Centre for Policy Studies: Students being ripped off by tuition fee system

• The university sector has expanded hugely in recent decades. But too many students are being ripped off

• Universities are too focused on how many students they enrol, instead of the quality of the course being delivered

• The current system leaves students heavily indebted – the typical student debt in the England is now £45,000 - but 54% of the value of student loans are written off, the equivalent of an £8 billion a year loss to the Treasury giving graduates a painful lifetime burden of debt often eventually paid for by taxpayers

• New report by the CPS argues that too many courses are not delivering for students, or for the country. We now spend more subsidising creative arts than engineering – despite that course having the arguably the worst impact on future earnings

• The think tank proposes reforming the student loan system by making universities accountable for their lending. They would still receive funding from government – but if too many students defaulted, it would be the university that bore the cost

• This would improve outcomes for students, help prune those courses which are offering students the worst outcomes, and push the system towards becoming more self-financing

• Any savings could be used to increase university R&D, subsidise STEM topics or support technical education

University students in England are being ripped off by the current tuition fee system. On average students are leaving university with £45,000 in debt - nearly 50% more than the median graduate salary in the US. This debt is a millstone that stays with them for decades. Yet the Government is only able to recover 46% of the value of their loan to students, as many graduates never earn enough to make repayments.

In a new report for the Centre for Policy Studies think tank, Conor Walsh argues that while the university sector has expanded hugely in recent decades, increasing student numbers has been prioritised at the expense of quality of courses and employment outcomes.

The report, ‘The Value of University’, looks at the economic returns of a range of university courses, and finds huge discrepancies in the amount of taxpayer money being spent on those courses which do not improve the lifetime earnings of the students.

For example, Creative Arts has zero impact on earnings for the average female graduate and a negative impact for the average male graduate, yet receives the largest subsidy of any subject, at £1.2 billion. This works out as £37,000 per student, compared to £11,000 for engineers.

'The Value of University’ proposes a change to the way fees are paid. This would ensure high-productivity and rewarding courses receive more investment from universities - leading to greater investment in the country’s future.

The current system incentivises universities to keep increasing student numbers, as they will receive more government funding in the form of student loans. While students are encouraged to load up on debt that stays with them - often throughout their working life - it is the taxpayer that ends up paying much of this off.

Instead of the Government handing loans to the student, the Centre for Policy Studies proposes that the Government loans directly to the university, who then lends to their students. The students then repay the university who in turn repay the government an agreed fee. There should also be a cap on the amount the university can expect a student to repay in order to prevent a small number of high-earners subsidising the rest of the cohort.

This would make the system self-financing by pruning the courses which are offering students the worst returns. It also incentivises students towards high-productivity courses that make both them and the country better off in the long run and saves the Treasury money without increasing the amount of debt that students have to repay.

This could eventually result in £7 billion of savings, much of which could be invested in technical education, offering school-leavers a productive alternative to university.

The CPS also proposes that £1 billion of these savings be used for bursaries which could go on to fund various socially and economically valuable courses like Engineering and Medicine - both of which are currently significantly underfunded. Any remaining funds could be invested in research and development in order to bolster the UK’s position as global leader in high-end innovation.

Robert Colvile, Director of the Centre for Policy Studies, said:

'We must find ways to incentivise universities to do the best for their students, rather than for themselves. These changes will encourage more students to take up courses that leave both them and the country better off. As well as adding to the workforce of engineers and scientists, it will reduce the number of students who default on their loans, potentially saving the Treasury billions of pounds that can be reinvested into the education system of the future.’

Notes to Editors

• ‘The Value of University’ can be downloaded here.