Fairer Fees

Report Overview

Analysis from London Economics for the Sutton Trust shows that the reforms to student finance introduced in October will reduce student loan repayments for graduates by £8,000. However, the report raises concern that these changes do not go far enough to tackle the problems of high student debt and its consequences for both graduates and the Exchequer.

To address this, ‘Fairer Fees’, authored by Carl Cullinane and Rebecca Montacute, assesses a new model of student finance that would use a sliding scale of means-tested fees and reintroduce maintenance grants, to tackle fairness and widen access to higher education. By implementing these measures, which would incur similar costs to the Exchequer as October’s reforms, the average fee would be reduced by almost two-thirds, student debt would be cut in half, and resources would be targeted at those who need it most. This would bring down costs for the majority of students, while maintaining contributions from those who benefit most from university education.

Executive Summary

  • Students in England pay some of the highest average fees in the world. Typical fees are more than three times higher than the next highest in Europe. While increasing numbers of young people are attending university, the gap in attendance rates between those from less well-off and better-off backgrounds is not improving.
  • Reforms announced in October to freeze tuition fees and increase the debt repayment threshold will save graduates on average £8,000 over their lifetime in real terms, while increasing the long run costs of each cohort of students by £2.9 billion. However, the proportion of loans that will never be repaid (the RAB charge) will increase from 27.6% to 45.1%.
  • Nonetheless, average debts will remain at £46,000 per student, with young people from less well-off backgrounds taking on the most debt. Students from households in the lowest 40% of earners take on average debts of £51,600, compared to £38,400 in the top 20% of households.
  • Introducing a system of means-tested fees and reinstating maintenance grants would cut average student debt in half (from £46,000 to £23,300), at a cost of up to £3.2 billion per year. In particular, it would slash debt among the 40% poorest students by 75%, from £51,600 down to £12,700, and mean those from the poorest backgrounds emerged with two thirds less debt than their better-off counterparts.
  • This would also lead to lower lifetime repayments by graduates, reducing repayments by 39% from £25,200 to £15,400 in real terms (£54,900 to £30,200 in cash terms). While the lowest earners already pay back only a small proportion of their loans, taking into account the UK’s current low levels of social mobility, much of the benefits of such a change would accrue to low to middle earners.
  • October’s announcements mean 81% of students will never pay back their loans, up from 72%. Means-tested fees and maintenance grants would reduce the figure to 56%.
  • Abolishing fees entirely would cost £4.6bn on top of the current system, and if accompanied by the restoration of maintenance grants, approximately £1bn more. The system of means-testing proposed here would reduce the average fee by almost two-thirds (to £3,500), along with targeting resources at those who need it most, at a substantially lower cost. This would bring down costs for most, while maintaining contributions from those who benefit most from university education.

Recommendations

  1. The government should implement its promised review of higher education funding. While the October reforms were welcome, there needs to be a thorough review of deeper reforms to the system. In particular, the crisis in part-time numbers should be addressed and bespoke solutions explored.
  2. Our proposed solution would be to introduce a system of means-tested fees which waives fees entirely for those from low income backgrounds, and increases in steps for those from higher income households. Significant ‘cliff edges’ between income bands should be avoided as much as possible.
  3. Maintenance grants, abolished in 2016, should be restored, providing support for those who need it most and reducing the debt burden of the least well-off, so that they graduate with lower debt than those from better-off backgrounds.
  4. Losses to higher education institutions through lower fee income should be replaced by increased teaching grants. While this involves greater upfront costs to the Exchequer, it also provides a lever by which government could promote the provision of courses in certain areas such as STEM. This teaching grant compensation would be adjusted to ensure that universities admitting intakes with lower average fee levels would not suffer any drop in income.
  5. Reducing access gaps to university, especially top universities, should be at the heart of government higher education policy. There needs to be a joined-up effort to tackle the persistent access gap for those from lower socio-economic backgrounds across all aspects of higher education, from student finance to the UCAS application process to the use of contextual data by universities in admissions.