Reform to graduate repayments could be more progressive than scrapping fees

Who should pay for higher education in England? Labour has reopened this question – which is welcome because the issues are complex, not simple. Our answers reveal not only the value that we put on a university education, but also the kind of society that we want to be.

I will not try to pick through all the complexities here. Instead, I want to do a bit of myth-busting, before saying what I think Labour should do.

• Myth #1 is that students pay £9,250 a year for tuition. In reality they pay nothing. Higher education is free at the point of access. It does, however, create a lot of personal debt. Other than taking out a mortgage, it’s the biggest lifetime borrowing commitment that a student is likely to make.
• Myth #2 is that the loans must always be repaid. The repayments are structured more like a graduate tax than loan repayments. Graduates who earn more than £27,295 a year pay 9% of their salary above the threshold. When earning less than £27,295 a year, they pay nothing. The whole loan is written off after thirty years (or forty years for students joining degree courses after August 2023).
• Myth #3 is that the system can be made fairer by reducing fees (for example, to the £6,000 proposed by Labour in 2015). This, in fact, would disproportionately benefit higher-earning graduates, who should expect to pay back the entire loan plus interest before it is written off, and therefore have most to gain if the debt is lower. Reducing the size of the loan can be a surprisingly regressive move.

Replacing the system risks unintended consequences

The real problems are in the detail. Recent changes to the terms and conditions have lessened the government’s exposure to unpaid debt. But the way these changes are structured – increasing the term length while lowering the threshold to £25,000 and decreasing the rate of interest – will disproportionately benefit high-earning graduates at the expense of low earners. Meanwhile, the fee itself has been frozen at £9,250 since 2017. Higher education providers have less and less in real terms to spend on the student experience. Some report that the cost of undergraduate education is now more than the fee paid.

It is tempting to say that the system is broken and must be replaced with something else. Labour’s 2017 and 2019 manifestos, for example, proposed to do away with fees altogether. But any change may have unintended consequences. Direct funding – whether through general taxation or a graduate tax – puts higher education in a position where it must compete with other spending priorities. This can lead to further depreciation in the unit of resource, and therefore the amount that providers can spend on students. The Treasury would also seek to control the cost by introducing a cap on student numbers, such as there is in Scotland. Universities could become more selective, limiting the chances of students from low-participation backgrounds.

Three ways Labour could improve tuition fees

An alternative is to reform the current system so that higher education is properly funded and graduates (who pay for it) are treated fairly. Labour should do three things:

• Increase the fee with inflation. This would disadvantage none but the higher earning graduates, for reasons given above (Myth #3). It would benefit all students by increasing the amount that higher education providers can spend on them.
• Reform the terms and conditions of repayment so that only graduates who can afford it make a contribution, and only a top bracket of earners repay their fees in full.
• Change the rhetoric around fees. The current model, really a graduate contribution system, was introduced to the public as ‘full fees’ paid by students. The result is a commodification of undergraduate education, which does little to improve quality and standards.

The problem with these moves – or certainly the first two – is that they are hard to sell. Changes to terms and conditions make for poor manifesto pledges.

Labour should follow Wales in reviving maintenance grants

Labour needs a big idea that will both help students and capture the public imagination.

Luckily, a big idea is available, and has been implemented in Wales by a Labour-led government: the reintroduction of maintenance grants for students.

There is the question of whether these should be universal or means-tested grants, or (as in Wales) a combination of the two; also, whether maintenance grants can be supplemented with maintenance loans. Means-tested maintenance grants appear to be the preferred option of the Labour leadership.

All of which must be paid for, and a government must make choices. But this is precisely where the conversation should be. How a government answers the funding question – where the burden falls between graduates and broader society – tells us something about the value we place on higher education.