Could student tuition fees be reduced without having to increase public spending? If inflation is taken into account, then the answer might be ‘yes‘
New research has thrown some light on what a sensible tuition fees policy might look like. William Cullerne Brown’s analysis is partly based on the Office for Budget Responsibility’s figures and offers us the Holy Grail of reducing fees for students, keeping universities’ income the same, and not increasing public spending.
I have previously argued in this blog against the current system because the level of loan write-off will be so high that the government is forced to cap places. This cap keeps too many out of higher education as it is. But worse still, it ties our hands with regard to the increased demand for places we will see in coming years. In Future Universities I suggested making the loan repayments deal slightly less generous, whilst keeping its progressive structure, so that the Treasury would get more money back and so could fund more places.
I stand by that argument, but now a solution comes to hand that will mean the Treasury will get even more of its money back, whilst also reducing students’ debts.
It turns out that net student fees (after waivers) count towards the Consumer Prices Index. Given that many of the government’s public spending commitments are linked to CPI (pensions, welfare payments and so on), an increase in it will push up public spending. Although it is hard to predict, it seems that increasing average net fees to £8,200 would add something like 0.65% to CPI. Conversely, reducing fees will reduce CPI at a similar rate.
So if fees were cut to £6k per annum, as Labour intends, it is calculated there would be a reduction in public spending of £0.9bn per year. Add in savings on loan defaults (smaller loans are more likely to be repaid) and savings on scholarships and bursaries, and it should, as William Cullerne Brown argues, be possible to reduce fees while keeping public spending neutral.
However, I would not favour the Labour policy of giving universities a block grant of £3k per student. That is not particularly progressive, since in terms of the grant, a rich student is having his or her education subsidised by taxpayers just as much as a poor one. Far better to hand out means-tested fee-waivers through the student loans system, whereby the very rich got nothing, and everyone else got a waiver that increased as income decreased.
Very roughly, it might go something like this: if your parents earned £80k a year combined, you would get a £1k waiver. If they earned £25k combined, you would get a £5k waiver.
Since it is only net fees (the ones consumers actually pay) that contribute to CPI, this waiver system would still trigger the predicted savings in public spending. And given that the vast majority of students already take out student loans – and so take part in means-testing already – this way of doing things would be bureaucratically efficient.
With slightly tightened, but also smaller loans, the loan write-off rate would plummet. That would fund the extra places in universities we need – another progressive goal. But it would also make the market for students work better, by matching demand to supply.
If this change were made soon the government would have to stump up some compensation to the unfortunate current cohort who will have paid fees on average a third higher than their successors. There is also a complication over how big of a fall in CPI reducing fees would actually cause, since with advance warning the Bank of England can try to mitigate against inflationary pressures.
These issues notwithstanding, there is an opportunity here to really put student finance on a more sustainable footing.
Matt Grist is a senior researcher at Demos