Cap fits, reform loan repayments instead

Tweaking the student-loan repayment system is a better way to raise funds than increasing tuition fees, new research suggests.

In a report published this week, Fair Funding for All, Million+, which represents newer universities, says that raising the tuition-fee cap to £7,225 annually would deter about 17,000 people a year from entering higher education.

The level of fees is among the issues being examined by a review of student funding, led by Lord Browne of Madingley, that is due to report after the election.

Million+ commissioned consultancy firm London Economics to model the effects of various funding scenarios, including raising the fees cap by £4,000.

It estimates that if all universities were to raise tuition fees by 20 per cent, demand for higher education would fall by 1 per cent. The Government would be worse off by £1.12 billion a year, mainly due to the increased costs of student support, and students would be £1.65 billion worse off, taking into account both higher fees and subsidies, the report says.

Million+ recommends changes to student-loan repayment arrangements as an alternative way to raise up to £1 billion.

The option to defer student-loan repayments should be abolished, it recommends, as this costs the Exchequer £20 for every £1,000 loaned.

The group also wants student loans written off after 35 years, rather than the current 25 years. "This would equalise graduate-repayment periods in England and Scotland, which has already adopted a 35-year repayment period," it says.

Finally, it suggests increasing the rate of interest on student loans to 2 per cent.

In combination, these changes would "support additional long-term investment of £1 billion and would be unlikely to affect participation", it says.

Part-time inclusion

Million+ is calling for existing levels of student support to be maintained and also made available to all part-time students studying 30 per cent or more of full-time courses. It calculates that this would cost an additional £158 million.

"This negative impact on the Exchequer could be removed - for example by the addition of just a 0.5 per cent increase in the rate levied on student loans," the report adds.

It pours cold water on a proposal included in early drafts of the Government's higher education framework to exempt students who live at home from tuition fees on the condition that they do not claim maintenance grants.

It says this would be "cost-neutral" unless the number of those studying at home increased, but would have unintended consequences for the academy. "It would introduce even greater complexity into the system and disadvantage students from the same household income according to where they chose or needed to study," it says.

Million+ concludes by warning the Government that it should not make a decision on whether to raise tuition fees before levels of public funding for higher education in 2010-11 are concrete.

"The Government, MPs and political parties need to make clear whether they accept the principles of fair funding for all, whether they will invest in higher education ... and what the relationship is between the investment that they are prepared to make and the contributions they expect graduates to repay," it says.

melanie.newman@tsleducation.com.