The claim
“The system of payments is highly progressive.”
Securing a sustainable future for higher education (Lord Browne’s report), 12 October 2010
The background
It’s been a thorny issue for successive governments – Thatcher, Blair and now David Cameron and Nick Clegg have all struggled with how to pay for universities.
Today Lord Browne revealed his report into the future of higher education funding – the sky’s the limit on how much you can charge in fees, it seems, but payment will still be deferred until after graduation.
It’s a “highly progressive” system, Lord Browne said in his introduction to the report. It’s a word Business Secretary Vince Cable also used when announcing proposals to change the fees system along the lines of the Browne report – and no doubt we’ll hear it a lot more as the Coalition tries to sell the changes to their less-than-willing political compatriots in the Liberal Democrats.
But when the cost of a degree is increased, just how progressive can it really be?
The analysis
At the moment, university tuition fees are capped at £3,290 per year (increasing with inflation) and a student is offered a loan for this amount that they start repaying once they are earning £15,000 after graduation. They then pay back nine per cent of any earnings over this repayment threshold.
Lord Browne’s recommendations include scrapping that cap. Universities will then be allowed to keep what they charge in fees up to £6,000 a year. They can charge more, but will pay a levy on any money above this. Students will then continue to pay back after graduation at the same nine per cent rate, but the repayment threshold will be raised to £21,000.
On top of that, all students will get £3,750 in a maintenance loan, and students from households where the combined income is under £60,000 will also be eligible for a means-tested grant of up to £3,250.
So, if a student studies a three-year course, their average debt on graduation will total around £30,000.
But that’s not the end of the story. In addition to charging more in fees, the Browne review has suggested a more complex rate of interest payments on the amount a graduate repays.
For those earning under £21,000 – i.e. not repaying their fees and loans yet – the total will still accumulate inflation. But once a graduate starts repaying the amount, the loan will gather inflation (at the moment based on RPI) plus 2.2 per cent interest a year.
Lord Browne has also recommended raising the time over which payment can be recouped – at the moment the slate is wiped clean if the loans haven’t been paid off after 25 years; under the proposals that will rise to 30 years.
This all means that the total amount a graduate pays off will depend on how long they are paying back for. If they don’t earn enough to pay back the full amount after the 30 years, the debts will get written off – the Institute for Fiscal Studies says that those on the bottom 30 per cent of lifetime earnings would pay back less than on the current system.
If their earnings are £60,000 or over they will pay back more per month (Browne says they’ll pay £293 a month), but – and it’s a big but – they’ll pay it off more quickly and so will accumulate less interest.
It is the middle chunk of the earning graduate population who will pay more – the Social Market Foundation says it is those averaging earnings of £27,000 per annum over their repayment period will be the hardest hit – taking 29 years and repaying nearly £45,000 with interest and inflation on a £7,000 a year course and maintenance loans. (The report says that those earning £30,000 will pay £68 a month).
Those in the top ten per cent of graduate earners will take just 15 years to pay off the debt at a total price of £40,000 for a degree with the same fees tag.
But, the SMF says, the best option for graduates is still to get Mum and Dad to pay upfront for their fees, rather than deferring payment until after graduation, meaning those from more well-off backgrounds will still be better off in the long-run – on a £7,000 a year course, with living costs, you could expect to spend just £32,000 to fund your degree.
Is it still worth the investment? Well, the latest research from Price Waterhouse Cooper and Universities UK (back in 2007) does say that graduates earn on average £160,000 more over their lifetime than non-graduates with two A-levels.
But averages can be deceiving. The earnings premium falls to £34,000 for Arts degrees (compared to ten times that much if you studied medicine, for example) – then facing debts somewhere in the region of £40,000 for your degree, including interest payments, may not be so appealing.
The verdict
While it is true that the less well off will not pay more than under the current system, they will still have the weight of the debt bearing down on them for 30 years.
And it’s still hard to call the system progressive when those earning over £60,000 pay less in total for their degree than those on more middle incomes.
This is how the SMF figures stack up:
