Cutting the cake: fairness in student finance

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Fellow Wonkhe contributor Jim Dickinson uses a training exercise with his student officers where they have to decide on the fairest distribution of a chocolate cake. Possible options include: giving everyone a slice of the same size, so all are treated equally; or giving those who are hungry bigger slices, so it’s distributed according to need; or giving those who’ve never eaten cake before a larger share, to make up for their historic lack of access to cake; and so on.

Of course, the point is to demonstrate ‘fairness’ is to some extent a subjective concept, and how one judges what is ‘fair’ depends on how one frames the debate. That framing, consciously or otherwise, is in turn informed by personal values, priorities and politics.

Round one, Dorling

The poaching of Great British Bake Off by Channel 4 notwithstanding, chocolate cakes don’t tend to generate quite as much debate as student finance, but the principles are much the same. Arguments about how the costs of higher education are apportioned, and what funding is available and to whom, are almost always framed from the perspective of what is ‘fair’.

Since the general election in June there is something approaching a political consensus that the system isn’t fair, but no consensus whatsoever as to how to address that, even among the cabinet. In that context, Professor Danny Dorling’s recent Wonkhe article asks how fair it is that some students from wealthy backgrounds avoid taking out fee loans because their families pay the full fee upfront. It should be said that the proportion doing so under current arrangements is about half the 15% Dorling suggests in his article. The latest figures available indicate that tuition fee loans are taken out by around 93% of eligible, full-time students domiciled in England.

That said, there’s a matter of principle at stake here. Whatever the exact extent, is it fair that some don’t have to take out loans to pay their fees, or even pay anything themselves at all? For Dorling, the unfairness lies in the fact that many students from wealthy families avoid paying anything as an individual, whereas those who rely on loans may have to repay many tens of thousands of pounds over their career, including interest. Moreover, those from higher-income backgrounds go on to higher-income jobs. As a result, it could be argued that the current system entrenches the inequalities already present in society, and so is ‘unfair’.

It’s certainly true that the poorest students graduate with the highest debts, and since the abolition of the maintenance grant in 2016 this problem has been exacerbated. The present loan system does attempt to be progressive, through the variable interest rate on loan repayments, with those graduates earning over £41,000 paying 3% above the RPI measure of inflation. Consequently, higher earners repay more than the sticker price of their degree. To ensure greater fairness, government could compel all students to take out loans for fees and forbid any early repayment. Indeed, back in 2011 while secretary of state at (what was) BIS, Vince Cable consulted on banning early repayment of student loans for more or less these reasons.

Yet, from the Treasury’s point of view, having students who are able to pay fees up front do so is far preferable. It means no risk of any proportion of the loan going unrepaid, either because the borrower does not earn enough over the course of the repayment period, or because they die. The loan subsidy would likely be lower for this group of students, but, regardless, from a certain perspective it’s fairer to have those whose family resources can cover the cost do so without recourse to student finance. The same basic principles apply to early repayment; counter-intuitive though it is, repaying early may be to act against your own economic interest and will benefit the Treasury – for that reason, the proposed ban did not materialise.

To argue this is of course to accept the broad logic of the current system. Dorling suggests as his solution a return to the arrangements in place in the 1980s: free tuition, no loans for living costs and maintenance grants provided only to those from low-income backgrounds. Without rehearsing arguments about the fairness and trade-offs of free education, which most Wonkhe readers know only too well, part of the rationale offered for the introduction of student loans in 1990 was to address the ‘unfairness’ some middle-class parents experienced. They had to fund most or all of their offspring’s living costs, while others were supported by the state (and even though many made parental contributions under ‘deeds of covenant’ in order to reduce their tax bills accordingly – a mechanism scrapped as loans were brought in).

In other words, no system, however constructed, will manage to meet everyone’s definition of ‘fair’, addressing one apparent unfairness can create another, and things are not always as fair or unfair as they can first appear.

Round two, UK2020

To illustrate the point still further, take the recently published report by UK2020, a new Conservative think tank founded by Owen Paterson MP. Defusing the Debt Timebomb has as its subheading, “A Fair Deal for Students and the Taxpayer” and an approving foreword from no less a figure than Lord Adonis. It proposes scrapping interest rates altogether, and abolishing the write-off period on loans. I will leave others to fully analyse the proposals, but in essence their argument is that it’s fairer to students/graduates to have no interest on loans but take them out for longer, and fairer on the taxpayer to have a higher proportion of loans repaid.

There’s a superficial attraction to this argument, but in the end it’s not likely to be a definition of ‘fair’ accepted by Danny Dorling and those that agree with him. Enacting the UK2020 proposals would reduce the overall contribution of the richest students (those who take out loans, at any rate) as they would repay more quickly and without any additional interest as now, while increasing the burden on many poorer graduates because they would have far less of their debt written off. Meanwhile, without interest that at least tracks inflation, the total repaid to the Treasury over several decades would not reflect the value of loans at the time they were made, which is unlikely to seem very fair to the Chancellor.

A Third Way: CPS

The Centre for Policy Studies (CPS) has a reputation as being a Thatcherite thinktank (she was involved in its foundation) but its contribution to the debate, Tuition Fees: A Fairer Formula, also just published, proposes something of a middle ground between the two options above – in effect, a return to the system created by Tony Blair, with one important exception.

The CPS argues the £21,000 repayment threshold should be retained, interest reduced to track inflation only, and the fee cap cut to £5,000 or £7,500. This means students graduate with less overall debt and are much more likely to repay this in full over the 30-year term, reducing the ultimate cost to the public purse of debt write-off. However, little mention is made of maintenance funding, and certainly no return of the maintenance grants which were such an important feature of the pre-2012 system. For that reason, the poorest students would still graduate with higher debts; simultaneously, removing the above-inflation interest for higher earning graduates reduces the system’s relative progressivity. It hardly needs saying that this might be seen as unfair. Meanwhile, a lower cap on fees would be anathema to those who want to see greater price differentiation, for whom greater competition ensures a fairer system for taxpayer and student alike.

Fair’s fair

If there is a common link between the first two proposals, beyond their desire to make student finance ‘fairer’, it’s that both are attempting to use student finance to further broader interests. In Dorling’s case, the problem he identifies is symptomatic of wider societal inequality and it is to address that he suggests such wholesale change. For UK2020, the authors are driven by a desire to “crack the higher education cartel” and find some way to extend still further market forces and price differentiation. In neither case is it clear that the identified solution would achieve the goal, at least not without creating still greater problems first. The CPS is more coy in its ideological goals in the report itself, but in an accompanying Telegraph comment piece (£), the author frames the changes as necessary to address perceptions of intergenerational fairness and attract younger voters to the Conservatives.

Evidently, any public policy debate, not least one as complex as student finance, will involve trade-offs, and how we construct student finance has always had implications beyond the exact rates of loans and grants. Ideology very often has more influence on the debate than any technocratic concerns. Even so, there are risks in placing too much weight on the power of student finance to fix society’s ills, whether that is within the strict bounds of the higher education system (access, quality, competition, or excessive vice-chancellor pay) or without (intergenerational or socio economic fairness, the deficit).

None of this is to say that bold or innovative proposals for student finance can’t be made. The present political will presents a real opportunity to make improvements, to make the system fairer. The challenge for those of us working on student finance policy is to learn from the chocolate cake exercise, and find ways of communicating the nuance, complexity and alternative options in ways that aid the understanding of those not immersed in the detail. That would be fairest of all.

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