Universities in crisis: why a cut in tuition fees and longer loan period would make most students worse off


University tuition fees in England are some of the highest in the world, with an average annual cost of £9,188. This means that English students are paying significantly more for higher education that those in many other countries – including the US which is known for its expensive tuition fees, and where the average student pays US$9,410 a year (around £7,518).

But new recommendations say that university tuition fees in England should be cut to £7,500. This would be balanced out by extending student loan repayments from 30 to 40 years. The suggestions come as part of an independent government-commissioned review chaired by Philip Augar, a British author and former equities broker.

In addition to lowering fees to £7,500, Augar also proposes the re-introduction of means-tested maintenance grants up to £3,000. The review also proposes a decrease in the punitive interest rates on student loans – but only during the period when the student is at university – as well as an overall cap on total paybacks. This would see the total repayment capped at 1.2 times the original loan (in real terms). So for every £10,000 of a loan, the most students would have to pay back would be £12,000.

A damp squib

It’s hard to argue with the core message of the Augar Review, that the focus of additional funding should be towards the 50% of post-18 students who do not attend university – further education colleges have been decimated since the introduction of the high fee regime in 2012.

But with respect to the university sector, the review is a damp squib and only tinkers at the edges. From Augar’s own figures, students will –- despite the headline cut in fees –- on average be paying more. Remarkably, only high-income graduates will see a reduction, due to the cap on total payments.

The extension of the repayment period to 40 years means that the bulk of graduates will actually be paying more. They will also suffer the psychological burden of high debt for that time – with lower earners repaying for longer, while the highest earners have already paid off their loans.

This will hit students from middle and even lower-income backgrounds the hardest, as research shows graduates from poorer backgrounds earn less than richer peers on the same course.

Those students who do not qualify for the proposed £3,000 grant, will definitely be worse off than they are now. Since universities are getting the same incomes, and taxpayers are not paying more, and lower-income and higher-income students are paying less, the middle must carry the load. They gain from the reduction in the fee level, from lowered interest rates during their studies, but then suffer disproportionately from the extension of the repayments to 40 years.

Students feel an injustice that they are charged a higher rate of interest than the cost of funds to the government. But Augar’s charging of the lower rate during the period of study, but not afterwards, does not address the inequity and further hits the middle-income group of students disproportionately.

And by our calculations, a cut in interest rates throughout the repayment period to the government’s cost of borrowing (as proposed by Browne) would only cost the government about £270 per student.

Quality of education

In a sense though, all these specifications of the loan system are secondary to the most important issue, the quality of the degree achieved. Augar recognises that there are both quality improvements and efficiency savings to be made, but relies on “nudge” approaches where the Office for Students, the independent regulator of higher education in England, encourages universities to be more effective with only a delayed threat of action.

But it is the Office for Students that itself is imposing counterproductive costs upon universities. The new TEF (Teaching Excellence and Student Outcomes Framework) is felt by many to be a distortion, focused upon the wrong measures and upon student satisfaction rather than the integrity and quality of education. It’s like having the Civil Aviation Authority focused upon the quality of in-flight meals rather than the safety of aeroplanes.

Widening participation

But there could be a straight forward solution. In our recent book, English Universities in Crisis: Markets without Competition, we look at the current issues facing universities and combine theoretical and data analysis, as well as insights gained from running a university, to give robust new policy proposals.

We propose up to a 50% write off for both fees and maintenance for students from a lower income background. By our calculations, a 50% write off could be given to 10% of students and a 25% write off to 10% of students. This would cost the government £1,125 on average per student. This is roughly what universities are spending today on less effectivewidening participation initiatives.

We also recommend student fees to be lowered, the reintroduction of maintenance awards, student number caps, cancelling the TEF and establishing different roles for different types of institutions. All of which would help to encourage excellence and ultimately benefit society.

Author Bio: Jefferson Frank is a Professor of Economics at Royal Holloway