Financing two-year degrees: more complicated than you might think

Over the weekend, universities minister Jo Johnson announced exactly how the government intends to implement the provisions in the Higher Education and Research Act on facilitating two-year degrees. In short, he plans to allow universities to raise their fees to £11,100 for genuine two-year degrees.

Many politicians have backed two-year degrees before. For example, at the turn of the century, New Labour expected 80 per cent of the expansion of higher education to come from Foundation Degrees. However, over the years, there has been no consensus over whether two-year degrees are best for those for whom a full honours degree might be a stretch too far, or for those who can cope with compressing three years of study down to two.

Whereas New Labour seemed to favour the former, Mr Johnson seems to a have come down firmly on the latter side.

I have already provided an initial comment on the new announcement in a separate post, which notes that there is scope for more diverse higher education provision and welcomes the extra choice that the new policy should provide: the aim of university admissions should always be to get the best possible fit between individuals and courses and this new policy may help to do that.

However, I also questioned whether the amendment to tuition fee caps will be the sort of game changer that some people hope. Moreover, it can only happen if it has the support of a majority of MPs, which is questionable. 

The government has hinted that there is support within the Labour Party for the change but shadow education secretary Angela Rayner, who is committed to abolishing tuition fees altogether, put out a rather unusual quote in response to the new announcement. 

She seemed to muddle up (longer) part-time and (shorter) accelerated degrees, but her opposition nonetheless shone through: “It seems that every higher education policy from this government comes with another plan to raise tuition fees, with students on part-time degrees now facing charges of over £11,000 a year.” 

The government’s main focus at the weekend was a claim that students opting for two-year degrees will see a benefit worth £25,000 each. These figures included a generous assumption that the spare year that would not be used for studying would be spent in employment earning £19,000 instead. 

But there are other interesting things about the official costings too. 

The rest of the £25,000 savings comes from borrowing less for tuition (£11,100 x 2 is less than £9,250 x 3). However, given that it is predicted that about 80 per cent of students will not repay the entirety of their loan, much of these savings will actually accrue to government (and taxpayers) rather than students. If some people who would previously have done three-year degrees now opt for two-year ones, the government has to lend less in tuition fee loans to start with and, because the total loan at the end of study will be smaller, is likely to write off less at the end of the repayment period too.

There is something a little contradictory in telling students not to worry about student debt but also seeking to sell two-year degrees on the basis that they offer lower debts. 

One might think that there would also be a maintenance saving for students from being only at university for two years rather than three – for example, they will pay less rent, eat less food and buy fewer clothes during their time as a student. So, arguably, the government could have come up with a bigger figure for the per-student saving than it chose to include in its initial spinning of the policy. 

However, there has long been an assumption in the student finance system that students need less money to live on in the holidays than in term time – presumably because they can live at home in the holidays and also seek temporary employment then. So, for example, unless they come from wealthy families, students on longer courses (more than 30 weeks and three days) can claim a “Long Courses Loan”, which is worth a maximum of £90 a week for students living away from home and outside London.

This means that if a two-year course were to take up 45 weeks a year rather than the standard 30 weeks a year, this could amount to a sizeable extra £1,350 or so loan per student per year (or £2,700 over the two years). Even though two-year degrees are undeniably cheaper than three-year ones, despite the need for bigger tuition and maintenance loans, that is a pretty big sum to leave out when telling the newspapers about the finances underlying your policy.

To be fair, there is information on these long-course loans in the full consultation document that the government issued on Monday, but they were not part of the picture over the weekend. 

Factoring in the extra £5,550 tuition fee loan and the extra £2,700 maintenance loan means a bigger debt over the two years of more than £8,000 compared with the debt accrued by a student on a three-year degree over the same period. For many students, the figure could be larger because they may find that the extra maintenance support does not cover all their costs and they will have a lot less vacation time in which to undertake paid employment. 

A two-year degree will nonetheless be a cheaper option overall than a three-year degree, where the fees and the maintenance debts are both bigger. But perhaps those who choose two-year degrees are more likely to be attracted by the chance to achieve their goal more quickly than by the complicated ups and downs of the finances. That is logical in a funding system that has been designed to be fairly price insensitive.

Nick Hillman is director of the Higher Education Policy Institute.