by Rob Cuthbert
SRHE News is a quarterly publication, available only to SRHE members, which aims to comment on recent events, publications, and activities in a journalistic but scholarly way, allowing more human interest and unsupported speculation than any self-respecting journal, but never forgetting its academic audience and their concern for the professional niceties. These are some extracts from the April 2022 issue.
Government uses high inflation as cover for hitting students, graduates and universities
The Government sneaked a student loans announcement out on Friday afternoon 28 January 2022. Ben Waltmann (Institute for Fiscal Studies) said: “Today’s announcement … constitutes a tax rise by stealth on graduates with middling earnings. … For a graduate earning £30,000, this announcement means that they will pay £113 more towards their student loan in the next tax year than the government had previously said. … What really matters is how long this threshold freeze will stay in place. If it is only for one year, the impact on graduates will be moderate, and the government can only expect to save around £600 million per cohort of university students. If it stays in place for longer, it could transform the student loan system, with a much lower cost for the taxpayer and a much higher burden on graduates than they thought … when they took out their loans.” However, some well-informed commentators thought that the Minister had made the best of a bad job.
Waltmann followed up in his 10 February ‘Observation’: ”Students will see substantial cuts to the value of their maintenance loans, as parental earnings thresholds will stay frozen in cash terms and the uplift in the level of loans will fall far short of inflation. This continues a long-run decline in the value of maintenance entitlements. The threshold below which students are entitled to full maintenance loans has been unchanged in cash terms at £25,000 since 2008; had it risen with average earnings, it would now be around £34,000. Separately, the student loan repayment threshold will also be frozen in cash terms. … Finally, tuition fees will remain frozen in cash terms for another year, which hits universities and mainly benefits the taxpayer. … as our updated student finance calculator shows, the government is saving £2.3 billion on student loans under the cover of high inflation.”
At last, the government response to Augar
On 24 February 2022 the government finally issued a detailed response to the 2019 Augar Report, setting out a series of policy proposals and further issues for consultation: “Put simply, we need a fairer and more sustainable system for students and institutions, and of course the taxpayer. We need a system that will maintain our world-class universities not just for today, but for the decades to come. And we need a fairer deal for students …”. Rachel Wolf wrote for The Times Red Box on 24 February 2022 that she was encouraged by the Augar response (and the separate consultation on Lifelong Learning Entitlement), because it suggested that there was proper Cabinet government with a sensible Secretary of State for Education, rather than No 10 being in charge of everything. Yes, but … there was precious little welcome for most of the proposals.
Nick Hillman blogged for HEPI just ahead of the DfE announcement, trying desperately to save the Willetts fee policy (he was Willetts’ special adviser) from being labelled as a political failure. That policy was designed to be redistributive and progressive, but in practice the shortfall in repayments (RAB) became much too high and not enough people understood that many students were not expected to repay loans in full. The Theresa May government misunderstood it to the extent that they raised the repayment threshold, which cost the Exchequer much more without giving much benefit to students. The Treasury tolerated it until the national accounting systems were properly changed to show the loans for what they were, rather than spreading them as a cost over 20-30 years. Hillman selectively quoted Moneysavingexpert Martin Lewis, but he would have done better to see the 24 February Lewis quote that loans had now become a graduate tax throughout people’s working lives.
Jim Dickinson for Wonkhe on 24 February 2022 noted the absence of any response to Augar’s chapter on maintenance grants: “Overall then, almost all students will end up paying significantly more for having significantly less spent on their education … we might have at least expected a response on the bits of Augar that were concerned with students’ costs or their maintenance. That they are not even acknowledged tells us quite a bit about what the government thinks about students and graduates.”
Gavan Conlon of London Economics issued his analysis of the government proposals. “Under the current funding system in 2021-22 … the Exchequer contributes approximately £10.630bn per cohort to the funding of higher education. … given that the RAB charge (the proportion of the total loan balance written off) stands at approximately 52.5%, maintenance loan write-offs cost the Exchequer £4.105bn per cohort, while tuition fee loan write-offs cost £5.303bn. The recent freeze in the repayment threshold reduced HMT costs by approximately £300 million. The provision of Teaching Grants to higher education institutions (for high-cost subjects) results in additional costs of £1.222bn per cohort. Higher Education Institutions receive £11.144bn per cohort in net income from undergraduate students … £10.112bn in tuition fee income … £1.222bn in Teaching Grants. … institutions contribute £189 million per cohort in fee and maintenance bursaries (predominantly the latter) in exchange for the right to charge tuition fees in excess of the ‘Basic Fee’ (£6,165 per annum for full-time students). For students/graduates, the average debt on graduation (including accumulated interest) was estimated to be £47,500 (for full-time first degree students), with average lifetime repayments of £35,900 for male graduates and £13,900 for female graduates. We estimate that 88.2% of all graduates never repay their full loan, while 33.0% never make any loan repayment.” The first scenario he modelled involved “removing the real interest rate, reducing the earnings repayment thresholds to £25,000 (and the associated maximum interest rate threshold), and extending the repayment period to 40 years”. That led to savings of £539million for the Exchequer, with no change for HEIs. The average debt on graduation declined following the changes by £1,600. Average lifetime repayments for male graduates decline by £2,000 but increase by £3900 for female graduates. “However, these are averages and there are important distributional effects associated with these proposals”. Scenario 2 added the introduction of Minimum Entry Requirements and reintroduction of Student Number Controls. The savings for the Exchequer were estimated at £1322million, with a loss for HEIs of £840million. The effect on students was unchanged.
