Support for lifelong learning should not impoverish the wider system

Philip Augar and his panel have produced a thorough and illuminating analysis of England’s post-18 education system – which it shows barely deserves to be called a system at all.

The greatest strength of this report is that it looks at the whole of post-18 education and training as a single system. In particular, it focuses on the intense pressures facing further education and the continuing failure to provide a system of apprenticeships which live up to the name. It is above all a challenge to policy makers to offer a fair deal to the 50% of young people who currently do not go to university: that is a challenge which has to be tackled.

Not a zero sum game

However, it should be possible to enhance opportunities for young people who do not go to university without damaging the education of those who do. One student’s gain must not come at another’s expense. So the report’s biggest weakness is that it believes it has to penalise university students in order to help others.

Some argue that it makes sense to deter students from going to university because economic returns from university qualifications have fallen. This is to put too much weight on particular interpretations of LEO data, before the wider research community has had the opportunity to access and analyse it.

The period covered by the LEO data is the ten years since the financial crash. Our research at Resolution Foundation has shown that this post-crash decade has been particularly bad for salaries, and even more so for the pay of young people. The real hourly pay of young people aged 18-29 fell by 9% in the four years after the crash – an unprecedented fall followed by a modest recovery. Unemployment was less bad than in previous recessions but – again – one group which did suffer increased unemployment was young people with lowest educational qualifications. Their unemployment rate increased from 68% to 56% after the crash whereas for graduates it only fell from 91% to 88%. It looks as if graduates traded down to less well-paid jobs, displacing the less qualified.

The LEO data excludes unemployed people so the only effect they show is on pay. You would not get any sense from the review that the British economy has just been through its deepest post-war recession – with big effects covering exactly the same period as the LEO data. By contrast that same decade did not see a significant increase in the number of graduates – indeed the rate of increase of people with higher education qualifications slowed down. So it is dangerous to interpret LEO data as telling us much about higher education when it may be telling us more about the post crash labour market.

Incentivising lifelong learning

One bold proposal is a single funding model for higher education – a single lifelong learning loan for four years covering study at levels 4,5 and 6. It has an attractive simplicity and inclusiveness. And as learners could access it for specific modules of level 4,5 and 6 qualifications it could help with what they rightly call the problem of the “missing middle” of level 4 and level 5 qualifications.. It is well worth developing this idea further – I see it as a mechanism to enable some of the 50% who do not go into higher education to get at least some worthwhile qualification.

The new loan would be limited to four years of higher education (there has to be some limit) but unless there is more flexibility it does not resolve the long-standing problem of barring funding for equivalent level qualifications (ELQ). The pressure point is a graduate who has already done one degree and is then not eligible for funding if they come back years later to do a second degree. Successive governments have relaxed this rule subject by subject..

The problem faced for mature students in higher education is that fees and loans are much more a barrier when someone is already in work. Someone in this situation may have less prospects of moving jobs, than for an eighteen year old facing a much bigger fork in the road. One reason for the decline in mature students in my time was that we thought the same support scheme would work as well for them as for younger students. This is why I have concluded there is a case for specific grant funding for the institutions which serve this group. There are limits to tidy-mindedness: no single funding model can work for everyone whatever their circumstances.

Creating flexibility in repayment

Augar has a clear and robust defence of the basic graduate repayment model. The report says it would be better if it were described as a graduate contribution scheme. I agree. But it is hard to achieve that linguistic ambition when the language of fees and loans is embodied both in popular discourse and in legislation.

The panel is also to be congratulated for trying to reverse two key policy errors which have put question marks over the graduate repayment model. First, the removal of maintenance grant and replacement by means tested loans in 2016 has led to students from disadvantaged backgrounds ending up with more debt as graduates than more affluent students. I agree with Augar that this is wrong. The reports proposal to bring back a means tested maintenance grant is sensible.

