Willetts moots plan for universities to take on student debt

Former minister says he looked at idea while in government

July 29, 2014

Universities should take on their students’ tuition fee debt so that they have an incentive to get their graduates into well-paying jobs, the former universities and science minister has argued.

Writing today in the Financial Times, David Willetts says that the scheme would, for the first time, give universities “a financial incentive to raise their game through pushing their students harder towards success in the jobs market”.

Under Mr Willetts’ plan, graduates would pay back their tuition fees to their alma mater, rather than the Student Loans Company, meaning universities’ income would be linked to how much their graduates earn.

“To do so would be to give the universities a direct financial interest in ensuring their graduates secure well-paid jobs that enable them to pay back more of their debt sooner,” he writes.

“The more universities improved graduate job performance, the more their financial returns would increase,” he adds.

Mr Willetts does acknowledge a number of objections to the idea, including that it would mean universities only recruit “the type of student who goes to a well-paid job”.

But, he responds, no university would be forced to buy their graduates’ debt and would only do so “if they could improve the likelihood that it would be repaid”.

The former minister, who stepped down from his position in a government reshuffle earlier this month, also acknowledges that by taking on student debt – which he says could amount to £100 million a year – universities would be saddled with liabilities that would soon “dwarf all the university’s other assets”.

But a university would have the option to buy “only a portion” of the loan book, he said.

Mr Willetts also says that he looked at the idea while in government but concluded it was “not yet deliverable” because government IT systems “could not cope”.

“But they should be able to in the next few years,” he concludes.

The idea put forward by Mr Willetts is not a new one. Economists are currently working on a project to link graduate earnings to the university a student attended, which could pave the way for a sale of individual institutions’ loan books.


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