A Guide to Possible Tuition Fee Reforms

It’s a sad fact that the aspect of university education most talked about by the mainstream media these days is its cost.

Unfortunately, this doesn’t look set to change any time soon, with tuition fee reforms a constant yet sensitive political topic. Tuition fees have been the subject of controversy for many years – at no moment more so than when Nick Clegg’s failure to act on his promise to abolish tuition fees was followed by fees being raised to £9,000 a year. This wasn’t the first increase in fees, and it may not be the last. In this article, we look at some of the changes being proposed or speculated about, and see what impact they could have on the students of tomorrow.

Universities may take on student loan debt themselves

Under plans currently being considered by the Government, universities could take on student loan debt themselves, meaning that graduates would be repaying their loans not to the Treasury, but to their old university, once they start earning more than the current £21,000 threshold. Universities would not be obliged to take on these debts, as they’re a financial risk, and it’s thought that this would mean only the richest universities would do this – resulting in a two-tier system. For the Treasury, it makes sense because it limits the financial loss it suffers each time a debt is written off after not being paid for 30 years. The possible impact of these proposals are:

Universities may deter students from poorer backgrounds from applying

Because the university itself would be taking on the financial risk of its students’ debts, it stands to reason that it would want to minimise the risks. Some worry that this may mean that universities would be less inclined to offer places to students from poorer backgrounds – and even women – because they typically have a lower earning potential. This has the potential to undo the work that’s been done towards achieving greater equality among those gaining places at the top universities.

It could cost £16,000 a year to go to Oxbridge

Oxford and Cambridge Universities are renowned for their tutorial system, but it comes at a price. It’s a more expensive form of education than the conventional bigger teaching groups, and that means that if these two prestigious universities were to buy their students’ debt, they’d be looking for a rise in tuition fees to cover the cost of their unique teaching style. This could see a rise in tuition fees from the current £9,000 a year to a whopping £16,000 a year. Unsurprisingly, students from top universities are responsible for the highest rate of loan repayments, because they secure well-paid jobs.

Training opportunities and careers advice would improve

On the plus side, if it was in the university’s interest to get students to repay their loans, they’d be likely to devote more resources to careers services and other training opportunities designed to help students secure well-paid work. They may even provide retraining opportunities for those who want to change careers later on, but before the loan is paid off. This means that students should, theoretically, find themselves more easily able to get where they want to be in their careers.

Students would have stronger links with their universities

Most universities have alumni networks in place, but another consequence of universities taking on student debts would be that graduates would have more of a reason to stay in touch with their alma mater. This has implications for networking opportunities, which could also benefit their careers.

Tuition fees could be cut to £6,000 a year

It’s still a far cry from the £1,000-a-year tuition fees that students had to pay when they were first introduced, but Labour said back in 2011 that it planned to reduce tuition fees to a maximum of £6,000 a year. It’s not something they’ve been that open about discussing since, though the Shadow Universities Minister Liam Byrne has described the lower fees as “a starting point” and Douglas Alexander has since confirmed that the idea is still in the offing. Also suggested is the idea that high-earning graduates (those on £65,000 a year or more) pay a higher interest rate on their student loans.
But while prospective university students may be pleased, in principle, at the prospect of lower fees, the idea has not met with universal praise. It would mean the Government having to make up the £3,000 shortfall itself, which could actually cost rather more than originally estimated thanks to the fact that students are repaying less than forecast. The £6,000-a-year promise also doesn’t account for inflation, meaning that the fees would still need to be raised each year. Vice-Chancellors fear a major funding gap. David Willets has been an outspoken critic of the proposals, arguing that, quite apart from the sheer cost of reducing fees, the students themselves would suffer: the reduction in university funding would mean that there would be staff redundancies, with students ending up in overcrowded classes, with less well-equipped labs. And, since UK students would bring in less income, universities would have more incentive to recruit more students from overseas, as international students pay higher tuition fees.

What’s more, there’s no evidence to suggest that reducing fees would increase the number of students going to university; the increase in tuition fees to £9,000 a year has increased the amount of money available for access work, with the result that more students from lower-income families now attend university than ever before, despite the higher fees. Tuition fee cuts would reduce the bursaries available to such students, making the situation worse. The only real beneficiaries of £6,000-a-year fees in the long-term, he argues, are the more affluent graduates, who’d find themselves paying off their student loans a few years earlier than they would otherwise have done. If this were the case, the reduction in fees would hardly be worthwhile, all things considered.
There’s more to this story, however. The cut in tuition fees is being seen by Labour as the first part of a two-phase change to tuition fees, phase two being the introduction of a graduate tax, which we now look at in more detail.