The decision made in 2017 to increase the repayment threshold to £25,000 pushed up the RAB charge so high that it opened up the whole question of whether the funding model was a genuine repayment scheme. The obvious solution is to bring the repayment threshold down as the report proposes. But the panel seem to envisage that this change should only apply to future students. Hitherto all such changes have applied to all graduates and students in the system. The graduate contribution scheme is a public finance measure not a commercial loan so governments need to retain the flexibility to change the terms – that would after all be a feature of the graduate tax which is a close relation of the current scheme. And it is made clear to students that governments have the right to change the terms.

This mistake is compounded by suggesting a formula for the repayment threshold linking it to median earnings of non-graduates. Other ways of setting the threshold have an equally strong logic. Labour’s original threshold of £15,000 was one of the less controversial features of their system and uprating that for subsequent earnings would be one option. I argue in my book A University Education that the model should be one in which the median graduate pays back in full.

Another basis would be to set a balance of public and private contribution which aims broadly to match public and private benefits. As there are several candidates I see no reason why any one formula needs to be fixed forever – instead we need more flexibility. Given all the controversy about how the system is calibrated I think the report could have proposed that the key features of the scheme such as the repayment threshold should be reviewed every five years, like national insurance contributions. That would enable the parameters to be set for all students and graduates taking account of latest evidence on the state of the graduate labour market and the public finances.

Seriously, no more cuts

The review proposes a continuing real terms cuts in the resource for the education of students in higher education. The overriding test must be what is in the interest of students themselves – and this move is not. It takes us back to the bad old days, before the graduate contribution scheme, when the unit of resource per student fell steadily for twenty years.

The cut is undesirable. It is not even necessary to reduce public spending as sensible reforms to the repayment terms mean most of the cost of higher education can and should be born not by the taxpayer but by the majority of graduates who end up in well-paid jobs. Given the crucial importance of universities and their graduates to our country’s future continuing the cuts of the past few years would be a serious mistake.

Join us on 2 July in London for a one day conference to analyse and digest the Augar review and begin to build the response.

5 responses to “Support for lifelong learning should not impoverish the wider system

  1. Wholeheartedly agree with David Willetts here. It’s unnecessary and inequitable to hit future students even harder than current ones when “post-2012 loans” weren’t ever meant to be this generous. A “quick fix” knee-jerk political decision by May cannot be allowed to set the next 30 years of repayments for a decade of grads.

    Imposing another separate system which is really the current system with slightly calibrated parameters would introduce even more copeous, avoidable, complexity in the system and would almost unworkable for English students who have already taken pre-2012 and/or post-2012 loans. Which threshold do these students pay at? Which loan balance do repayments go towards first? No other country operates an income-contingent system by introducing another system every time they want to change the parameters.

  2. Why set different tax rates for different graduates based on what is effectively an age-based lottery?

    Someone starting a course in 2012 is now paying nearly £700 a year less for university in loan contributions than someone who started a course in 2011.

    The Augar report suggests lowering the threshold by over £2k to £23k (increasing annual loan contributions by nearly £200) but only for future students. Why should future students pay back £200 a year more for a decade longer than post-2012 students, especially when post-2012 students originally expected much higher contributions.

    There’s nothing more disingenuous than an incompetent prime minister pointlessly making the current system unsustainable (by ridiculously boosting the threshold from £21k frozen to £25,725 rising annually) only to then introduce another system for future students with even harsher contribution rates than the current one had before they broke it!

  3. To add – I also think that the “lifelong loan allowance” is a good policy, but it needs to be set higher than 4 years’ funding (many people take 3-5 year initial courses and then go on to take a PGCE etc.). It is a better way than an unreasonably high interest rate to encourage those who already have the means to pay unfront, to not take a loan (to save some allowance for later in life and future study) so I would reduce the interest rate to the government cost of borrowing (currently around 1.5%). It is remarkable that the interest rate is the most politically toxic aspect of the system, yet it is the only thing that seems to be surviving! A repayment cap is hidden in the background and so would be another opaque subsidy while the interest rate continues to take centre stage in public discourse. Until that the rate is addressed, the system will continue to be unstable.

  4. Well put it this way – even if the Augar proposals are implemented as a new system, surely the current system would need to be adjusted to bring it more into line. You can’t have a situation in public policy where one group within the contribution scheme is paying little to nothing back at the expense of everyone else within the contribution scheme.

