Tuition fees proposal almost a graduate tax

Tuition fees protestI should start by saying I disagree with the whole idea of university tuition fees, and believe university education should be free as it used to be. The trouble is, that only worked when a smaller number of people attended university. Many people now go to university when it does little for their careers, and they would have been better off taking some sort of vocational training. But that’s a different argument. The fact is, the situation isn’t going to change, more and more people are going to university, so something had to be done about funding.

The Browne Review into higher education funding was published last week and proposed that the current cap on tuition fees be lifted. However, this was accompanied by a proposal for overhauling the system of student finance that would be used to help students pay for their fees and living costs. I had always favoured a graduate tax, where graduates pay a higher rate of income tax after graduation, over fees that were linked to the cost of attending a particular course or institution. However, the proposals in the Browne report in fact contain many of the desirable features of a graduate tax in a clever compromise that should satisfy many people if they read and digested the report for themselves rather than just reading the sensationalised reports in the media.

Predictably, we have already had the articles about the “crippling debts” that students will face. But there is actually quite a lot of disinformation in the media. For example, the main BBC website article on the issue appears to imply that students will only be able to borrow £3,750 a year to cover fees of up to £6000. In fact, that is the figure they will be able to borrow to cover their living costs, on top of a loan to cover the full cost of the fees. (I have complained about this to the BBC twice and have not received a reply.) The same article states that students from families earning less that £25,000 per year will be eligible for a grant, but fails to mention that students whose families earn up to £60,000 will receive means-tested grants on a sliding scale. Then an article in The Times yesterday suggested that graduates will never be able to afford a mortgage because they will have to pay 9% of their salary each month towards their loan once they earn over £21,000 (no link to that article, as Rupert Murdoch doesn’t like people to read his newspapers). In fact, graduates will pay 9% of their salary above £21,000, so someone earning £25,000 will pay just £30 per month, less that most people spend on their mobiles phones. This is laid out clearly in a table on page 7 of the report. The writer had evidently not read the report for herself and had misunderstood the proposals.

So what are the good features of the report? There will be no cap on fees, but there will be a “soft cap” above which universities will have to give part of the money to the government. Having no firm cap is a good idea as the previous attempt to introduce “top-up fees” was a complete failure as all universities simply increased their fees to the maximum. The fact that the support package is largely non-means tested is also fair. The whole argument usually put forward for fees is that graduates will earn more. So I’ve never seen why levels of loans and grants should be determined by students’ parents’ income. As already mentioned, the only means testing is of maintenance grants for living costs. It’s unfortunate this is deemed necessary, but I suspect the alternative would be an end to grants altogether. The final feature of the report that I was particularly impressed with is that it says there should still be extra money from the government to support courses in subjects such as science and “strategically important” language courses. I’ve heard numerous discussions where participants have said that those taking expensive courses such as science an medicine should have to pay more, and not be subsidised by those taking arts courses. I don’t agree with that. We should support degree courses that the country needs. Many people already take degrees they consider easier so that they can laze about university instead of studying. Fortunately, distinguished people such as Lord Browne of Madingley, the review panel’s chairmain, and Julia King, a former chief executive of the Institute of Physics, realise the important of science and engineering to the economy and the nation as a whole, and so have reflected that in their proposals.

So what of the loans themselves that will allow students to afford the fees. Won’t they leave students with “mortgage-style debts”? The numbers sound quite large. £6000 per year in fees and £3,750 for subsistence means a total of £29,950 at the end of a three-year degree course. I think the answer is that we have to stop thinking about these loans as debts. With an ordinary loan or mortgage, there is a fixed term over which they must be repaid. If the interest rate goes up, you have to pay more, and if you take a lower-paid job or are made redundant, you still have to pay. The student loans will be different. The monthly repayment amount is fixed at 9% of salary above £21,000. If doesn’t matter if the interest rate rises to 99%, the student’s liability doesn’t increase. After 30 years, any remaining debt is written off. That means that someone earning £30,000 for their whole career would pay £68 per month for 30 years and that would be it (in reality, people’s salaries change and everything needs to be indexed for inflation, but the argument is still valid). At the end, they wouldn’t even have paid back the initial £29,950, let alone any interest. There is no risk for the graduate, no unknowns. Because of that, I see no reason why a graduate should find it harder to obtain a mortgage than anyone else. When the lenders look at the graduate’s salary, they can subtract the monthly payment to work out the affordability of the mortgage. There’s no need to consider the size of the student loan outstanding as the graduate will never need to pay this off other than the small monthly payment. When the tuition fees bill goes through parliament, I would actually like to see an amendment that makes it illegal for lenders to consider student loans as a debt for the reasons I have outlined. That would ensure graduates aren’t disadvantaged they they look for a mortgage.

In the illustration I have given above, the fees and loans arrangement looks more and more like a graduate tax. In that example, the repayments are equivalent to an increase in income tax of about 3%. Unlike a graduate tax, however, payments stop after 30 years, and for higher earners may stop sooner if they re-pay everything they owe. I wonder what the reaction of the press would have been if the report had presented its proposal as a graduate tax of 9% on earnings above £21,000 that only has to be paid for 30 years after graduation, and stops sooner if the graduate has repaid the equivalent of the cost of their course plus interest? The only difference is that a loans system has a figure – a “debt” – associated with it. Now, I don’t like debt, and think loans other than a mortgage should be avoided wherever possible. Borrowing has caused this country severe problems. But as I’ve explained, I just don’t see the proposed fees as a real debt, and as long as financial providers don’t either, the system will be largely fair for all students and graduates.

Now all we need is for the proposals to become law intact without politicians meddling with them. The report contains clever compromises worked out by a group of clever people, and picking and choosing just some elements of it could result in an unjust system.

One response to “Tuition fees proposal almost a graduate tax”

  1. Bradley Willis

    I would just like to comment that I fundamentally agree with this article. I am currently a student and from a low income family, yet I believe the principle behind the tuition fee rise is correct; as long as there is financial aid for those from low income families. Danny Alexander stated that grants are actually rising for students from low income families, which if true, means that the so called “hardship” that students are supposed to be facing may actually be exaggerated.

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