Tuition fees may be replaced by a graduate tax

A longer-term alternative to tuition fees is also being put forward by Labour: the idea of abolishing them altogether and replacing them with a ‘graduate tax’. Details of how this idea would work are, as yet, not forthcoming, but Liam Byrne has said that the proposal could form part of Labour’s 2015 Election Manifesto.

We’ve seen something similar before

A similar idea has been tried before; following Scottish devolution, tuition fees in Scotland were abolished and replaced with a ‘graduate endowment’. This meant that the Government would pay all tuition fees upfront, and the student would pay £2,000 (which later rose to £2,289) after they graduated, either as a lump sum, or by taking out a student loan (or both, depending on what they could afford). The first students to whom this was applicable started paying the graduate endowment in 2005. However, this new system lasted just three years; by 2008, free higher education had been restored. The then Scottish Education Secretary, Fiona Hyslop, commented, “We believe access to education should be based on ability to learn, not ability to pay.” It’s only free for Scottish students, however; those from England, Wales and Northern Ireland still have to pay up to £9,000 a year.

So how would it work in the rest of the UK?

It’s not the first time the idea of a graduate tax has been considered in the rest of the UK; before ‘top-up fees’ were introduced, the idea of a graduate tax was widely discussed and rejected, but it hasn’t gone away. As outlined in 2011 by the National Union of Students, a graduate tax would work differently from Scotland’s graduate endowment. It would take the form of a tax levied on graduates for 20 years after their graduation, increasing with their earnings and ranging between 0.3% and 2.5%.

A good idea or not?

It’s hard to say whether this would be a viable alternative to tuition fees, because there are arguments on both sides. These can be broadly summarised as follows.
Arguments for a graduate tax

• It might ultimately raise more money for universities, going straight to them and bypassing the Treasury.
• It’s only levied on those who’ve benefited from the university system, meaning public spending wouldn’t be necessary.
• It does away with the traditional idea of student debt. Tax obligations do not carry the same idea of financial burden as a debt.
• Because of this lack of real ‘debt’, more students might be encouraged to go to university.
• Student decisions on where and what to study would not be based on their ability to pay tuition fees.

Arguments against a graduate tax

• It might encourage graduates to move abroad to avoid paying the tax, depriving the UK of skilled graduates.

• Students have the option to pay off student loans early, whereas they would continue having to pay tax for a fixed period of time.
• If it were to be levied only on those who complete their degrees, students would have an incentive not to graduate, even if they’ve completed the course.
• If the tax were imposed on those completing their courses at UK universities, students could transfer to an overseas university for their final year to avoid paying the tax.
• Because the tax would entirely eliminate the link between the cost of the degree and what students repay, some students could end up paying more in tax than the actual cost of their degree, with some students paying less than their degree is worth, creating an unfair system.
• Universities would have less incentive to “drive up quality”, according to the Russell Group of universities, because they would no longer receive direct financial benefit from attracting students. It would mean that there would be less competition between universities, which many consider to be a bad thing.
• Russell Group university Vice-Chancellors are against the idea, because it would be likely to result in a more equal allotting of research funding, with less prestigious universities benefiting.

A true appraisal of the pros and cons of a graduate tax will be needed when finer details of the proposal are released.

What’s the point of raising tuition fees if graduates can’t even repay them?

Finally, having looked at these various proposals for overhauling tuition fees, it’s perhaps worth mentioning that, despite a mammoth rise in tuition fees under the current Government, it’s coming close to not actually receiving any extra money as a result. This is because the number of student loan write-offs is increasing, because students are unable to repay them, and, for the first time, the value of these write-offs looks set to overtake the amount of extra money raised by the increase in fees. Loans are being written off because students are failing to earn enough to qualify for repayments; lower pay, a saturated market of graduates and the harsh economic climate over the last few years are thought to be behind this.
Official figures suggest that write-offs account for a staggering 45% of the £10 billion the Government makes in student loan repayments each year, and this figure is now approaching 48.6% – the point at which, it’s calculated, the Government starts losing money on the savings made by the tuition fee rise. This is explained in more detail here. This suggests that either tuition fees need drastic reform, or more needs to be done to help graduates secure well-paid jobs; possibly both. Whatever happens, tuition fees look set to continue to be a sensitive subject used by politicians to score points with voters; let’s just hope that, in the midst of the politics, nobody loses sight of the young lives whose prospects are at stake here.

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