The case for a postgraduate loans system

The principle of fair access is central to debates about higher education: almost everybody agrees that no one should be denied the opportunity to go to university because they cannot afford to pay. This is why we have a subsidised loans system, which means that graduates can pay back the cost of their undergraduate study once they are earning over £21,000 a year. However, this principle of fair access has not been applied to postgraduate study, where there is no subsidised loan system at all.

Without access to subsidised loans, students without wealthy parents to support them are put off from applying. Moreover, those who do often end up taking out expensive bank loans and piling up even further debts.

Access to postgraduate study has become an increasingly important matter for those concerned with promoting social mobility. The Higher Education Commission on postgraduate study found that employers were increasingly requiring postgraduate qualifications for certain roles, including legal positions, engineering jobs and scientific roles in biotechnology firms. In addition the wage gap between workers with an undergraduate degree and those with a postgraduate degree has increased in the last two decades.

It is with this in mind that IPPR has done further work on a model first proposed by Tim Leunig: allowing postgraduate students on taught courses to take out a £10,000 subsidised loan that would be on similar terms to the undergraduate loan scheme.

The model has the following characteristics:

– All students studying a taught masters course would be eligible to borrow £10,000 to cover the cost of their tuition fees, irrespective of the duration of study, or whether they are studying full-time or part-time.

– Graduates would repay the tuition fee loan at 9 per cent on any earnings between £15,000 and £21,000. All other features of the loan system, such as the write-off period (30 years) and interest rates (ranging between 0 and 3 per cent in real terms) would be the same as for an undergraduate loan.

– In this baseline scenario, we assume that the postgraduate loan is available to (47,081) full-time and (24,301) part-time students (subject to annual completion rates). We assume that no maintenance support is available to students.

IPPR asked London Economics to examine the financial impact of this proposal, using the latest data. Under this model the Treasury makes a small direct contribution to taught postgraduate courses (we have estimated that it contributes around £103 million in HEFCE teaching grants). The exchequer also contributes around £44 million in loan subsidies and write-offs. This is a very low long term cost to government because we estimate the proportion of postgraduate loans that would be not recovered at the end of the 30-year term (the RAB charge) is estimated at just 6.9 per cent. This compares to a RAB charge of between 40 and 45% for undergraduate loans.

We conclude that on this basis a postgraduate loans system, modelled on the existing undergraduate loans system, would be workable and affordable. Of course the exchequer would have to fund the initial outlay to universities, which would add to the total national debt stock. But note that because the majority of the money will be paid back by graduates, this would not add to the deficit.

There are concerns among some universities that by providing loans in this way we are setting a price cap on postgraduate study that is too low. However, although the loan would be capped at £10,000, the total level of tuition fees could be higher than this. While the loan amount might not cover the total cost of all courses, this would still represent a considerable improvement on the current model.

There are concerns about the government’s exposure in the event that larger than-expected numbers were to apply. However, we have shown that a 5–10 per cent variation would not result in huge financial implications for the Exchequer. Moreover, the government could consider restricting eligibility, such as to those who achieved a 2:1 at undergraduate level, as one means of limiting additional exposure.

Given the increasing importance of postgraduate study to social mobility, there is a powerful case for ensuring that access is not inhibited by ability to pay. There is a real danger that improvements in access at undergraduate level will be undermined by a ‘glass ceiling’ at postgraduate level, as students with money are able to take masters courses that differentiate them in the labour market while those from less well-off backgrounds cannot. Our research shows that in the long run the cost to government from such a move should be low. We therefore recommend that the government move quickly to introduce such a system for taught postgraduate courses.

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