UK: Unintended consequences of tuition fees

Britain introduced university tuition fees in 2006 and capped them initially at £3,000 (US$5,000) with student loans at a zero real rate of interest, repayable after graduation at 9% of income over £15,000, but cancelled if unpaid after 25 years.

There were to be fee remissions, bursaries and maintenance grants for students from less advantaged backgrounds, so the package seemed enlightened, generous and progressive, and since 2006 university applications have continued to rise.

But the outlook for the longer term is different: the system is regressive, it imposes intolerable financial burdens on most young graduates, it excessively commercialises young people's study and career choices, and it is in danger of breaking down, leaving mountains of debt for taxpayers to redeem.

I am outside the university system and party politics; I have no axe to grind. Because I work as a volunteer with sixth formers and university students, my concerns are for young people, particularly those who by choice or necessity will enter lower-paid occupations, and also for taxpayers.

My case rests on facts that can be tested against evidence, on some intuitive predictions, and on personal values that rate less inequality and a society at ease with itself, as objectives to be set alongside the marketisation of education and the pursuit of ever-rising GDP.

Where have we gone wrong? First, from 2009 most new graduates will have incurred debts of £20,000 or more. Second, the graduate lifetime earnings premium, put forward as the rationale for tuition fees, has been overstated, is inevitably diminishing, and is virtually non-existent for many academic disciplines and career options.

The average annual long-term growth trend of productivity in the UK, which broadly determines what we can pay ourselves, has since 1945 remained stubbornly at around 2½%. Consequently, with 30% of the working age population already having degrees, it will be mathematically impossible for the majority of graduates to earn the starting salaries and annual increments experienced in the past, without the rest of the workforce having to take severe cuts in their real income.

Third, and arising from this, apart from a minority entering top-paying professions (who tend to come from advantaged backgrounds), future graduates will typically take 15 to 25 years to pay off their debts, even before the fees cap is lifted. This is regressive taxation, taking a greater proportion of the lifetime earnings of lower-paid graduates.

They will be hardest hit when, aged around 30, they cannot buy a house, afford family life, or save for retirement, while as part of the working population they will be additionally taxed to finance our ballooning national debt and the health and pensions needs of burgeoning numbers of senior citizens.

In recent decades, wealth and purchasing power have shifted from the younger to the older generations, and indebtedness has moved in the opposite generation. The economic legacy that we, the baby boomers, are handing to the next generation is horrendous, and surely is now a moral issue.

Fourth, the shortfall of expected debt repayments by recent graduates is becoming a crisis; a third of those who started university after 1998 have not begun repaying their student loans and the Department of Innovation, Universities and Skills, now subsumed into the Department for Business, Innovation and Skills, has lost track of many indebted EU graduates of UK universities.

Fifth, great numbers of able, energetic and altruistic young people do not wish to chase top graduate salaries but look instead for satisfying careers in the voluntary sector, teaching, caring professions and the like, where they hope to contribute in a small way to making the world better and fairer. They are doubly penalised by the present system.

This is the year the system is to be reviewed. Some commentators assume the only issues are whether, in the pursuit of the marketisation of higher education, the fee cap will be raised and if so by how much. Such a step would, I contend, be a profound mistake.

Markets allow the better-off to buy the best of what is on offer which in education means access to sought-after schools, universities and employment opportunities. The assumption that a largely unregulated education market will deliver social mobility is a naïve delusion.

National and international experience tells us that the privileged will manipulate the education system to the advantage of their children. We all want the best for our children. Fee remissions, bursaries and maintenance grants could never be offered on a scale sufficient to remove such inequality of opportunity so other measures are needed.

If degrees become commodities in a higher education market, we must expect responses such as "I've paid my fees, so give me my 2:1", which some say is already happening. Marketisation will narrow the higher education experience. There will be more 'teaching to the test' and ticking boxes.

Moreover, lifting the cap will also widen the resources gap between the most sought-after universities and the majority, thereby undermining the capacity of the latter universities to support their less fortunate students.

