Are “forgivable fees” the answer?

Source: Elly Walton

It seemed so simple then, the general election four years away, the Liberal Democrats vilified. In 2011, Labour’s decision to propose a near doubling rather than a near trebling of tuition fees hardly felt like radicalism writ large. But in Manchester last month, with May 2015 just eight months away, the dog didn’t bark. Ed Miliband’s Labour Party Conference speech did not mention university tuition fees.

This wasn’t the only part of his speech that went walkabout, but it was one that headed for the exit deliberately. Suddenly, the simple – a policy of lowering fees – seems toxic. The policy has the support of one Ed, not two, and the recent admission by Liam Byrne, Labour’s shadow universities, science and skills minister, that it would be difficult to offer clarity on fees policy before Christmas suggests another kick towards the long grass.

Meanwhile, universities are nervous about the idea of £6,000 fees. There is much in Labour’s musings to like – the removal of international students from the immigration cap; the reinforced commitment to the knowledge economy – but the idea of transferring the allocation of one-third of all tuition funding back to the Treasury, back to the competing priorities and whims of the government’s annual budgeting process, disconcerts them.

Then there is the question of those students who went before. If the 2017 sticker price is £6,000, what of the five cohorts of graduates who have been loaned £9,000 per annum? Never has the cost of redemption seemed so high. And what of demand for a university education in the year before the introduction of a one-third discount? Past experience tells us that it is bound to fall, and no institution will cope readily with massive swings in demand when there are halls to fill and staff to sustain.

Doing nothing is not an option, either. Without adjustment for inflation, the current £9,000 fee will begin to seriously affect investment by universities from 2015-16, given rising costs and further cuts to teaching and support funding.

So is it possible to secure institutional funding and fulfil political promises?

One idea that has yet to be given much of a hearing is the concept of “forgivable fees”. Under such a model, students would continue to borrow and universities would continue to receive the £9,000 tuition fee – but for some graduates below a certain earnings threshold or meeting certain conditions, the state would write off a portion of that loan early.

Forgivable fees would have most traction in the public sector. At the end of last month, faced with a potentially cataclysmic fall in demand for teacher training, the Department for Education announced bursaries for those pursuing postgraduate certificates in education of up to £25,000, and final-year undergraduate bursaries of up to £9,000 for trainees with (or about to acquire) good degrees in shortage subjects. While worthy, this policy rewards training not teaching, and PGCE graduates still leave university with four years of loan debt. But what if the government adopted a different policy – the phased removal of at least a proportion of this debt after several years of teaching, and, as is commonplace in Australia, increasing the possibility of leaving a graduate free of tuition debt before the age of 30? Not only would this save the public purse the current cost of bursaries and encourage retention in the profession, it would also serve to increase disposable income among that population at a likely time of household and family formation, increasing consumption and/or suppressing wage demand.

The policy would please the Treasury for other reasons, too. As David Willetts, the former minister for universities and science, argued in these pages recently (“I’m afraid there is no money trick that makes £6K fees a good idea”, Opinion, 18 September), maintaining current levels of university funding while lowering fees to £6,000 would require £3 billion of current expenditure – a cost that is presently vexing Ed Balls, the shadow chancellor. Forgivable fees would avoid this. One can argue that this is merely duplicitous accounting, but this is exactly the basis on which the current loan scheme works. Under current estimates, up to two-thirds of graduates will not repay their loans in full. The real-terms cost of recognising this fact three, five or seven years after graduation, rather than 30 years afterwards, is worthy of calculation.

And the potential savings to the Treasury in other professions, such as health, are significant, too. At present some £1.4 billion is spent annually on tuition and bursary support for the allied health professions. Bursaries in this area are (even) less generous than those for other undergraduate programmes, but trainees graduate with no tuition fee debt. The current beneficiaries of this supply of labour include private as well as public health and social care providers. If, however, such students paid tuition fees but repayment requirements were removed after three years of public service in the profession, this would save almost £500 million a year cumulative over three years between, say, 2017-18 and 2019-20, while loan write-off costs would be deferred until the middle years of the next decade. This could still be described as mortgaging the future, but it would be on a far lesser scale and for a far better purpose than similar, existing transactions by the state.

There would be other benefits. The system would create an even stronger case for dismantling the silos between the departments of Education, Health and Business, Innovation and Skills, and for creating a single set of contractual relationships between them and universities, a single funding agency and a single system of student finance. This would save endless duplication and significant cost.

With progress on deficit reduction so slow, a policy of forgivable fees would free up money to invest in the key drivers of economic and social change – including universities – and might well have appeal at the ballot box.