Six ways to make students pay

December 1, 2000

Six main funding models were developed and tested by London Economics, in a report on higher education funding, to see how they would effect universities' income.

All six models were tested to see how they would improve income at a typical institution in each of four university "families": research intensive with a medical school; research intensive without a medical school; mixed research-teaching; and teaching intensive.

The first three models examined options relating to upfront undergraduate tuition fees. They were:

* Increased upfront tuition fees for all students

* Increased fees for some subjects

* Removing the cap on contributions by extending the means test so that richer households pay fees up to the full cost of tuition.

Increasing the upfront fee to £2,000 a year would raise an extra £8.9 million for a typical institution with a medical school, £4.7 million for a research intensive university, £6.9 million for a mixed research-teaching institution and £8 million for a teaching intensive institution. The increase would raise an estimated £800 million a year for English higher education institutions.

Increasing fees to £2,000 a year for some courses and £3,000 for others would raise £11.8 million, £5.8 million, £9.7 million and £11.6 million respectively, an estimated total of £1.1 billion a year. The higher tuition fees could be charged for courses such as law, medicine, dentistry, business and computing science, graduates of which might expect higher lifetime earnings.

Removing the cap on upfront fees would raise an estimated £259 million for English higher education institutions. There are no estimates by type of institution in the LE report. The report says that, while the total additional sum likely to be generated is limited compared with the other two options, this option is attractive because it has a minimal impact on access for the poorest students.

The report then models three alternatives to upfront fees, in which the costs of higher education fall on graduates' future earnings rather than family income and savings prior to graduation. These are:

* An income-contingent contribution capped at a fixed percentage of the average cost of a course

* An income-contingent contribution that would see graduates of specific institutions undertaking to pay to that institution a fixed proportion of their income once it crosses a given threshold

* An uncapped income-contingent contribution that expires at a fixed age, effectively a graduate tax.

Repayments under a capped graduate contribution scheme, assuming a £2,000 annual tuition fee, a repayment rate of 9 per cent of income over a £15,000 repayment threshold and a market interest rate, would generate £690 million by 2010.

Graduates in an uncapped contribution scheme would repay perhaps 1 or 2 per cent of their income, over a given threshold, throughout their working lives. Thus, repayment over a £15,000 annual income threshold, at 2 per cent of income, would raise £820 million by 2010.

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