Funding review: how much might it cost and who might gain most?

As another review of higher education funding in England is launched, two questions loom large: how much will the potential reforms cost and who will benefit most from them?

Some early answers to these questions are provided by modelling conducted by the consultancy firm London Economics. It estimates that the current cost to the Treasury of England’s higher education system stands at £8.5 billion per cohort, consisting of £4.5 billion of tuition fee loans that are never repaid, £2.7 billion in maintenance support and £1.3 billion in teaching grants.

Under the existing system, higher education institutions receive £10 billion in fee income and £1.3 billion in teaching grant, which is offset by expenditure of £191 million on bursaries. Average debt on graduation stands at £46,000 but the proportion of student loans that the government does not expect to be repaid (the resource and accounting budgeting, or RAB, charge) stands at 45.1 per cent: average loan repayments are estimated to be £37,700 for men and £16,200 for women.

These figures could change significantly under funding reforms that could be considered by the government review.

Abolish tuition fees: £4.6 billion per cohort, higher-earning graduates benefit most
Assuming that higher education institutions are fully compensated for the loss of £9.8 billion in net tuition fee income, this would cost the Treasury £4.6 billion. This is driven by the reduced volume of loans issued (maintenance loans only) and a subsequent reduction in the RAB charge to 25.7 per cent. The average debt per student on graduation would reduce to £19,200 and total repayments would fall by £20,000 for male graduates and £6,800 for female graduates. Higher-earning university leavers would be most positively impacted. 

Reduce fees to £6,000: £1.2 billion per cohort, only higher-earning graduates benefit
If higher education institutions are not compensated for lost fee income, they would be £3.3 billion worse off. However, the Treasury would recoup £2.4 billion as a result of reduced loan write-offs, with the RAB charge dropping to 40.8 per cent. If universities are compensated in full, the cost of the reform to taxpayers stands at £1.2 billion. Average debt on graduation would fall by £9,600, to £36,600, but total repayments would be unchanged for students in the bottom five deciles by income.

Reintroduce maintenance grants: £360 million per cohort, only higher-earning graduates benefit
The cost of reintroducing maintenance grants at 2015-16 levels is estimated at £1.6 billion, but reduced loan write-offs would save the Treasury £1.3 billion and the RAB charge would fall to 42.7 per cent. This leaves a net cost of £360 million. Average debt on graduation would stand at £39,800, but again total repayments are unchanged for students in the bottom five deciles. Wealthier graduates’ repayments decline, but not by as much as under the £6,000 fees scenario.

Charge loan interest at retail price index: £1.6 billion per cohort, only higher-earning graduates benefit
This would cost the government an additional £962 million in fee loans and £619 million in maintenance loans that would never be repaid. Average debt on graduation would reduce to £43,900 and average repayments would reduce by £6,600 for men and £2,100 for women. However, for men in the bottom four deciles, and women in the bottom eight, total repayments would be unchanged.

Reduce loan repayment period to 25 years: £1.5 billion per cohort, middle- and high-earning graduates benefit most
This would cost the government an additional £904 million in tuition fee loan write-offs and £611 million in maintenance loans, increasing the RAB charge to 53 per cent. Average repayments would decline by approximately £5,300 for men and £4,300 for women, with middle-income male graduates and high-earning females benefiting most.

Increase the loan repayment threshold to £30,000: £2.2 billion per cohort, middle- and high-earning graduates benefit most
Presuming interest rate thresholds would be increased by the same amount, this would increase the RAB charge to 58.7 per cent, with the result that 87 per cent of graduates would never fully repay their loans. Average repayments would fall by £6,400 for men and £6,200 for women. Again, middle-income male graduates and high-earning females gain most.

chris.havergal@timeshighereducation.com