Among the various self-contradictions of social democracy with which new Labour has been confronted, none has been more sharply felt than in the field of higher education. The Government has had to reckon with the fact that the more students it wants, the less possible it is for them to get their education for free. Then there has been the slow realisation that even if half the population were to pass through university, that would not mean per se that access would spread beyond the middle class and bring benefit to the children of the poor. The state cannot on its own pay for the great numbers of graduates that the new service economy requires. Nor can universities, all competing for the best students, be expected to open the barriers and end social exclusion, for they do not have control of the perceptions of university education held by those social groups who have traditionally not sent their children into it.
All the developed and high-tech economies are wrestling with the same problems. Fees are anathema to many Western countries, though the former communist countries are less fervently resisting their introduction.
The Netherlands, Sweden, Australia and New Zealand have loan schemes.
Russia is confronting the question, and Hungary already has a system. Any society moving away from a fee-less system has to be prepared. Governments are well advised to keep an eye on public presentation, for this is an area where wily politicians can find easy political pickings - as in the UK - and panic the public about crippling student debt. Once disinformation sets in, it gets into the political fabric like a stain and people cannot be made to understand that students get loans while graduates repay debts.
In the UK, there has been a long slow progress from the grants-and-no-fees regime that peaked in the 1960s to the impending financial transformation envisaged in the 2004 Higher Education Act. One can trace the debate from the Conservative Government's White Paper and education reforms of 1987-88, the White Paper on student loans (1989), through to the Dearing report (1997), the Education Select Committee (2002) and ultimately the higher education White Paper and subsequent legislation of 2003-04. There has been a steady evolution of policy and a long journey of gradual political discovery.
Throughout this time, Nicholas Barr and the late Iain Crawford, both of the London School of Economics, have been writing, consulting and campaigning for innovation in this field of policy. This volume comprises their account of the development, together with the re-publication of much that they have written on the subject of loans-funded higher education over the past 20 years, mainly in response to the political debate. Meghnad Desai paraphrases Lincoln Steffens in his introduction to the book: "This is the book that launched a revolution." Barr and Crawford deserve much of the credit for coaxing Labour policymakers into accepting that higher education, unlike primary and secondary schooling, is a career choice and if free at delivery represents a regressive transfer of benefit. Graduates benefit society, but it is no longer acceptable (or fiscally feasible) for working-class wage earners to subsidise the university education given to children of the A, B and C1 social groups who are, disproportionately, the beneficiaries.
Throughout this multitude of writings, three arguments come to preoccupy Barr and Crawford. First, they say that variable fees would strengthen competition between institutions, thus fostering efficiency while bringing more resources to the sector. Second, they advance the case for a loan scheme for students, unskimped, generous enough to cover fees and all living costs (giving students decent and equitable chances at living independent lives, free of high-cost borrowing through banks and credit cards). But repayment has to be income contingent, paid by graduates alongside income tax and commencing only when salaries are large enough.
And repayment has to be based on interest rates that fully compensate the Government - not necessarily at commercial levels but unsubsidised. The authors' calculations show that even a small subsidy in interest rates lands the Government with a large bill and thus reduces greatly the amount available for spending by universities. Subsidised student loans (where repayments do not fully compensate the Government) allow the wealthier graduates to cease paying back earlier and do nothing to help graduates who enter lower-salary occupations. Third, the authors point out the absolute necessity for the Government to undertake active measures to promote access and provide grants and scholarships to students from poor backgrounds; children from parts of society where information about higher education is sparse and often wrong require extra personal and intellectual support, starting when they are still at school.
Barr and Crawford see higher education rather like a mortgage in reverse: a decision taken for personal benefit, supported and encouraged by the Government, but paid off according to the individual's means. Graduates will find it normal to pay taxes and insurance, home loans and now their student debt, by far the smallest of the three and self-extinguishing in their middle years.
The UK scheme, which starts in 2006, has benefited from much of Barr and Crawford's thinking. But as we now know, the £3,000 fee is too low to create a differential market in university places and repayment. Although it is income contingent, it does not fully compensate the Government for the cost of advancing the money; this year, of the £2.5 billion lent to students, £700 million will never come back (thus depriving the sector of much-needed cash). Because loans are so expensive, the Treasury rations them, thus injuring the people they are supposed to be helping.
Charging a lower-than-cost interest fails to help the graduate because his or her rate of repayment depends on the level of monthly salary - it merely helps better-off graduates in mid-career pay off their loans a year or two earlier.
Though much of this book is necessarily repetitive because it is a collection of materials derived from an unfolding public debate, it is fascinating to see how a well-framed set of arguments delivered at the right moment can shape policy. In this case, policymakers have evaded acceptance of the case and left much to be re-reformed at a later date.
Anthony Smith is president of Magdalen College, Oxford.
Financing Higher Education: Answers from the UK
Author - Nicholas Barr and Iain Crawford
Publisher - Routledge
Pages - 314
Price - £70.00 and £20.99
ISBN - 0 415 34620 7 and 34857 9