Conlon then co-authored a blog with Andrew McGettigan (independent) for Wonkhe on 25 February 2022, which showed that most of the savings had actually been achieved by changing the discount rate used for student loans, making them more valuable. “… the graduates who will benefit the most are the highest earning – predominantly male – graduates. The messaging has been that lower earning graduates need to pay more to make the system sustainable. In fact it’s the discount rate change that does most of that – with the extra contributions from lower earning graduates helping to fund the reduced contributions from the richest. … It’s hard to see this when there is a lot of smoke and mirrors. What makes all this worse is the government knows that its discount rate change means that the extra payments made by lower earning graduates in years 30 to 40 are doing most of the heavy lifting.” Student finance campaigner Martin Lewis of Moneysavingexpert called it “a very damning piece”.
Ben Waltmann of the Institute for Fiscal Studies wrote on 24 February that: “The largest student loan reform since 2012 will reduce the cost of loans for high-earning borrowers but increase it for lower earners. Today the government has announced the largest changes to the student loans system in England since fees were allowed to triple in 2012. Starting with the 2023 university entry cohort, graduates will pay more towards their student loans each year and their loan balances will only be written off 40 years after they start repayments. For the same cohorts, the interest rate on student loans will be reduced to the rate of increase in the Retail Prices Index (RPI), a large cut of up to 3 percentage points. Maximum tuition fees will be frozen in nominal terms until the 2024/25 academic year. These changes will transform the student loans system. While under the current system, only around a quarter can expect to repay their loans in full, around 70% can expect to repay under the new system. This is partly due to substantially higher lifetime repayments by students with low and middling earnings and partly due to less interest being accumulated on loans. The long-run benefit for the taxpayer will be around £2.3 billion per cohort of university entrants, as higher repayments by borrowers with low or middling earnings will be partly offset by lower repayments of high-earning borrowers.”
Richard Adams in The Guardian on 24 February 2022 pointed out the DfE’s own analysis showed the poorest would suffer: “An equality analysis on the proposals by the Department for Education, states that “those likely to see some negative impact with increased lifetime repayments under the reforms” include younger and female graduates as well as graduates “from disadvantaged backgrounds, or reside in the north, Midlands, south-west or Yorkshire and the Humber”.
On 24 February 2022 Wonkhe’s Debbie McVitty suggested the proposals were looking for “a third way between capping opportunity and letting the HE market run amok”. John Morgan’s article for Times Higher Education on 28 February 2022 had expert commentators describing the Augar response package as a ‘missed opportunity’, with Chris Husbands (Sheffield Hallam VC) saying “what the package essentially does is to kick the difficult questions down the road”. David Willetts, in Times Higher Education on 3 March 2022, thought the Augar response was “balanced tweaks”; he was trying to rescue his fees policy, which worked in theory but not in practice. Nick Hillman was still trying in Research Professional News on 6 March 2022.
Universities Minister Michelle Donelan wrote a Conservative Home-spun version of the changes, in which she interestingly she referred to “Our top university cities – Cambridge, Oxford, Bristol, Manchester and London …”. Donelan’s speech to the Conservative Party Conference in March 2022 set out what the Minister wants the narrative to be. Diana Beech (London Higher) blogged for HEPI on 7 March 2022 about the government response to Augar and the recent flurry of OfS consultations: “… what we are facing now is not a series of seemingly independent consultations concerned with the minutiae of regulation, but a multi-pronged and coordinated assault on the values our higher education sector holds dear.” Alan Roff, former Deputy VC at Central Lancashire, reprised his 2021 argument for a graduate contributions scheme with his 22 March HEPI blog. We assume that still, no-one in government is listening.
Mary Curnock Cook, former UCAS chief executive, was upbeat about the possibility of setting a minimum entry requirement (MER) in terms of grade 4 English and Maths at GCSE, in her HEPI blog on 24 February 2022. However SRHE Fellow Peter Scott pointed out, in his 28 February 2022 HEPI blog, that “In Scotland, universities set MERs to widen access. In England, the State imposes MERs to curb it. So, it is very difficult to claim the UK Government’s package of measures in response to the recommendations made by Augar are somehow progressive, let alone favourable to fair access.”
Rob Cuthbert, editor of SRHE News and Blog, is emeritus professor of higher education management, Fellow of the Academy of Social Sciences and Fellow of SRHE. He is an independent academic consultant whose previous roles include deputy vice-chancellor at the University of the West of England, editor of Higher Education Review, Chair of the Society for Research into Higher Education, and government policy adviser and consultant in the UK/Europe, North America, Africa, and China.
Email firstname.lastname@example.org, Twitter @RobCuthbert.
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