Analysis: Is a return to grants really the answer?

New Labour's student support system is under fire. It is already being overhauled in Scotland and Northern Ireland and there is intense pressure to reform it in the rest of the UK. Claire Sanders, Tony Tysome and Olga Wojtas look at what is going wrong and what should be done to solve it.

A 50-page Department for Education and Employment document, England and Wales Financial Support for Higher Education Students in 2001-2002 , sets out the complexities of the current student support system.

Students whose parents' residual income is less than £20,000 do not contribute towards fees, those whose parents' income is between £20,000 and £29,784 pay some and those whose parents' income is more than £29,784 pay the full fee of £1,075.

Living costs are covered through loans, grants for students (depending on circumstances), access bursaries and hardship funds. The government is also piloting "opportunity bursaries" of £2,000 in "Excellence in Cities" areas in England for young students from disadvantaged backgrounds.

Students are expected to start repaying their loans when their income reaches £10,000. Interest on the amount owed is linked to inflation.

Is the system working?

Last December, a DFEE-funded report, Changing Student Finances , by Claire Callender and Martin Kemp, showed that in 1998-99 earnings and borrowings accounted for 45 per cent of income for students aged under 26 -up from 10 per cent ten years ago.

Students from the poorest homes were most likely to take out a loan and to have the largest loan debts -despite being the most averse to being in debt. Mature students and lone parents faced particular hardship.

"My fundamental concern is that the current system of student support works against widening participation," said Professor Callender of South Bank University.

The government pointed out that students had access to more sources of funding and immediately brought in measures to help lone parents.

The jury is still out on how the system is working. Last month, Universities UK published Sir William Taylor's New Directions for Higher Education Funding , which proposed four models for funding the sector -all of which would radically alter the current system of student support.

But UUK has yet to look at student support in isolation. It has funded Professor Callender and a team at the Open University led by John Brennan to establish how far debt is a disincentive to access and to look at its impact on retention, progression and performance.

Diana Green, vice-chancellor of Sheffield Hallam University, a member of the UUK funding options review group and chairwoman of the steering group of the UUK student-debt study, said: "We don't yet have the systematic data on which groups are the worst affected by debt, but we do have anecdotal evidence.

"Geography, social class and whether a student is able to live and study at home are almost certainly factors."

Evan Harris, Liberal Democrat spokesman on higher education, said that the evidence base was there. "Professor Callender's research showed that 61 per cent of full-time students agreed with the statement 'changes to student support have deterred some of my friends from coming to university'.

"That percentage rose for poorer social groups. Mature student numbers have definitely fallen, and the percentage applying and getting in from lower social groups has not risen."

The government says that the percentage of poorer students in higher education is not falling and argues that the fall in full-time mature students -about 8 per cent since the current funding system was introduced -has been offset in part by a 5 per cent rise in part-time mature students.

Maggie Woodrow, chairwoman of the European Access Network based at Westminster University, is not impressed. "On low-income groups, it is not enough for the government to say that the situation has remained static."

She pointed out to the education select committee of MPs that mature students from low socio-economic groups suffered the most.

Dr Harris said that the most effective measure to help alleviate student poverty would be the restoration of a means-tested, or targeted, grant.

The National Union of Students has long been calling for this. NUS president Owain James said: "The stress is now on targeted grants, or bursaries, in line with the Cubie proposals in Scotland. This is to get away from the idea that we want the reintroduction of some sort of middle-class subsidy."

Modelling themselves on Cubie, the NUS estimates that for England and Wales it would cost £598 million for:

• Grants (bursaries) of half the level of the average student's costs for those from low-income families
• More widely available access bursaries
• More bursaries for mature students Overall, they cost a Cubie-style system for England and Wales at £674 million.

Professor Green pointed to the loss of the grant as a key problem. "The introduction of tuition fees is not the cause of the growing problem of debt. About 50 per cent of full-time students do not pay the full contribution... what seems to have really increased the problem of debt is the abolition of maintenance grants and the introduction of loans."

Professor Woodrow said: "When the education select committee reported on access last month, they ignored student poverty as a barrier to wider participation."

The committee will soon report on student retention. Professor Woodrow said the reintroduction of maintenance grants could make a key difference. "Maintenance grants were criticised in the past because they did not lead to a great increase in students from low-income families.

"However, at that time, the institutions did not have the money -and in some cases the will - to go out and attract poorer students... If grants were properly targeted, they would be affordable."

Professor Callender agreed: "There has to be a two-pronged attack: strategies for widening participation and more money for the students."

Nick Barr, lecturer in economics at the London School of Economics, argues that a 6 per cent rate of interest on student loans would make £400 million available annually for grants and scholarships for "those for whom access is most fragile".

A paper on higher education funding, student financial support and access by a Liberal Democrat advisory group also concludes that "the best way to improve student support would be the restoration of some form of support grant".

The group, which includes Gillian Slater, vice-chancellor of Bournemouth University (acting in a personal capacity), Professor Woodrow and Malcolm Keight of the Association of University Teachers, as well as a number of Liberal Democrat MPs, calls for a means-tested support grant along the lines of the Scottish Executive model.

It also calls for the abolition of the student contribution to tuition fees and the introduction of a graduate endowment along the lines of the £2,000 payable by Scottish students. Repayments for student loans should not start until students are earning £13,000, with the proportion of income kept at 9 per cent as at present and with the interest rate raised to 4 per cent. The increased interest rate would absorb the cost of raising the threshold.

Professor Callender said: "Our research showed that 10 per cent of students took out loans as a tax advantage. However, I would be extremely concerned at a higher rate of interest as it is poorer students that currently have the highest loans."

Existing Liberal Democrat policy recommends the restoration of housing benefit for students throughout the first year in the first Parliament and the restoration of income support throughout the year as a long-term aim.

