The Prime Minister, Theresa May, has announced a review of the whole system of student finance and has declined to rule out a switch to a graduate tax, in an interview ahead of the Conservative Party Conference.
Responding to mounting political pressure over the cost of university tuition fees, in a speech at the Conservative Party annual conference, she said the government had listened to young people’s concerns over the “huge amount of debt” they take on to continue to study after school, and had learned.
“So we will undertake a major review of university funding and student financing. We will scrap the increase in fees that was due next year, and freeze the maximum rate while the review takes place.”
“And we will increase the amount graduates can earn before they start repaying their fees to £25,000 (US$32,700) – putting money back into the pockets of graduates with high levels of debt.”
This meant the party will freeze the current increase in fees, leaving them at £9,250 (US$12,100) instead of rising to £9,500 (US$12,400) next year.
And the threshold at which graduates start paying their loans will be raised from £21,000 to £25,000.
The announcement was part of a series of measures pledged in a bid to shore up her political position and increase support among young voters who embraced the Labour Party’s pledge to scrap tuition fees at the general election in June. The election left her without a majority and fighting for political survival.
Speaking to the BBC before the conference, May said it had become clear that the level of debt students were leaving university with had become a matter of concern, not just for the students themselves but for their parents and grandparents.
“We have a system that provides funding for universities, that ensures more people can go to university, but people are worried about the level of debt that builds up so we will look at it again,” she said.
“But we are saying we are going to raise the threshold level at which you start to pay. For those that are able to take full benefit, it will be £30 a month more money into graduates' pockets and we will scrap the intended increase in the level of fees.”
When asked if this represented a U-turn on tuition fees, May said: “No. What that policy has done is: there is money for universities, there are more students going to university. But when we set that policy, what we expected to happen is that we would have a range, a diversity in the system, that we would see universities offering shorter courses, universities offering courses at fees under the max of the fee; that hasn’t happened. We have got to look at it again.”
But when asked specifically if a graduate tax might replace the current system, she declined to rule it out.
She said: "By looking at it again we will be looking at the issues that people are raising, we will be looking at where the system has worked, we will be looking at the concerns that people have."
Independent analysis by the Institute for Fiscal Studies suggested that the increase in the repayment threshold is a “significant give-away”.
It said this would reduce average graduate lifetime repayments by around £10,000. The benefits would be greatest among those in the middle of the graduate earnings distribution, with some benefiting by up to £15,700 as a result of the changes.
The reform increases the cash in the pockets of graduates, with all those earning more than £26,500 making annual repayments £500 lower in 2020 in cash terms. Now 83% of graduates are forecast to not fully repay their loans within the 30-year repayment period (up from 77%).
However, the combined effect of the threshold change and the freeze in fee increases would increase the government contribution to the cost of providing higher education by around £2 billion (US$2.6 billion) a year, the Institute for Fiscal Studies said.
But it warned that freezing the cap on tuition fees with not compensating teaching grants would directly reduce university funding and the impact would grow the longer the freeze in the fee rise remained in place.
'Out of touch’
Angela Rayner MP, Labour’s shadow secretary of state for education, said: “The fact Theresa May thinks she can win over young people by pledging to freeze tuition fees only weeks after increasing them to £9,250 shows just how out of touch she is.
“Another commission to look at tuition fees is a desperate attempt by the Tories to kick the issue into the long grass because they have no plans for young people and no ideas for our country. They are yesterday’s party.”
She said the next Labour government would scrap tuition fees entirely and introduce a National Education Service for lifelong learning “for the many, not the few”.
Responding to the prime minister’s announcement, Universities UK, the vice-chancellors' body, pointed to the need to redress the balance on student finance with more help for disadvantaged students by reinstating maintenance grants, which were scrapped under the previous Conservative administration led by David Cameron.
Alistair Jarvis, chief executive of Universities UK, said: “The tuition fees system in England has allowed universities to offer a world-class education, provide the economy with highly skilled graduates, and transform the lives of students from all backgrounds, but it is right to look at ways to ensure it is affordable and fair.”
He said Universities UK is pleased that the government will be looking at ways of addressing students’ money concerns, and raising the loan repayment threshold would put extra cash in the pockets of many graduates starting their careers.
But it would like the government to go further by reintroducing maintenance grants for those most in need and reducing interest rates for low and medium earners, he said.
“We also need to do more to reverse the worrying decline in the numbers of part-time and mature students," he added.
Sir Peter Lampl, chairman of the Sutton Trust education think tank, welcomed the planned raising of the repayment threshold and the freeze on fee increases.
But he said the government must go “much further to make fees fairer” and said it is right to set up a review.
“It’s a scandal that the poorest students graduate with the highest debt. Fees should be means tested so that those from low-income families repay less and maintenance grants should be reintroduced for the poorest students,” he said.
A report for the Institute for Fiscal Studies published in the summer found that the poorest students often have to repay £57,000 (US$75,700) in debt.
The author of the report, Lord Adonis – who was behind the original introduction of student fees at £3,000 each and complemented by loans with virtually no interest under Labour in 2004 – said: “Debt levels for new graduates are now so high that the Institute for Fiscal Studies estimates that three-quarters of graduates never pay it all back. The Treasury will soon realise it is sitting on a Ponzi scheme.”
He contrasted the situation of students with that of vice-chancellors now earning salaries of £277,000 (US$368,000) on average and more than £400,000 (US$531,300) in some cases.
This story was updated on 6 October.
Tuition fee regime is no longer progressive, says IFS
Pledge to abolish university tuition fees needs honing
Labour party plans to abolish university tuition fees
Student satisfaction high despite tuition fee rises
Receive UWN's free weekly e-newsletters