On the face of it, tuition fees may seem a disproportionately hot topic. Yet their place in today’s political debate should not be surprising. Young people, after all, announced themselves loudly at the 2017 General Election: some 58 per cent of the under-25s voted, up from 43 per cent two years earlier. The Labour Party, which opposes fees, took 63 per cent of the under-25 vote, three times the Conservatives’ 21 per cent.
The 42 per cent margin is in stark contrast to the 2010 general election’s 1 per cent. Political allegiance is becoming ageist: the tipping point—i.e. the age at which someone is more likely to vote Conservative than Labour—is now 47 years.
The Conservatives are rapidly cementing their reputation of being the party of the old, receiving 69 per cent of the over-70s vote in 2017, a lead of 50 per cent over Labour’s 19 per cent. This should concern them. There are roughly twice as many over-65s as 18-24 year olds, but over-65s’ turnout is pretty static, at around 78 per cent. Clearly, the young are the political “growth market,” and political parties need to attune their policies accordingly.
Social media, in particular, is catalysing a growing awareness amongst millenials that they are being dealt a rum deal by the baby-boomers. Consequently, acknowledging intergenerational injustice is now a key component to building political capital… and tuition fees are near the top of the list of millenials’ concerns.
Recent developments
There is some acknowledgement of this from the government. The Prime Minister recently announced that the fee cap in England will be frozen at £9,250 (it was scheduled to rise to £9,500 for 2018-19), and that the repayment threshold would rise from £21,000 to £25,000. The former will achieve very little; the latter will save up to £360 per year, for those with annual earnings between the old and the new threshold.Meanwhile, the Treasury already expects that roughly 30 per cent of this year’s loans will have to be written off (30 years after graduation). A higher threshold would produce bigger write-offs; the IFS reckons on a further 14 per cent. And if the last decade of minimal real-terms earnings growth were to be repeated over the next 30 years, then write-offs could well exceed 60 per cent.
The Labour Party has proposed to abolish tuition fees and reintroduce maintenance grants. This may be popular among some young voters, but such a move would be highly regressive—and very expensive. The “winners” would be future high earners who would otherwise be making substantial repayments. Low earners would probably be indifferent: they will not be making any repayments anyway.
Too much onus on students
Yet some sort of change is needed. Before the Dearing Report ushered in the tuition fee-and-loan era starting in 1998, universities were almost entirely state-funded, i.e. paid for by all taxpayers. Today, students meet all the tuition costs, and they also subsidise the cost of research. But given the scale of likely write-offs, all taxpayers will ultimately end up making a significant contribution to the cost of higher education (and this includes the recipients of student loans some 30+ years earlier).Meanwhile, graduates of English higher education institutions now emerge with the highest debts in the developed world, albeit income-contingent ones: an example of intergenerational injustice made manifest. The side-effects, both psychological and practical are under-researched. So, why persist with the tuition fee-and-loan structure at all?
The accounting: most accommodating
The transition from grant funding to today’s structure achieved an immediate cut, and a generational shift, in expenditure, care of some accommodating accounting. Grants were expensed when given, i.e. they immediately appeared in the Public Sector Net Debt (aka “the deficit”).Conversely, only loan write-offs, 30 years hence, crystallise expenditure. In the interim, loans are considered as assets—albeit with some non-cash provisions put to one side within the Department for Education.
Accounting aside, the fee-and-loan structure does have some merits; indeed, it should be retained. Its saving grace is that it has opened up the opportunity for all to participate in higher education, partly because students do not require money up front.
However, the extent to which fresh graduates are burdened with so much debt, albeit income-contingent, feels wrong, particularly when we know that so much of it will be eventually written off. An accommodation is required to achieve a fairer funding split between students and the state (acting as agent for society as a whole), partly to help address today’s growing inter-generational inequality.
So, what to do?
The Government has an opportunity to not only improve its standing amongst younger voters, but also to dramatically reduce the scale of future write-offs. A significant part of the debt burden represents capitalised interest; herein lies the opportunity.The current £21,000 salary threshold should be retained, but the interest rates charged on loans should be cut from a maximum of RPI + 3 per cent to RPI flat (or, better still, CPI flat). In addition, the tuition fee cap should be cut to £5,000 (or perhaps £7,500).
These two changes would significantly lower students’ headline debt burden, and expected write-offs would plummet.
In addition, the loan framework would be simplified because the upper earnings threshold would be redundant. A rare policy “win-win.”
Lower fees would create a funding shortfall for universities, which the Treasury would have to plug. This suggests more expenditure today… but maybe not. The funding of tuition and research could be separated, with the latter accounted for as investment rather than having to be expensed (an accepted practice under international national accounting standards).
It is acknowledged that decisions concerning university funding have major cultural, economic and political dimensions: they should not be taken lightly.
