Higher Education in Great Britain

Paying for higher education

The coalition's first big exam

The main winner from a controversial new set of university reforms will probably be the taxpayer

Oct 14th 2010

UNIVERSITY tuition fees are political dynamite. Tony Blair’s government first introduced upfront charges for students in Britain in 1998; they were replaced in England in 2004 with a scheme under which fees rose, but students could borrow the cost from the state and repay it once they were earning. That move proved even more contentious in Parliament than Mr Blair’s decision to wage war on Iraq. A new proposal for graduates to pay even more for the education they have enjoyed could open a rift in the Conservative-Liberal Democrat coalition government.

Demand for higher education is booming around the world; to help increase the supply, many countries, including Germany, Ireland and Spain, have begun charging students, as America has long done. In England (Scotland and Wales have separate regimes) a student beginning his studies this year must contribute £3,290 ($5,200) towards the annual cost of his education. The actual average cost is around £7,000: the state partially plugs the gap, and also lends students the money to pay their fees and living expenses. These loans currently carry no interest in real terms, and graduates do not begin repaying them until they are earning £15,000 a year or more.

This largesse meant that simply letting universities expand to meet demand was unaffordable, even before the coalition set out to squeeze Britain’s fiscal deficit and public spending. The previous Labour government recognised the unsustainability of the arrangements it had designed, and in November 2009 commissioned an independent review of the system, headed by Lord Browne, a former boss of BP. On October 12th he published his report. Predictably, it caused an uproar.

Lord Browne called for universities to be allowed to charge whatever they like for their courses—though other parts of his plan might limit the fees at most institutions to around £6,000 a year. He suggested that those who wanted to charge more than that figure should give a rising proportion of the excess to the state. For example, universities charging £7,000 a year would hand over £400; the contribution would rise to £4,500 for those pricing themselves at £12,000 (less than the average actual cost of teaching medicine and dentistry), leaving the university with just £7,500. Diminishing the returns from increasing fees would reduce the incentive to hike them, not least as students might be reluctant to pay stratospheric fees if they knew a big chunk would go to the Treasury.

To help ensure that the resulting debts would not oppress the less well-off, Lord Browne also recommended that the income threshold at which loan repayments begin should be lifted to £21,000; and that the debts of graduates beneath that level should not accrue any interest in real terms. He suggested that loans for living costs should continue, alongside non-repayable maintenance grants for students from poor families. But he believes that one of the main reasons too few suitably qualified students from poorer backgrounds get to the best universities is that they are badly advised by their teachers, and wants every school to provide well-informed careers guidance to its pupils.

If cheap loans to students were retained to cover increased fees, these plans would be cripplingly expensive. To reduce the burden on the state, Lord Browne proposed that, when a graduate does earn more than £21,000, he should pay interest on his debt at the same rate as the government borrows the money; and that the debt should not be written off until 30 years after graduation, up from 25.

The Economist