IFS’ English loans report ‘builds pressure to cut tuition fees’

Treasury officials will find it harder to ignore the deficit pressures caused by subsidising lower-earning creative arts students after analysis, researcher argues

March 6, 2019
Painting of dollar signs
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Some subject areas cost more in terms of student loan write-offs

Analysis that highlights how more public money is spent on creative arts students than those taking subjects such as engineering could increase pressure to cut England’s tuition fees in the post-18 review, according to one of its authors.

In a report published on 6 March, the influential Institute for Fiscal Studies outlines for the first time how much students in each subject group are costing the Treasury in terms of student loan write-offs. With the government's review of post-18 education – whose panel is led by banker Philip Augar and is thought likely to recommend a fee cut – ongoing, the report is likely to draw further significant criticism of England’s £9,250 tuition fees system and how it channels higher education funding.

Universities fear that the Treasury would not adequately replace lost fee income with public money – and that a drastic cut in their funding would result.

The IFS report also highlights how different types of institution have fared since fees were trebled and direct public funding was slashed in 2012. At Russell Group universities, government spending per borrower is about £6,000 lower under the new system than in 2011, while it increased for post-1992 institutions and other groups by £2,000 per borrower.

In terms of subsidy across subject areas, the IFS study shows that creative arts students who take out full tuition fee and living cost loans will, for example, cost the Treasury roughly £37,000 each because of their lower-than-average lifetime earnings – about £10,000 more than an engineering student.

Meanwhile, economics students will cost the Exchequer £11,000 each on average.

These write-offs for creative arts students will, in future, add about £1.2 billion a year to the government deficit following a recent Office for National Statistics review of the treatment of student loans, up from £25 million under the old accounting treatment, the IFS report states. In comparison, only about £500 million will be spent on engineering and £800 million on social sciences after the ONS revision.

Lowering the fee cap from £9,250 to £6,000 could save the Treasury about £7,000 per borrower, with most of the savings coming from lower-earning subjects, the IFS says. That would allow the government to target priority subject areas more directly via grants, rather than see subsidies follow student demand, the report suggests.

Jack Britton, senior research economist at the IFS, who co-authored the study with Chris Belfield, Laura van der Erve and Neil Shephard, said that the report highlighted a “relatively badly understood area of the reforms since 2011”. Thanks to these changes, the subsidy to creative arts degrees has increased by £6,000 per student, while it has decreased by £9,000 per student for engineering degrees, the IFS says.

“Our report highlights some of the unintended consequences of those reforms which have hugely benefited certain areas – and I’m not sure the distribution [of subsidy] is what many would want,” said Dr Britton.

With the Treasury aware of the deficit pressures of student loan write-offs in certain subjects, it may seek to make savings in the upcoming Spending Review, he added, predicting that the report will “raise questions about whether the current spending is an appropriate use of government money”.

Reducing tuition fees significantly could “put several universities at risk of failure”, while a “cut in fees for non-STEM courses may unintentionally reduce the amount spent on the more-expensive-to-teach science courses”, the report warns.

Andy Westwood, professor of government practice at the University of Manchester, said the report was significant as “many choices before Augar and Treasury, especially after ONS reclassification of student loans, amount to choices between subsidies”.

Nick Hillman, director of the Higher Education Policy Institute, said that the IFS’ analysis was a “welcome report filling in some of our gaps in knowledge”, but it is also "extremely tentative because the numbers are based on heroic assumptions on things like future earnings”.

He added that it “obsesses about the loan write-off costs, which fall on taxpayers, but ignores the extra tax and extra economic growth produced by the UK having more well-educated graduates”.

Meanwhile, The Sunday Telegraph reported that the post-18 review panel is set to recommend blocking student loan access to those with three D-grades at A level or worse – a move that has been mooted before, and which universities minister Chris Skidmore again publicly opposed after publication of the story.

jack.grove@timeshighereducation.com

POSTSCRIPT:

Print headline: IFS loans report ‘builds pressure to lower UK fees’

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Reader's comments (3)

It seems the IfS, and probably others, have missed an important factor, engineering and the true sciences have much higher overheads that the course tuition fee’s alone cannot cover, only by using a percentage of fee monies from ‘cheaper to deliver’ courses such as the ‘arts’ and humanities can most not hugely endowed Universities continue to deliver those more expensive courses. The blindness to this may well lead to yet more engineering and true science courses and departments being cut if the humanities fee’s are capped at a lower level, the long term effects could/would be incredibly damaging to the country.
"...noting that in practice this may not reflect the true distribution of spending because universities are likely to cross-subsidise courses that are expensive to teach with courses that are relatively cheap to teach." The second paragraph of the IFS briefing note. https://www.ifs.org.uk/publications/13944
In the face of government indifference to education, perhaps it's time that universities began collectively to think outside of the model of funding by government-backed fees.... by creating an alternative to the Student Loan Company that provides affordable loans to students and which is run in a fiscally competent manner unlike the SLC. Finance isn't my specialism but I am sure those in that area could come up with something, if the full weight of the higher education sector backed the concept!

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