    You have pre-2012 loan holders paying 9% above £18,330 for up to 25 years (loans taken from 2006+) or age 65 (loans taken before 2006).
    Post-2012 loan holders are paying 9% above £25,725 for up to 30 years.
    Post-2021 loan holders would be paying 9% above £23,000 for up to 40 years.

    So surely post-2012 loan holders (who are only paying for 30 years) should be paying on income above somewhere between £18,935 and £23,000 (£21,000 – where the threshold was before May moved it!).

  5. “Hitherto all such changes have applied to all graduates and students in the system.”

    All changes except the 2012 ones which David Willetts implemented! Students who took loans under Labour weren’t given the benefit of the increased threshold, despite the Browne report recommending it be raised precisely BECAUSE it had been left frozen at £15,000 until 2005 even though earnings had risen in the meantime, which it said was unacceptable. This was despite Labour having budgeted for the £15,000 threshold to rise annually from April 2010:
    https://www.whatdotheyknow.com/request/353572/response/967020/attach/3/Annex%20A%20Repayment%20Threshold%20Redacted%20FOI.pdf
    https://www.whatdotheyknow.com/request/353572/response/939043/attach/5/Gibney%2020936%20Annex%20B.pdf

    At the point David Willetts recalibrated the system in 2012, it was also true that changes to key repayment rates had mainly been applied retrospectively to everyone within the system under Labour.
    The repayment threshold rise from £10,000 to £15,000 in April 2005 was applied to existing loans already in the system (despite the original £10,000 threshold being budgeted to rise annually with earnings from April 2000:
    “37. Raising the threshold from £10,000 to £15,000 will increase the cost of student loans to Government. From April 2010 it is intended that it should increase in line with inflation. However, since the cost of the current loans is assessed on the basis that the threshold will rise in line with earnings growth, there are offsetting savings associated with uprating by inflation instead. The combined effect of the two is expected to be a small net saving in cost to Government over the period during which variable fees will be introduced.”
    https://web.archive.org/web/20040117002006/http://www.dfes.gov.uk/hegateway/uploads/final%20RIA%20V8.pdf
    Repayment holidays were also scrapped for existing loans in 2010:
    https://www.whatdotheyknow.com/request/369590/response/905009/attach/2/DOC051216%2005122016160315.pdf

    I don’t know why the change to the repayment threshold from £15,000 to £21,000 wasn’t also applied to existing loans already within the system too. The most likely explanation is political, as it allowed the Coalition government to say graduates under the new scheme would have lower repayments than Labour gave them – but they could have equally said that if they’d have increased the threshold for everyone, not just new students:
    “The coalition says that the threshold for repayment will be set at £21,000, but that is in 2016 prices. In real terms, that is the same as the £15,000 threshold that started in 2006 (sic – it was 2005) and is due for review next year. That is not generous: it is sleight of hand.
    https://www.theyworkforyou.com/debates/?id=2010-11-30b.742.0&s

    There needs to be consistency. Above all, there is a major practical problem with changing the terms only for new students in each round of reforms; not least because of the complexity and cost for SLC and employers in administering multiple rule sets, but also it is difficult to work out what to do when the same person holds loans under different rule sets in an income-contingent system where contributions are meant to be set at an affordable rate regardless of the amount you’ve borrowed:
    https://www.whatdotheyknow.com/request/230088/response/579884/attach/4/Annex%202%20Submission%20Dual%20loan%20repayments.pdf

    If you’re trying to facilitate lifelong learning, where someone may want to draw down loans for study at different points in their lives then you can’t really say you must repay 9% above £18,935 on your first loan but now we’ve changed the terms so if you take a loan now, it’s 9% above £23,000 but you still have to pay 9% above £18,935 because of your first loan (even though you’re increasing your loan balance by taking another course).

    As the government said in 2015:
    “We must avoid implementing an over-complicated system that is not readily understood by customers and their employers.”
    https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/447565/BIS-15-445-student-loan-repayment-threshold-consultation.pdf

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