It will require 16-17 year-olds, in the face of unreliable economic predictions and confronted by vast quantities of complex information, to make higher education choices by calculating what they will earn and how much debt they will incur. They will not know what their fees have bought until many years later and they may then be very disappointed.

Tuition fees were introduced at a time when the accumulation of large debts was seen as acceptable, normal and even a desirable driver of economic growth. Maybe the credit crunch and recession are changing this perception; I hope so.

But in present circumstances I think it is reasonable that graduates should contribute in some way to the costs of their university education. Otherwise the costs fall more heavily on taxpayers and therefore, because of our inequitable tax system, to a great extent on the majority who did not go to university.

The guiding principle should be that graduate contributions be based on the additional earnings derived from a university education, not on the perceived costs and benefits of different courses at different universities. I therefore endorse the National Union of Students proposal for a graduate tax.

Opponents of the graduate tax have raised objections. First, most high-earning graduates would probably have to pay more than they would have paid in tuition fees. This is true but this is precisely the point of the graduate tax proposal: to shift some of the balance of graduate contributions from lower to higher earners; it's a tax, not a fee.

Second, and related to this, it is thought by some people to be unfair to ask graduates to pay a special tax for the rest of their lives. But there is no reason why there should not be a time limit on payments, such as the 25-year limit for the repayment of tuition fees.

Third, universities understandably want the contributions of their own graduates to be ring-fenced and independent of government interference. A hard-pressed government, however, might be tempted to claw back some fee revenue by reducing its annual grants to universities, particularly if a shortfall in the predicted repayments of student debts was shifting the funding problem back onto the taxpayer.

Last but not least, it is assumed that universities would lose out because the proceeds of a graduate tax would be lower than the revenue from tuition fees. On the contrary, I predict that, for a few years after its introduction, while genuine graduate-level jobs are in short supply, a graduate tax of 2% on taxable income would yield more revenue than the repayment of tuition fees at 9% of incomes over £15,000.

New graduates earning less than £15,000 will pay nothing under the fees system but would pay modest amounts under a graduate tax. In the medium term (perhaps five to10 years) as employment recovers the Treasury might lose revenue, but in the long term a graduate tax could generate more revenue and would bring about a progressive redistribution of the burden from lower-paid to higher-earning graduates.

It would halt the further marketisation of higher education and it would decouple tuition costs from personal debt with all its recent unfavourable connotations.

* Lawrence Lockhart is an educational economist and former teacher. He is one of the organisers of Gap Year Fairs - a voluntary organisation offering free and impartial advice on a gap year between leaving school or college and moving to university or other training and employment.

Gap Year Fairs is available to schools and colleges in the UK West Country, and to their students and parents. The three unpaid senior partners work with university students who have previously undertaken overseas volunteering. They encourage young people to raise the money themselves for whatever they undertake in their gap year, to travel widely overseas, and to engage for at least a few months in volunteering and career experience activities. Founded in 1996, the organisation covers expenses through sponsorship and voluntary contributions.

Comment:
A super article. I suggest the author writes an article on 'The Great British Con' (or 'Great English Con') appropriate for the Times Higher Education or Guardian, or, better still, a tabloid newspaper.

George Brown,
University of Nottingham

COMMENT:

A most interesting article. As I started in 1997 I had the old mortgage style loans and then a new style loan for a Post-Graduate Certificate in Education (PGCE). My husband has only the new style loans. He earns £20k a year four years after graduating, and each year does not pay off enough to reduce his overall debt. In addition, we are penalised as mature students as we now earn too much for Working Families' Tax Credit (WFTC) and have to contribute to our children's higher education costs, yet our repayments to the Student Loan Company are not taken away from our income before calcualtions are made. As I work in higher education on a short-term contract that the cuts are likely to ensure is not renewed, I think that the "higher education is worth the sacrifice" lie needs busting. I am not encouraging my three younger children to go, as I do not think they will get a good enough job as a result. Tell the kids to boycott higher education and maybe then the Government will listen, but all the while middle class parents see it as cheap then there will be a ready supply of students.

Carolyn Downs