpayer, it is not quite so bad for the individual graduate. It does not matter how much you borrow or what the interest rate on the loan is, you will only pay 9% of earnings above £21,000. For example, if you earn £31,000 it does not matter if you owe £50,000 or £5,000,000 you will only pay 9% of £10,000, i.e. £900 per year. This means that Labour calls to stop fees rises and cut interest rates would not actually make any immediate difference to graduates.

However, while this scheme allows high earners to pay off their loans and helps the lowest paid graduates, it does squeeze middle earners who will pay more over longer than their better off peers. That is hardly a progressive principle. Postgraduate students can also access loans, which must be repaid concurrently with undergraduate loans at 6%. If you study for a Masters you will be paying a marginal rate of tax of 55% (40% + 9% + 6%) more than the highest rate paid by the very wealthiest.

Corbyn says fear of student debt is putting the poorest off attending university. Defenders of the loan system say this is not true, that in fact since 2010 the percentage of young people going to university from the most deprived backgrounds has in fact risen, by 6% since 2009. But this is some way off the targets set by David Cameron.

This is perhaps a result of the extensive access programmes run by universities who are obliged to spend a third of all tuition fee income above £6,000 on outreach work. What these figure hide is that since 2010 the number of part-time and mature students has fallen by nearly 50%. Until last year part-timers were ineligible for student loans, this has now changed.

It is often said that a system based on loans with no limit on the number of students who go to university is better for social mobility than a free but capped system. However, with a demographic decline in the number of 18 year olds in England this is not such of a worry as there is less pressure on university places.

Tuition fees were held at £9,000 in the last parliament. The government has since introduced a Teaching Excellence Framework that awards universities a Gold, Silver or Bronze medal for the quality of their teaching. All participants in the TEF, regardless of award, are able to raise fees with inflation. By 2020 tuition fees are set to exceed the psychologically important figure of £10,000.

Perhaps, the reason why tuition fees are in trouble is because they are so opaque. Vice Chancellors and ministers have forgotten the first rule of politics, that public support for such an expensive system requires consensus and understanding. The Conservatives broke that consensus with retrospective repayment hikes and using the TEF to inflate fees. Public understanding is
now with Corbyn’s seemingly simple solution.

Raising tuition fees to £9,000 has been one of the most troubled public policy choices in recent decades. The government spent the parliamentary sessions after the Brexit vote pushing through an HE bill to regulate the system the required by fees. However, the election result has changed everything. The national mood has changed: conspicuous financialization is out of fashion and the question of inter-generational fairness is back on the agenda.

Given everything else it has to deal with, it is unlikely that the government will want to, or is even capable of, spending time on another controversial reform of university funding. However, it is equally unlikely that it will go into the next election with a commitment to the status quo. It could well be that all parties next go to the polls promising to abolish or curtail the cost of tuition. The age of monster fees may be coming to an end.

Martin McQuillan is a writer, filmmaker and academic