Tuition fee regime is no longer progressive, says IFS

Universities in England are receiving 25% more funding per student per degree than they did before funding reforms in 2012.

But the current combination of high fees and large student maintenance loans is contributing to English graduates having the highest student debts in the developed world – and is leaving poorer students with debts one-third higher than richer students.

The full scale of the impact of the 2012 tripling of the cap on university tuition fees and 2016 abolition of student maintenance grants is revealed in a new analysis by the Institute for Fiscal Studies or IFS.

The Labour Party seized on the findings as showing that the argument that the fee system is progressive is “absolute nonsense”.

The party came within 2% of the Conservatives in the share of votes in the general election last month, picking up significant support in university constituencies after including a pledge to abolish tuition fees in its manifesto, and is sensing increased support across parties for a change of policy.

Gordon Marsden MP, shadow education minister, said: “After Labour pledged to scrap tuition fees, the First Secretary of State has called for a national debate on tuition fees, and he is right to do so. The government must decide if they want to carry on funding our higher education system through a lifetime of debt and a tax on aspiration, or deliver a debt-free education system run for the many, not the few.”

But Universities and Science Minister Jo Johnson said tuition fees will stay, arguing that the system is “fair” and scrapping them would be “mind-bogglingly expensive”.

The IFS report shows that students from the poorest 40% of families will graduate with largest debts: around £57,000 (US$73,800) on average, compared with around £43,000 (US$55,600) for students from the richest 30% of families.

This pattern was not a feature of the previous tuition fee regime before 2012, where debt was broadly flat across parental earnings distribution, the IFS reported.

But under the 2017 system average debt on graduation is just over £50,000 (US$64,700).

“This is more than double the average debt students would have been set to face had the system remained unchanged from 2011,” the IFS report says. “The vast majority of this difference is explained by the large increase in tuition fees in 2012, which increased average debt to more than £47,000.”

But that increase in average debt is driven almost entirely by the increase in maintenance loans available for poorer students, following the 2016 removal of maintenance grants, the report says.

This has resulted in students from the poorest backgrounds graduating on average with debts one-third higher than students from the richest 30% of families.

Another factor adding to graduate debt is increased interest rates, which previously were linked directly to changes in the retail price index or RPI, but since 2012 have been raised to RPI+3%. For the average student this means the amount of interest built up during study rose £1,500 in 2011 to £5,400 after the tripling of fees in 2012 and to £5,800 in 2017 after the increase in maintenance debt.

Due to their higher principal debt, students from poorer households accrue the most interest during study, with students from the poorest 40% of families accruing around £6,500.

Commenting on the IFS analysis, Sarah Stevens, head of policy at the Russell Group, which represents 24 leading research universities, said: “High-quality higher education needs proper funding to be sustainable. Investment from increased undergraduate fees has been crucial to universities at a time when government teaching grants have been cut and other budgets are being stretched.”

But she added: “Higher education should also be affordable for students and it may be helpful for the government to consider how to address concerns over things like the interest rate applied to undergraduate loans.”

More cash up front for students

Under the 2012 reforms students from the poorest families received between £800 and £1,200 more per year in up-front support than previously. This was driven mostly by the increases in maintenance grants and loans (due to the tripling of fee prices) for these students, and the introduction of the National Scholarship Programme.

The system in 2017 provides the poorest students with a slightly higher level of cash in their pocket in real terms than the 2012 system, due to maintenance grants being scrapped in 2016 with their value more than replaced by a corresponding increase in maintenance loans for the poorest students.

However, this increase was offset by the gradual phasing out of the National Scholarship Programme, which brought average bursaries for the poorest students back to close to the levels seen in 2011, the IFS said.

The key difference now, however, is that only around 10% of that cash is provided in grants, rather than loans, compared with more than 50% under the 2011 and 2012 systems.

Now just £650 for students with grades AAB at A-level and £1,600 for students with grades AAB+ on average is available in non-repayable cash support for students from low-income households.

“It is difficult to know whether this decline has yet had an impact on participation,” the IFS said.

Poorer students no better off than 2011

The IFS said that while the 2012 reforms and later changes have significantly increased students’ average levels of debt on graduation, higher debt levels do not necessarily translate into higher graduate repayments, as work by Crawford and Jin had shown in 2014.

They demonstrated that the 2012 reforms actually reduced total repayments from the bottom 30% of graduates, because the reforms significantly increased the threshold at which individuals start to make repayments.

There is a distinction between debt levels and repayments because any outstanding debt is written off at the end of the repayment period – which was set at 30 years after graduation under the 2012 and 2017 systems, up from 25 years after graduation under the 2011 system. The IFS calculates that under the current system more than three in four students can expect to have some debt written off, up from around two in five under the 2011 system.

On average graduates will repay £48,000 under the 2017 system, more than twice the amount they would have paid under the 2011 system. The 2012 reforms, tripling the fee cap, increased that figure by more than £20,000 on average, and the 2016 reforms increased the figure by a further £5,000 on average.

The average figures mask some key variations, however.

“The 2012 reform dramatically increased the progressivity of the system, by reducing payments from graduates from the bottom 30% of the lifetime earnings distribution while significantly increasing payments from the highest-earning graduates.

“Conversely, changes since 2012 have increased average repayment at all levels of earnings. Consequently, graduates from the bottom 30% are now no better off than they would have been had they faced the 2011 system,” the IFS report says.

Increased resources for universities

The 2012 reform increased the total level of resources universities receive per student per degree by around 25% from £22,500 to £28,000 in 2017 prices. This was due to the increase in tuition fee income exceeding the loss in teaching grant income.

The falling real value of the fee cap since 2012 has been offset by increasingly more universities charging the maximum possible fees and by reductions in fee waivers and bursaries, IFS reported.

Thus universities in England have moved from relying entirely on teaching grants for university teaching income per student in the early 1990s to now receiving most of their teaching income per student through fees.

Another new trend identified in funding is the change in share of teaching grant funding and tuition fee funding of different subjects.

While the political focus has been on supporting STEM – science, technology, engineering and mathematics – subjects, IFS figures show that funding for costly courses in the clinical stages of medicine and dentistry rose by 6% from 2012 to 2017, funding for subjects with laboratory or fieldwork elements rose by 19%-27%, but funding for all other – presumably less costly – subjects rose by 47%.

This has not yet had a clear effect on student number shares for each group of subjects but it “might have an important effect in future”, IFS says, “particularly if universities have been slow to adjust to changes”.

“While universities may be deciding to reallocate funds to cross-subsidise subjects, these funding changes appear to be at odds with the government’s intention to promote typically high-cost STEM subjects,” IFS concluded.

COMMENT

It is basic class warfare.

Christopher MacHurambe on the University World News Facebook page