This could get expensive, warns Hepi, as loan costs are underplayed

Report fears government statistics underestimate value of student write-offs, reports Simon Baker

November 11, 2010

Government proposals for higher education funding may have underestimated the cost to the taxpayer of increased student loans by making "optimistic" predictions about graduates' future income.

Analysis by the Higher Education Policy Institute of data released by the Department for Business, Innovation and Skills shows forecasts for the amount of loan repayment could be undermined by statistical assumptions.

As a result, the new system could place a bigger burden on future taxpayers due to large sums of unpaid debt being written off as graduates reach the 30-year limit for repayment.

Hepi warns that a greater drain on the public purse compared with the current arrangements may force the government to keep a strict cap on student numbers.

Its analysis - backed up in separate work by Million+, which represents many post-1992 universities - comes after the coalition's proposals to create a twin cap on tuition fees of £6,000 and £9,000.

Institutions charging more than £6,000 will be subject to "stringent" agreements on widening participation and David Willetts, the universities minister, said the upper limit would apply only in "exceptional circumstances".

However, an initial survey of vice-chancellors by Times Higher Education (see below) indicates that most universities are planning to exceed the lower cap. Higher fees would put further pressure on loan subsidies, which are measured in the government books by the Resource Accounting and Budgeting charge - the cost to the taxpayer of favourable interest rates and the write-off of debt.

Hepi's report says the government may have wrongly estimated the RAB charge in its modelling, leading to savings being "lower than expected" in the long term. "Far from saving, there may even be a cost to the government," it adds.

It argues that "optimistic" outcomes of the government's model included a prediction that average graduate earnings for men would increase to £99,500 a year - in real terms - by 2046. Hepi says this appeared to be based on poor assumptions, including an equal split between male and female graduates.

Million+ said its early assessment of the data also indicated that the government's modelling had made strange assumptions. Pam Tatlow, its chief executive, said: "Not only do they appear to assume that there will be an even split between male and female graduates but they over-estimate what women earn by 15 to 20 per cent."

Hepi says its findings raise serious questions about the government's reforms and whether it will be possible to allow competition for students among institutions.

"Student numbers will have to be constrained as long as there is a public cost for every student that is recruited. That is a conundrum that the government has not yet resolved but which is critical for the coherence of the philosophical justification for its proposals," says Hepi's report, The Government's Proposals for Higher Education Funding and Student Finance - an Analysis.

It adds that switching taxpayer-funding to loans helped remove money from current expenditure, so reducing the deficit. "It is smoke and mirrors, and it provides an extraordinary reason for changing the whole basis for the financing and organisation of the university system," the report says.

John Denham, Labour shadow business secretary, who had put pressure on the government to release details of its modelling, said it was becoming "increasingly clear" that policy was being driven by ideology rather than by a need to tackle the deficit.

simon.baker@tsleducation.com

Cable vision for tuition fees 'deluded', says vice-chancellor

Most universities plan to charge fees above the lower cap of £6,000 and the majority will look to set them higher than £7,000, a survey of vice-chancellors indicates.

Around a fifth of English institutions responded to the Times Higher Education poll, and all said they would charge above £6,000.

None of the respondents was a head of a Russell Group institution, the research-intensive universities thought most likely to charge near the upper cap of £9,000.

Vince Cable, the business secretary, said last week that his impression after speaking to "quite a few" vice-chancellors was that even research-intensives were costing courses from £7,500 to £8,000, and "a very large number of universities are well below that".

However, one vice-chancellor, who did not want to be named, said Mr Cable's view was "deluded", and others emphasised that they would pitch high to avoid the appearance of offering inferior-quality degrees.

Many universities are also expected to set higher fees knowing that they can offer scholarships and bursaries if student demand falls.

Pam Tatlow, chief executive of Million+, said plans by universities to charge above £7,000 should be "no surprise" given the advice provided to the government about the need to replace expected losses in teaching funding.

She said the government's own documents released alongside its proposals last week showed it had assumed the average fee loan would be £7,200.

"The best way for MPs to avoid the need for higher fees would be to vote to restore teaching funding rather than use access agreements to artificially limit the market for universities which already excel in widening participation," Ms Tatlow said.

You've reached your article limit.

Register to continue

Registration is free and only takes a moment. Once registered you can read a total of 3 articles each month, plus:

  • Sign up for the editor's highlights
  • Receive World University Rankings news first
  • Get job alerts, shortlist jobs and save job searches
  • Participate in reader discussions and post comments
Register

Have your say

Log in or register to post comments