New HEPI Debate Paper argues for the student loan scheme to be replaced by a graduate contribution scheme

The Higher Education Policy Institute has published a new report on the student finance system in England, Student Finance in England from 2012 to 2020: From fiscal illusion to graduate contribution? (HEPI Debate Paper 25).

Written by Alan Roff, the former Deputy Vice-Chancellor at the University of Central Lancashire, the new paper considers the implications of the official acceptance that the current student loan scheme is based on a ‘fiscal illusion’ that has understated the costs to the Exchequer by billions of pounds a year.

It argues the scheme should be replaced with a new and more transparent graduate contribution scheme that would remove the debts currently incurred by students, enable costs to be shared more equitably and, potentially, reduce the cost to the Exchequer.

The report discusses the conclusions of the Office for Budget Responsibility and the Office for National Statistics, which suggest the vast majority of graduates will not fully repay their student loans and that most of the total amount loaned to students will not be repaid.

As a result, the cost of the scheme has previously been underestimated by around £15 billion per year, wiping out the predicted savings to the Exchequer. Student loan write-offs are now included in the national accounts when the loans are made rather than 30 years after repayments begin.

Alan Roff argues the student loan scheme is unviable and that there are no affordable ways of fixing it: the individualised basis makes it impossible to secure more funding from the best paid graduates after they have repaid their own debts or to increase repayments in an affordable way for lower-paid graduates.

The report’s recommendations include:

• abolishing the current individualised loan scheme and the huge debts students incur;
• recognising that both individuals and society benefit from people achieving degree-level qualifications;
• continuing to allow undergraduates to study without up-front fees;
• retaining the principle that graduates should continue to make a contribution to the cost of their education;
• basing the contribution on a graduate’s ability to pay as well as on political decisions about the right percentage of the pooled costs to be paid by graduate contributions; and
• possibly levying graduate contributions on those who gained their degrees in the era of grant-funded study.

Alan Roff said:

‘The rationale for the 2012 scheme is in tatters. It has imposed huge unrepayable debts on the millions of students who have graduated in the last six years in order to create savings to the Exchequer which are illusory. It is not sustainable to retain a loan and debt repayment system in which loans are not loans, debts are not debts and repayments are not repayments.

‘The graduate contribution scheme which is outlined in this paper offers a new approach. It would ensure students can study without paying up-front fees and without incurring huge debts. In fairness to those who do not gain the benefits of higher education, graduates would make an affordable contribution to the costs of providing higher education, dependent only upon their ability to pay. This could be done in a way which would still reduce the cost to the Exchequer.

‘The students who started their undergraduate courses in autumn 2020 had already suffered from school closures and then the chaotic shambles of A-level results. This year, despite the huge efforts of staff at universities and other higher education institutions, they and all other students have had their studies seriously disrupted. We must show our support for these students and those cohorts who will follow them by creating a better, fairer system for funding students and universities.

‘I was one of the lucky generation who got my undergraduate degree without incurring fees or debts. Those graduating now and in the future have a right to expect the Government to ensure that the older generation of graduates also make an affordable contribution to the costs of higher education. After all that has happened in the last year, surely we owe them that?’

In a Foreword to the report, Nick Hillman, the Director of HEPI, notes the significance of the arguments to debates throughout the UK, writing:

‘The ideas are relevant across the UK, as higher education finance continues to be fiercely debated in Scotland, Wales and Northern Ireland as well as at Westminster. Indeed, given the state of the finances at some Scottish, Welsh and Northern Irish higher education institutions and the forthcoming devolved elections in these three areas of the UK, some might feel the arguments could prove even more pertinent there.’

Notes for Editors

1. HEPI was established in 2002 to help shape the higher education debate with evidence. It is the UK’s only independent think tank devoted to higher education. HEPI is a non-partisan charity funded by higher education institutions and others that wish to see a vibrant policy debate.
2. Some of HEPI’s recent work on student finance includes reports on students’ opinions about different funding options, means-tested fees and different fees for different courses. HEPI’s original analysis of the current system by John Thompson and Bahram Bekhradnia is still available here.
3. Alan Roff is a member of Council at the University of Salford but the views expressed in the report are his alone.