I really hope I am missing something here - please let me know if you spot it.
The UK Government today announced its new HE funding model. The graduate contribution goes up from fees at £3,290 to somewhere between £6,000 and £9,000 per year. The student doesn't have to pay these up front, with the Government offering a loan system that allows them to start re-paying once they have graduated and are earning over £21,000 per annum, at a rate of interest based on the RPI and up to 3% on top. The Government is withdrawing approximately £4,000 per student per annum from its current funding mechanism, and already loans students the £3,290 on similar (but somewhat better) terms.
Universities currently have to show that they are helping students from less advantaged economic backgrounds by offering bursaries. The University of Reading, for example, pays out about £3,000,000 in bursaries and support to help widen access. It has an undergraduate population in the region of 12,000 - so approximately 7.5% of the top-up fees it is allowed to charge go into paying bursaries for the less well off. That is, the top-up fees at the moment provide the University with about £36,000,000 [figures have been corrected since original posting]. It should be noted that this calculation appears to be wildly at odds with information from the University (http://www.reading.ac.uk/about/newsandevents/releases/PR20347.aspx) which indicates that at £2.4million it was spending 26% of its fees income on bursaries. That implies a fees income of £9.2million from 12,000 students, which equates to only £769 each, so I am a little confused by their figures. [This is probably due to those figures covering a period when the top-up fees had just been raised substantially, and there were still students in the system paying the lower rates].
I am not sure whether the details of how much support will need to be given by Universities has been mentioned yet (or even worked out) - but one chilling point is that the £6,000 'threshold' apparently does not carry a requirement to support wider access, whereas the £9,000 'cap' would do so (e.g. http://www.bbc.co.uk/news/education-11677862).
So let us assume, for the moment, that there is no marketing advantage to choosing to charge £6,000 and that all universities pick this as their fee level (for the sake of argument, in fact it would seem highly likely that the reverse may be true). The Browne review (http://hereview.independent.gov.uk/hereview/) said that universities would have to charge £7,000 to balance the books given the 'comprehensive spending review', but if we stick to £6,000 we can still start to see what impacts this might have on a graduate.
At £6,000 each year for 3 years, the student will end up with £18,000 debt just for the fees. Never mind about living expenses, we will assume students don't eat, or go out, or wear clothes, or have to rent accommodation, or any of that tedious mundane nonsense. The current RPI is 4.6%, so let's work with that. Actually, let's be ridiculously generous and assume that it is only 4%. So interest on the loan will be about 7%, or £1260 a year - once the student earns £21,000, otherwise apparently (according to Willetts' answers in the House of Commons today) the interest rate will be 0.
The graduate will pay back at a rate of 9% on earnings over £21,000 per annum. So, in order to be able to pay off just the interest on their loan, they will have to earn £35,000. And remember, I've been pretty conservative in all the estimates made so far. Well, with the possible exception of the rate of inflation, which may collapse through the floor as the economy heads into a tail spin driven by cuts and a decreasing number of people educated to HE standards over the next decade, but then they won't have jobs so won't have to pay anything back. Check out the job advertisements, and the numbers of unemployed graduates and consider that £35,000 figure.
Essentially, a large number of graduates will probably never pay off their loans, especially not before the write-off period of 30 years. With a basic rate of tax at 20% those graduates will be paying nearly 50% more tax (on the portion over £21,000) than people who do, say, an apprenticeship and get an equivalently paid job. Given the tax details for the next year, this means a student who earns enough to keep the interest at bay (£35,000) will actually pay very nearly 30% more in tax (and let's make no bones about it, this is a tax) than those on £35,000 who did not go to university. That degree sound particularly tempting now? Cameron said he wanted to make the UK entrepreneurial, and I think we might have seen how - given the penalties for going to HE, and the lack of jobs for graduates (bear in mind the public sector, which is being massively cut back, has typically employed half of graduates in the UK), it would make a lot more sense for a lot of potential students to enter the job market from school, and only consider a degree later in life.
So few students will actually pay their loan off. The Government will be investing the money up front to cover the increased fees - money that will (often) not be repaid. I don't know whether the Student Loans Company (SLC) will be keeping the interest payments; let us assume they won't and that the money goes back to the Government (unlikely to be entirely true, but again, let's be generous). Instead of getting the actual loan back, the Government is imposing a 30% tax rise on graduates - presumably looking to secure a funding stream. They will earn £37,800 in interest payments per student, but, of course, that figure includes inflation. Adjusting for inflation, it works out at about £22,000 - over a 30 year term, they will get back about £4,000 more than the investment (all things being equal) - if the average graduate manages to earn £35,000 (which might just about be possible on average).
If the SLC gets to keep a cut, any apparent saving disappears rapidly. So tomorrow's students will be indebted for 30 years, with little real chance of paying the debt off (and who wouldn't arrange with an employer to delay a pay rise for a while if it meant that you went over that 30 year write-off period first?), and the Government will see precious little, if any, benefit from it. On top of that, this is using the 'cheap' model where the universities cannot afford to subsidise the poorer students, so only the richer ones will go to university anyway. This is, perhaps, where the Government will make a real saving in the short term, as it will have to front-up less cash if fewer students go to university. In the medium to long term, of course, this means there will be fewer graduates to invest money in universities, and fewer to provide the skills necessary for the economy, but again, let's gloss over such tedious minutiae as the long term health of the economy.
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