Some tuition fees number crunching

On the day MPs were deciding whether they should vote to raise the cap on tuition fees to £9000 per year, Nick Clegg said that students should look more carefully at the proposals to tuition fee funding before protesting against them:

My message to the students who are protesting is to ask them, one final time, to look at what we’re actually proposing rather than what they are alleging we are proposing. Actually under our system they will all, all the demonstrators, will pay out less per month than they do at the moment. All the part-time students who are demonstrators wouldn’t pay any upfront fees whatsoever. Many of them would never pay the full value of their loan whatsoever. (at 9.24am)

Here at Paperback Rioter we like to do what we are told. Most of the time anyway. So I’ve been doing a bit of research on the implications of what these plans actually mean for students.

Firstly, Nick Clegg really ought to have read his proposals before he voted for them. Perhaps all the demonstrators will end up paying less per month: but they will be paying more in total. The Institute for Fiscal Studies estimates that 23% of students would be better off than at the moment, but that still means the vast majority of graduates will pay more than under the present system. An average earner of £30,000 per year will end up paying £2000 more under these proposals. Furthermore, 10% of graduates will end up paying back more than they borrowed in the first place.

Secondly, Clegg’s claim that all part-time students will avoid paying up-front fees is spurious. Under the new proposals, students who study for less than 25% of their time will be ineligible for student loans. That’s one-third of all part-time students, equating to about 100,000 people, according to Channel 4.

The most depressing aspects of these reforms are the fact that government funding is going to be withdrawn to arts and social science subjects.

Nick Clegg: must try harder next time.

The best background summary to the issue of university funding is this Telegraph article. University education in Britain was free until 1998, when Labour introduced fees of £1000 per year for all students. After saying in their manifesto that they would not increase this level of fees, in 2003 Labour decided to triple the amount students would pay for their university education to £3000.

When Labour were in government (and doesn’t that feel like a long time ago?) they asked Lord Browne, the former chief executive of BP, to conduct a review into Higher Education in November 2009. You can read the report here and read a good summary of his recommendations here. It is these slightly-tweaked recommendations that the Conservative-Liberal Democrat coalition brought into law.

Browne proposed the lifting of the cap on university fees altogether, so that universities could charge as much as they like for students. The cost of paying for university would shift from the taxpayer to the student, who would take out a loan to cover their maintenance and course costs, and pay that back once they started earning. Browne also recommended charging interest on these payments of 2.2% above inflation. The wage at which students will start paying their loan back will increase from £15,000 to £21,000, and this figure will go up in line with inflation.

Instead of this, the government has raised the maximum amount that universities can charge to £9,000 a year. The Higher Education Policy Institute have said it’s very likely that all universities would have to charge this full amount. After all, universities will have to charge £7,000 a year just to make up for the shortfall of funding resulting from the coalition’s cuts.

These plans were opposed by Labour MPs. Their leader, Ed Miliband, is in favour of a graduate tax, as are the National Union of Students. This is a system where graduates do not pay any upfront fees, but instead pay a graduate contribution through their – you guessed it – taxes. Not all Labour MPs were in favour of a graduate tax: their shadow chancellor Alan Johnson was a staunch defender of tuition fees, but has recently come round to Ed Miliband’s position.

The Liberal Democrats have copped quite a bit of – justifiable, in my view – criticism over voting for plans in government to triple university fees when every Lib Dem MP signed a pledge before the election to vote against a rise in fees. Nonetheless, Nick Clegg and Vince Cable are convinced that we should support these tuition fee rises because they are “fair” and “progressive”. Let’s see if they’re right.

In a sense these plans are progressive, as the absolutely invaluable IFS report on these proposals makes clear.

[T]he Government’s proposed system is more progressive among graduates than both the current system and the one recommended by the Browne Review. The highest earning graduates (those in the top two deciles) would pay more on average than under the proposals

See also their table on p9. The bottom-earning quarter of graduates would pay less than at the moment, but those earning most at the top will pay more. Nick Clegg, therefore, does have a point.

As Haroon Choudhry from the IFS says on the BBC news clip I linked to earlier, this system of repayment is basically an extension of the system currently used at the moment. Students take out loans to fund their course, then pay these loans back out of their pay cheque when they begin earning. In that sense, if you have no problem with the present system, and think that students should contribute to the cost of their higher education, there is no reason why you should oppose these plans.

A graduate tax, as favoured by Labour and the NUS, would not be much of an improvement. Under this proposed system students would pay 9% of their income towards their Higher Education for thirty years, at which point the debt gets written off. It basically acts as a graduate tax in all but name, as the IFS say.

Furthermore, it has been argued by some economists that a graduate tax would actually act as a disincentive for graduates to earn more, or move abroad, as they would be taxed more on that income.

I’ve argued before that a graduate tax is an inadequate way of funding higher education. The best way to fund universities would be to have it completely free for students, funded by the taxpayer. I’ll explain why in a later post.

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