Sutton Trust: Chancellor urged to means-test tuition fees and restore grants

• CHANCELLOR URGED TO MEANS-TEST TUITION FEES AND RESTORE GRANTS
•  NEW RESEARCH FINDS 81% OF GRADUATES WILL NEVER REPAY STUDENT LOANS

The Sutton Trust is calling on the Chancellor to support a £3.2 billion reform to student funding - means-testing tuition fees and restoring maintenance grants - in next week’s Budget, in a new report that includes detailed projections of their potential costs and benefits.

Fairer Fees finds that plans to raise the threshold at which graduates start paying back their student loan from £21,000 to £25,000 will mean that 45% of student debt will never be paid back, up from 28% when the threshold was set at £21,000, and four fifths of graduates won’t repay their loans in full.

The analysis by London Economics for the Trust finds that while the reforms announced by the Prime Minister in October will save graduates an average of £8,000 over their lifetime.  However, they will increase the long-term costs to the Exchequer by £2.9bn for each student cohort.

Students in the UK pay some of the highest fees in the world. The typical graduate of an English university will leave university with debts of around £46,000, with young people from households in the lowest 40% of earners taking on the biggest burden and average debts of £52,000. This is almost double the level of debt which American graduates leave university with. October’s announcements mean that four-fifths (81%) of graduates will never repay their debt in full, up from 72% when the threshold was set at £21,000.

The Trust is concerned that the current system has substantial adverse consequences for students, graduates and the Exchequer. To address this, the Trust is calling on the government to introduce a system of means-tested fees and restored maintenance grants.

Analysis in today’s report finds that introducing a means tested system – where students from households with an income of under £25,000 would pay no tuition fees and those from the very richest would pay £12,500 a year – with a sliding scale in between - would cut average student debt by a third (from £46,000 to £29,500). Reintroducing maintenance grants at the same time would cut debt even further, to £23,000, at a total net cost to the Treasury of £3.2bn per year – broadly the same cost as raising the threshold to £25,000.

Most importantly, it would slash debt among the 40% poorest students by 75%, from £51,600 to £12,700. Under the current regime – where maintenance support is provided in the form of additional loans – the poorest graduates leave university with debts over a third higher than those from better-off homes (£51,600 to £38,400).

The changes would also reduce the proportion of graduates never repaying their full loans from 81% to 56% and the proportion of debt not paid back would fall to 35%. With changes to the repayment threshold in October, the average graduate currently repays £54,900 over their lifetime in cash terms (£25,200 at 2017 prices) compared with £69,500 (£33,200) before the threshold changes. This would change to £30,200 (£15,400 at 2017 prices) under the proposed new system, though the poorest 40% of graduates would likely repay about four times less than the richest fifth.

Sir Peter Lampl, Chairman of the Sutton Trust and of the Education Endowment Foundation said today:

“It’s an absolute scandal that the poorest students graduate with the highest debt.  A typical graduate will leave university with whopping debts of £46,000 while young people from households in the lowest 40% of earners will graduate with debts of nearly £52,000.  These debt levels are almost double those of American university graduates.

“We are proposing that fees should be means tested and maintenance grants reintroduced so that those from low income families incur the lowest debts. Our proposals are an affordable and fair alternative to the current system where fees are not means tested and there are no maintenance grants.”

NOTES TO EDITORS

1.     Fairer Fees will be available from at 0001 on Thursday from this link.

2.     The Sutton Trust is a foundation set up in 1997, dedicated to improving social mobility through education. It has published over 200 research studies and funded and evaluated programmes that have helped hundreds of thousands of young people of all ages, from early years through to access to the professions.

3.     The report is authored by Carl Cullinane and Dr Rebecca Montacute of the Sutton Trust, based on analytical modelling conducted by Dr Gavan Conlan and Maike Halterbeck at London Economics. Views expressed in the report do not necessarily represent those of London Economics.

4.     Modelling is based on the cohort of 2017/18 students, consisting of undergraduate English-domiciled students anywhere in the UK, as well as EU domiciled students in England, focused on those at higher education institutions only. Both full time and part-time students are included, as well as sub-degree level qualifications. It should be noted that this is a wider population of students than covered by recent work by the IFS in this area (including their work for the Trust, ‘Payback Time’, in 2014), so cost estimates will differ. All figures refer to the cost of the cohort through their full course of study, and are presented in 2017 prices, except where indicated.

5.     Sensitivity analysis indicates that the long run costs of our proposals are likely to be overestimates, as in reality, high graduate earners (who pay back much of their debt) are more likely to have come from higher income backgrounds in the first place, and thus have paid higher fee levels.

6.     Any losses to higher education institutions due to lower fee income would be replaced by increased direct teaching grants. The increase in the grant would not be affected by the financial profile of the intake of individual universities, to remove any incentives to take on students paying the higher levels of fee. Replacing fee income with the direct teaching grant would lead to an increase in short-term costs to the Exchequer; £2.6bn in the first year, rising to £7.8bn, which would be substantially offset in the long run by an increased proportion of loan repayments.

7.     In October it was announced that the loan repayment threshold would be unfrozen and raised from £21,000 to £25,000 from April 2018, while the maximum tuition fee would be frozen at £9,250. Maintenance grants were scrapped for new students from 2016/17, though continuing students who started before this point are still entitled to a grant.

8.     The proposed stepped loan system is as follows: