What’s the best way of funding higher education?

A group of university students in a brightly-lit room studying.

How much does university cost?

Imagine you are a bright-eyed graduate, straight out of university, and you manage to get yourself a graduate-level job. You work hard, but you’re paid what you think is reasonably well: £26,000 a year. This is actually well above the average of between £18,000 and £23,000, so well done you. This means that every month after tax, a pretty decent £1,737 is deposited right into your bank account. But now think for a minute: you have roughly £50,000 worth of student debt to repay. That’s a lot of money! That’s all of your tuition fee debt and your maintenance loan combined, and you will pay that off for most of your working life. You’ve also heard that the interest rate on this sum is eye-watering, at 6.3%. Now, how much do you think you’ll have to pay back each month? £1,737 sounds like a lot but how much do you think you’ll have to bear? Most year 12 and year 13 students often give numbers from £50 to £200, but the reality is very different. Drum roll please…

£7.50.

That’s all you’ll pay per month, which is less than a standard Netflix subscription, and much less than you are likely to be paying for your mobile phone contract. This amount does go up depending on how much you earn, but it is never more than 9% of your earnings AFTER £25,000. Oh, and whatever you have left to pay is wiped away after 30 years. That, ladies and gentlemen, is the current situation for paying student debt. You can decide for yourself if that sounds good, bad, or if you’re largely indifferent. It’s not perfect – most people will not pay this back in their lifetime. Plus, that initial £50,000 figure is very high, and no doubt has given young people pause when they are considering higher education. But, when weighed against the other options, it can be argued it’s the best of imperfect ideas.

The alternatives? State funded higher education, which would cost roughly £11 billion funded either through general taxation or through what is sometimes called a “graduate tax”, which graduates pay having benefited from the system. These options, however, come with significant drawbacks.

Could we fund higher education through general taxation?

Let’s take the idea of higher-funded higher education through general taxation. This actually appeared in Labour’s manifesto of 2017, much talked about in glowing terms by its proponents; why shouldn’t higher education be free to attend? There is the obvious argument that those who don’t benefit from higher education shouldn’t be expected to pay for those that did through general taxation. This is easily countered: name me one person who hasn’t benefited from higher education in some way indirectly (such as through technology, basic infrastructure developed/maintained by graduates etc.) and I will happily grant them an exemption from paying for higher education. No, the main problem with this idea is the prospect of student caps.

Prior to tuition fees being introduced, education was entirely state-funded from general taxation, and to prevent runaway costs and to keep the system stable, numbers of students were capped. It follows that to go to back to this model, student numbers would need to be capped again (as they are in Scotland, where tution fees do not exist). Who will lose out under this model? I guarantee you it will not be the children of affluent middle class parents – that’s just not how this works. If you introduce caps, you will disproportionately affect students from non-traditional backgrounds, undoing the significant increase in the number of young people from this group who have been able to go to university. You might think an introduction of a quota would alleviate this, but it would still lead to a decrease in the number of these students.

You can actually see this in practice when you compare Scotland and England in terms of their participation rates. According to a report released in 2016, Access in Scotland, despite a significant rise across the UK in the number of university students from poorer backgrounds and overall (49% of young people now attend university in some form before the age of 30), younger people in Scotland from poorer backgrounds are four times less likely than their peers in England to attend university. While the introduction of tuition fees saw a steep rise in university attendance in England, participation in Scotland has not increased anywhere near as much, mainly because places in Scotland are capped. And who gets most out of those places? The children of the affluent middle class.

You also have to understand that when fees were raised to this high level, it came with certain caveats, namely that universities had to spend a significant amount of their income on widening participation (WP) initiatives to reach this specific group, and to a great extent this has had an effect on the number of such students in higher education. This was done through what is called an Access Agreement, which universities have to have in order to charge £6,000, nevermind the current going rate of £9,250. If you remove this level of funding, then that likely goes away. In addition to this, it’s also worth bearing in mind the thresholds of repayment mentioned above. It’s why the policy was described as a bribe to the middle class, because it wasn’t the bright children of working class families that would benefit most – any decrease in the amount students have to pay back disproportionately benefits the most well off, as they will pay back less quicker, while the lowest earners who will likely never pay it off do not benefit. The current system, while very far from perfect, actually tries to benefit the poorest earners from non-traditional backgrounds. It might not always succeed (there are barriers to university aside from the tuition fees), but slowly but surely it is working.

Would a graduate tax work?

But what about funding it through a specific tax on graduates? Well, that might be a good idea, though you might be hard pressed to see how it would differ from the current system, except perhaps that it would not be written off after 30 years. Depending on how it would be graded and implemented, it might mean that those poorer students pay more than they do now. Remember: the more you earn the more you pay, and if you never earn over the threshold you never pay anything back. In effect, higher education is already subsidised by the state, and in this way it is actually quite progressive in that those who benefit most out of it pay the most towards it. There is also the difficulty of how to deal with international students – they can’t be taxed in the same way that home students can, and the need to treat EU students under the same regime as home students complicates matters significantly. The whole student finance system would essentially need to be reworked, and it’s not clear that the current system isn’t working.

There are obviously some issues – there always will be. The issues around value for money are real, and you can argue there are significant problems with the interest rate that’s charged on student debt. The fact that the majority won’t pay their student loan back might also be a problem, unless you simply accept that even under this system where students pay for their education, it’s still fundamentally state supported. There’s also clearly more to do around access to higher education; while there has been a big increase in the number of students from non-traditional backgrounds, they are still very much the minority, especially in the more “elite” institutions. There are lots of other issues I haven’t even touched on, such as whether this rise in students is automatically a good thing, or whether universities are too much of a focus in the UK, or whether universities doing all they can to attract students and essentially act like businesses leads to some poor practices. There are also other barriers to entry – what about living costs, social capital, basic knowledge about university? Any number of things can affect whether young people will go to university. But, on balance, maybe this is the best funding system of a number of flawed options. What do you think?

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Adam Taylor

Adam works in the higher education sector and commentates on policy and current affairs.

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