Without fees reform, our children would really feel the pinch

David Willetts defends the coalition's student finance policy as a fair, progressive model that will support the present and protect the future

May 31, 2012

Credit: Elly Walton

I welcome public debate about our student finance reforms, and Liam Burns, president of the National Union of Students, added to it in the pages of Times Higher Education last week in an article that questioned the sustainability of the measures we have put in place ("Coalition reforms have left students swimming with sharks", 24 May).

As everyone knows, on coming to office the coalition inherited a deficit that we had to tackle - last week, the head of the International Monetary Fund, Christine Lagarde, said that when she looked "back to 2010 and what could have happened without fiscal consolidation, I shiver". In higher education, this has meant shifting more of the costs from taxpayers to graduates, its main beneficiaries. Crucially, however, reform rests upon a more progressive mechanism, with a higher repayment threshold and lower monthly amounts. Higher education is of course a social good, too, and this is reflected in the Exchequer's continuing contribution.

I recognise how controversial this shift is to some, but the alternatives were large cuts to student numbers or to the amount of funding per student. That would have been bad for individuals, bad for universities and bad for economic growth. Instead, we have routed more money through students in the form of loans, and sharpened the incentives for universities to deliver a high-quality student experience - for example, by liberalising student number controls and introducing Key Information Sets. The latest Universities and Colleges Admissions Service figures suggest that young people continue to think university is worthwhile. In fact, more people are applying to start this September than in any academic year under the previous administration.

Yet I have been struck by the Intergenerational Foundation's critique of our reforms. I support the aims of this new group, which evaluates the impact of different policies on different generations. A couple of years ago, I wrote a book, The Pinch: How the Baby Boomers Took Their Children's Future - And Why They Should Give It Back, about the enormous influence of the post-war generation and its adverse impact on those coming up behind.

The foundation claims that our reforms will not save money: indeed, it says taxpayers will pay even more under the new system. This rests on two assumptions: first, that universities and students will enjoy more resources because of higher fees, higher loans and higher grants. I accept that: indeed, we estimate that total Department for Business, Innovation and Skills investment in teaching in 2013-14 will be £7.9 billion. Moreover, our loan calculations draw on the forecasts of the independent Office for Budget Responsibility and have been scrutinised by it.

But the second argument is that our assumptions about repayment rates are too optimistic. Rather than about 30 per cent of the loan book being written off, the Intergenerational Foundation believes the figure will be around 40 per cent. We do not accept this.

The foundation is relying on the calculations of the Higher Education Policy Institute and London Economics, the modelling of which is relatively basic. The independent Institute for Fiscal Studies, however, following a more sophisticated methodology, estimates the resource accounting and budgeting (RAB) charge to be around 30 per cent. All long-term forecasts are imprecise, but there are insufficient grounds to think the pessimistic scenario is the more likely one.

Burns welcomes the foundation's critique, writing in THE last week that "students are in hock to a loan shark". I hope that no 18-year-old contemplating university believes that lurid rhetoric for one moment. It is right to have a universal loans system. It is right that if a graduate is earning less than £21,000, they don't pay anything back so taxpayers foot the bill. And it is right that if you are earning more than £21,000 you should start repaying.

In practice, the foundation raises as many questions for the NUS as it does for the government. For example, the foundation's view is that it is wrong to borrow to fund today's students. Yet this is precisely what the NUS' own graduate tax model proposes (the government borrows money to fund the universities until graduates can pay back). Moreover, the NUS "welcomed the extension of fee loans to part-time undergraduates" in a recent report on mature students.

I am sometimes asked what the author of The Pinch thinks of the policies of the universities minister. One answer is that instead of repayments being borne by young people in their twenties and thirties, their monthly instalments are reduced and spread out. And of course, we would be letting down future generations if we increased the UK's deficit or reduced the chances of attending university instead.

Across the world, policymakers grapple with the challenge of tackling deficits while raising skills. There is growing interest overseas in our income-contingent loan system as a way to protect quality, numbers and finance. Our critics have jumped the shark: our model is fair, progressive and affordable.

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