The advisory group concluded that the support package it outlines is adequate to tackle student hardship without the need to restore full benefit entitlement.

This view was shared by Andrew Cubie, who also made only limited recommendations on benefits entitlements. Instead, the advisory group says that restoring benefit entitlement during the summer holiday period and amending the loan entitlement would increase minimum student income by £8.37 a week. The paper puts the cost at £39 million.

The overall cost of the recommendations in the Liberal Democrat paper is £681 million, with money coming from extra income tax.

But would the government consider the reintroduction of a means-tested grant?

A spokesperson for the DFEE said: "The government believes that the current system of student loans is working well and is targeting funds through access and hardship funds and the opportunity bursaries."

Wales
Wales is seeking a unique solution to its student hardship problems, which could involve creating a new means-tested maintenance grants system.

Student union leaders, who launched their "grants not fees" campaign with rallies on St David's day last week, said they had the backing of Liberal Democrat politicians in the Welsh Assembly to in effect turn access funds into centrally regulated grants.

This is the kind of outcome NUS Wales says it wants from the assembly's student hardship inquiry, which has just begun work alongside a Dearing-style inquiry into Welsh higher education.

The inquiry, which is expected to conclude in May, is headed by Teresa Rees, professor of social sciences at Cardiff University. "We have a lot of evidence-gathering to do. Whatever recommendations we come up with will have to fall within the powers of the Welsh Assembly, which cannot pass primary legislation. If it wanted to make significant changes, it would have to negotiate with Westminster," she said.

Simon Wright, former Dearing committee member and now assembly officer for Higher Education Wales, the organisation representing Welsh vice-chancellors and principals, anticipated two sets of recommendations from the hardship inquiry.

"They will probably have one set dealing with the situation as it is now, and another dealing with the question of tuition fees and possibly offering more radical solutions."

According to Craig Owen, president of NUS Wales, the assembly has already taken significant steps towards a solution, by almost tripling access funds since it came to power. The next logical step was to give the Higher Education Funding Council for Wales the job of regulating use of the funds, he said.

"Ideally, students should be able to apply for access funds and know what they will be getting before they arrive at an institution. We could effectively create a new means-tested grants system using the access money.

"All students should be entitled to a minimum support package, made up of grants and loans. The poorer students should then get a bigger grant element," he said.

NUS Wales says many Welsh students are worse off than their English counterparts because they come from poorer families and because part-time and vacation jobs are hard to come by.

Scotland
The finances of many Scottish students are set to improve with the introduction next year of a range of targeted bursaries and allowances. Tuition fees have already been abolished for the current academic year.

But Labour cannot take the credit for these concessions. A review of student finance north of the border was the price it had to pay for a coalition with the Liberal Democrats in the Scottish Parliament.

The independent Cubie committee concluded that the system of repayable loans for full-time higher education students did not target resources effectively. It deterred applicants from low-income backgrounds who had an aversion to debt, it expected too much from low to middle-income parents, and too little from better-off parents.

The committee produced 52 recommendations aimed at promoting equality and wider access. Key to this was reversing the "unwise" decision to introduce tuition fees.

Cubie's proposed shake-up called for an increase in student support levels. The committee estimated that Scottish students living away from home needed £4,100 for essentials, excluding entertainment, travel outside study and tuition fees.

No parent or spouse earning less than £23,000 should have to contribute: the poorest students should get up to half of the support package as a non-repayable bursary, with the rest available as a loan. But the richest families, with a combined residual income more than £47,000, should not have access to loans.

Cubie argued that once graduates had obviously benefited from their higher education, earning more than £25,000, they should contribute £3,075 to a graduate endowment scheme.

Mandy Telford, president of NUS Scotland, said: "We are calling for the full implementation of the Cubie report."

But that battle continues. As with Dearing, politicians cherry-picked the proposals, which were intended as a seamless whole. Tuition fees have been abolished for Scottish students in Scottish universities. In the coming year, young students will be entitled to a maximum non-repayable grant of £2,000 if their family income is below £10,000. This tapers down to zero for incomes of £25,800.

The maximum support available through the bursary and loan will be £4,315 for students living away from home. But while loans are means tested, all students will be entitled to at least £500, regardless of family income.

Most controversial are the Scottish Executive's proposals for the graduate endowment, currently going through the Scottish Parliament. The executive has reduced contributions to £2,000, but has added these to student loan repayments, which kick in once graduates earn £10,000.

This proposal is under attack on two fronts: some critics say £10,000 is too low a threshold to indicate benefit from higher education. There is also some opposition to the principle of the endowment, which is condemned as a "graduate tax".

A shortfall in university funding was one of the key fears over the abolition of fees. But the equivalent amount per student, totalling £25.5 million, is now paid directly to institutions from the Student Awards Agency for Scotland.

Northern Ireland
The Northern Ireland Assembly's further and higher education committee last year produced a radical plan to improve the lot of students, built on Scotland's Cubie proposals.

This included: axeing tuition fees; means-tested, non-repayable grants; and maximum loans for those whose family income was less than £23,000. The committee also said graduates should earn at least £25,000 before being liable for student endowment contributions, and at least £20,000 before they had to repay student loans.

But this was watered down by higher and further education minister Sean Farren, who has refused to abolish tuition fees.

But his plans, expected to be ratified shortly, would raise the residual income threshold for fee payments from £17,800 to £20,000.

Students from low-income families are expected to be able to apply for means-tested grants of up to £1,500 from autumn 2002, and there will be childcare awards for low-income mature students.

Peter O'Neill, manager of the National Union of Students-Union of Students in Ireland, said: "We are pleased that the government has accepted our demand that maintenance support is required to promote participation in third-level education for disadvantaged sections of our community."