Commons library briefing paper: Higher education funding in England

Higher education underwent fundamental changes to how it was financed in England 2012 and there have been ongoing, albeit smaller, changes since then. How has this affected the balance between the broad sources of funding -the taxpayer and graduate and how has the total funding from al sources for universities changed?

The Government raised the cap on tuition fees for new student to £9,000 in 2012/13 and cut most ongoing direct public funding for teaching in England. This shifted the balance of higher education funding further away from the state and further towards the individual who benefits.

In his summer Budget 2015 the Chancellor announced the biggest changes to student finance since 2012:

• Maintenance grants will end for new students from 2016/17 and be replaced by loans.
• A consultation on freezing the student loan repayment threshold for five years
• Allowing universities offering ‘high teaching quality’ to increase fees in line with inflation from 2017
• A review of the discount rate applied to the accounting treatment of loans.

After consultation the Government decided to freeze the repayment threshold for all post‑2012 borrowers. The discount rate used for the public accounting of loans was reduced from 2.2% to 0.7%. These changes are expected to result in savings to current spending when grants are ended and a substantial cut in the subsidy element of loans.

Students can take out publicly subsided loans to pay for tuition fees. Lending to students has increased substantially since 2012 and is expected to be more than £15 billion this year, compared less than £4 billion which goes to universities through the funding council. The Government’s decision to replace maintenance grants with loans means that even more support for higher education will come through loans rather than direct spending.

The subsidy element of loans is not included in the Government’s main measure of public spending on services and hence does not count towards the fiscal deficit. The total face value of loans do count towards the national debt.

There is considerable uncertainty about the final size of the subsidy element of loans and the Government’s estimate of it increased sharply after the 2012 reforms were first announced. Subsequent changes to loan terms and accounting methods are expected to reduce the size of this subsidy to an even greater degree. These calculations affect the size of any saving in public expenditure and the extent of the shift in costs from the state to the individual beneficiary.

This paper looks at recent levels of funding for higher education in England, particularly the period from 2015 onwards. It builds on and replaces Changes to higher education funding and student support in England from 2012/13 and HE in England from 2012: Funding and finance which looked in detail at the impact of the 2012 reforms and subsequent announcements on graduates, universities and public spending.

The briefing paper Higher education student numbers looks at how student numbers have changed over time, gives some insight into the impact of the 2012 higher education reforms on different types of students and courses and summarises the last evidence on applications. Readers may also be interested in the following briefing papers: