Student loan costs could take further toll on sector

Government may be forced to regulate if too many institutions charge maximum. Simon Baker writes

December 16, 2010

University teaching funding could be cut still further when the full public costs of the new system of student finance become clear, it has been warned.

The government could also be forced to use further controls to prevent a scenario in which too many universities charge the maximum fee of £9,000 and the cost of the system spirals out of control.

The predictions were made this week by vice-chancellors and analysts after MPs voted to treble the undergraduate tuition fee cap against a backdrop of street violence and political rebellion.

After a heated debate in the House of Commons, and some of the worst clashes between police and protesters since the poll tax riots 20 years ago, the measure was passed by 21 votes with the same number of Liberal Democrats opposing the coalition government.

The divisions were mirrored in universities up and down the country, with vice-chancellors divided on whether or not to back the proposals as students at many of their institutions continued occupations.

Following the rubber-stamping of the tuition fee hike by the House of Lords this week, attention is now turning to how much universities will charge. Many experts warn that if the average fee tends towards £9,000, the government will be forced to take action because of the huge cost of funding student loans.

Writing in THE this week, Sir Peter Scott, vice-chancellor of Kingston University, says market forces would not drive down fees.

"If the government wants to restrict the £9,000 fee to a few 'top' universities, it will have to take powers to do so," he writes, adding that more direct public funding could be at risk if the government's predictions are wrong.

He says it is likely that a "cartel" of universities will charge the maximum, with only "limited" competition on the edges.

Sir Peter's views on extra powers were echoed by Bahram Bekhradnia, director of the Higher Education Policy Institute, who said the cost of the policy had been calculated assuming average fees of £7,500.

"If as many as we think charge closer to £9,000, then this will have a severe impact, and I would expect the government to act to keep the cost down by imposing some control over who may charge the maximum amount," he said.

The cost to the taxpayer has come under further scrutiny since the Office for Budget Responsibility said £5.6 billion would be added to the public sector net debt by 2015-16 as a result of the new fees policy.

David Cameron, the prime minister, even highlighted the extra spend on student support in a speech the day before the fees vote - pointing out that it was increasing from £7 billion to £12 billion over the next four years.

Crucially, public accounting rules mean the student loan element of these figures will not affect the deficit the government is pledged to reducing. Instead, it will count only the loss it expects to make on the loans, although how this will appear in the books is unclear.

Civil servants have calculated this amount to be 28p for every £1 lent, but Hepi and Million+, which represents many post-1992 universities, claim the figure is too low and is based on inaccurate assumptions about earnings and fees.

Universities UK president Steve Smith also told THE he thought the cost of the loans to the taxpayer would be higher.

Government calculations have been bolstered by an assessment from the Institute for Fiscal Studies, which last week said the taxpayer would save money even after the government's last-minute concessions, which include a promise to undertake annual reviews of the earnings threshold at which graduates begin to repay loans, rather than every five years.

IFS research Fellow Lorraine Dearden said there were still many unknown factors that could affect the outcome, including the number of European Union students who default on their loan repayments.

Ministers hope to keep a lid on fees through competition from new providers and the use of stricter access agreements on widening participation, but some observers have questioned the efficacy of these measures.

Les Ebdon, vice-chancellor of the University of Bedfordshire, who signed a letter urging MPs to vote against the fee cap rise, said the access agreements were "about as useful as an ashtray on a motorbike". He believed all English higher education institutions would be charging £9,000 within two years.

Scepticism has not been confined to those who opposed the proposals. Chris Snowden, head of the University of Surrey, who was one of several Universities UK board members to sign a letter asking MPs to support the plans, said it was difficult for the sector to join together to explain the new system to students when the government kept "moving the goalposts" on policy.

Meanwhile, Colin Riordan, vice-chancellor of the University of Essex, called for an end to talk about disadvantaged students missing out in order to avoid a "self-fulfilling prophecy".

Patrick McGhee, head of the University of East London, urged the sector to form a united front in pushing for public investment to return in the long term.

Student finance from 2012: key facts

• Graduates will not have to repay their loans until they are earning at least £21,000 annually, up from the current repayment threshold of £15,000

• Students from families with incomes of less than £25,000 will be entitled to a maintenance grant of up to £3,250, while those from families with annual incomes of less than £42,000 will be entitled to a partial grant

• Repayments will be set at 9 per cent of income above £21,000, and all outstanding repayments will be written off after 30 years

• A real rate of interest will be charged on loan repayments, but with a taper. For graduates earning less than £21,000 annually, no real rate of interest will be applied to loans

• But for graduates earning between £21,000 and £41,000, a real rate of interest will be charged, which will increase by 0.15 per cent for every £1,000 earned over £21,000

• For those earning more than £41,000 annually, interest will be charged at RPI plus 3 per cent

• In a last-minute concession, part-time undergraduate students studying for at least 25 per cent of a full course load will qualify for full loan support for tuition costs, rather than the 33 per cent first proposed

• The £21,000 earnings threshold at which students begin to repay their loans will be uprated annually in line with earnings from 2016, rather than every five years as originally planned. The current £15,000 earnings threshold will be uprated annually in line with inflation from 2012

• All students will also be able to access maintenance loans, with the size of the loan varying according to parental income.

Source: Department for Business, Innovation and Skills

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