Thursday, July 06, 2017

Student Finance

The issue of student financial support was a hot potato in the eighties when I was a student and has never ceased to be.

At that time students not only didn't have to pay tuition fees but actually received maintenance grants, and complained bitterly about how the miserly government of Margaret Thatcher didn't pay them enough money. (The actual language used was often considerably ruder than that but you get the idea.)

There was some debate about the possibility of replacing grants with student loans which, with a very few exceptions, was popular only with the sort of people who got the Federation of Conservative Students closed down by Norman Tebbit for being too right-wing.

(Yes, that sounds like a joke. No, it isn't one.)

If as a Conservative student I had told my contemporaries that when Labour finally got into power they would scrap what remained of the grant, introduce tuition fees instead, double the tuition fees a few years later, and offer a loan to pay for it, and that what was then on offer to students would look impossibly generous a generation later, they would have fallen about laughing at the thought that anyone could expect them to believe such a thing.

Of course, one reason the system of grants was affordable is that back in the 80s only about 6% of the age group went to university and another few percent to other Higher Education institutions such as the organisations which are now called universities but at the time were called polytechnics.  Now the proportion of young people who have the opportunity to study at University is more like 40%.

Ever since the Blair government, in a series of broken promises every bit as egregious as the one for which the Labour party subsequently castigated Nick Clegg, replaced grants with loans and left students with a big debt, I have been deeply unhappy to see the ladder which I had climbed up replaced for later generations of students by a much less generous system. In 2005 (e.g. before the economic crash later that decade) I was happy to fight a general election on a promise to scrap tuition fees and would have voted to do so if elected.

The trouble is, in the post crash era I no longer believe that Britain can afford both to give 40% or more of young people the chance to benefit from Higher Education and not ask them for some form of contribution to the cost out of the higher earnings most of them will gain as a result.

The system we have is not at all perfect but there is a lot of ruhhish talked about it by the likes of Jeremy Corbyn. Far from it being true that, as Corbyn claims,  “fewer working-class young people are applying to university” the reality as Danny Finkelstein explains here in an article in The Times this week, is that more people from working-class backgrounds are going to University than ever before.

As he writes,

"There are record numbers of young people going to university and the share of those students who are from disadvantaged neighbourhoods has risen. It was 9.6 per cent in 2009-10 and 11.3 per cent in 2015-16. In 2006, only 12.2 per cent of 18-year-olds who had been eligible for free school meals applied for university. In 2017 that figure was 22.5 per cent."

The nominal dent owed by students going to University is frightening but it is not what most people have to pay.

They don't have to pay anything back until they reach an income of £21,000 p.a. and when they do reach it they pay 9% of additional income above that level until they have paid the whole lot back or, as more often happens, until they reach the date of 30 years after graduation and the government writes off the rest of the loan.

On average about £18,000 of the debt nominally owed by each student is written off by the government. Only the highest-earning graduates actually have to pay the entire nominal value of the loan. Those graduates whose income never gets much above the national average will have to pay less than half of it back.

If you take the unlikely but illustrative example of a graduate with the average loan of £51,000 who earned the present national average salary for thirty years after graduation, ignoring inflation (which of course would increase all figures in the calculation) he or she would pay back £14,850 or 29% of the nominal debt over those thirty years and then the government would cancel the other 71%. 

Perhaps this system should not really be called a student loan scheme at all - you can make a very cogent argument that it would better be described as a 9% graduate tax, e.g. a tax on the additional earnings of former students above £21,000 until 30 years after leaving college or until they have paid back the cost of their education, whichever comes first.

I don't like this system and I never have but anyone who is considering voting to scrap it should think very carefully about what they would put in its place. As Danny Finkelstein wrote, Corbyn

"followed a fact that was completely incorrect, with a promise that is impossible and a policy that would be destructive."

You can read Danny's full article here.

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