This is the week when college begins for many students. It is the largest annual movement of young people across Britain. And exceptionally, it is often a migration to the North because our universities are spread across the country. For many young people in the South East, this is the first and perhaps the only opportunity to live in York, Newcastle, Lancaster or Manchester.
Hope they have a good time. It puts them on the path to higher income and a better life. It replaced military service as the main route to adulthood.
But it is not a priority for public spending. Higher education always loses out against schools. And now ministers are rightly focusing on 16-18 year olds, many of whom are in FE colleges. And this spending cycle brings new pressures to save on higher education.
Graduates earn more than non-graduates (£ 28,000 vs. £ 21,500 just in their twenties). It is therefore fair to expect graduates to reimburse so that their higher education is not funded by taxpayers who earn less than them. When the German Social Democrats proposed public funding for university education, it was Karl Marx who said: “[If] higher education institutions are also “free”, which in effect only means defraying the cost of educating the bourgeoisie out of general tax revenues.
Karl Marx was right.
Indeed, the number of students from low-income backgrounds has increased over the decade since we introduced the £ 9,000 fee. While higher education is financed by public spending, governments control spending by rationing places. This is what they do in Scotland. Our system is essentially a refundable higher education check, refundable when your income exceeds a certain threshold.
Teachers hate it when I say that students are consumers. Students are not just consumers, but this funding model empowers them – they can say that they are bringing money to finance their education and that they are entitled to their money.
But the system I helped set up doesn’t work as it should anymore. We expected that only a quarter of loans would be written off by taxpayers when initially designed. From now on, more than half will be written off. It’s too high.
The main reason is that the repayment threshold has been increased to over £ 27,000. We should bring it down to £ 21,000, that’s where we’ve set it in the Coalition. Under Labor it was £ 15,000. For every £ 1,000 of their income above the threshold, a graduate pays back 9%, or £ 7.50 per month. During my term as an MP, I never had a graduate who complained about his repayments.
This means that students will know that they will probably have to reimburse the cost of their studies and a good thing too. This realism should inform their decision whether or not to apply to university. An informed choice is far better than going back to Whitehall’s checks on student numbers.
The interest rate on the debt could also be reduced. This is probably the most hated feature of the system. But that’s only part of the real problem which is the terrible combination of low repayments due to the high threshold and then the high interest rate so that for too many graduates their debt is increasing every year. It is depressing for the graduates and their parents and politically toxic. Surveys show that graduates and their parents prefer to pay off their loans, even if they don’t look like business debts at all. Just lowering the threshold helps and if the interest rate can also be lowered that would be a bonus.
Young people benefit from a well-funded university education, with universities competing for students who have the right information to help them choose their education. Any other method of funding – graduate tax, general taxation – will see funds apparently intended for universities disappear on triple lock pensions, social care, or other seemingly more urgent priorities. Even with a lowering of the threshold, the system would remain fair and progressive in relation to funding by all taxpayers.
This scheme works for the long term interests of the younger generation. It is fair to ensure its sustainability by expecting graduates to pay back when they can afford it.
David Willetts was Minister of Universities and Science 2010-2014. Its brochure Boosting higher education while reducing public spending is published by HEPI tomorrow.