The cost of doing the right thing by part-time students

Cast your mind back to the Conservative party conference 2017 – when we were told that tuition fees would be frozen at £9,250, the repayment threshold for student loans would rise to £25,000 and there would be a “major” funding review.

Do you remember thinking “that’s a bit odd” – making a big, expensive change to the student finance system before you’ve reviewed it? Hold that thought.

When we got the review of post-18 education and funding, Philip Augar’s panel’s call for evidence started by (sensibly) asking respondents what their concerns were with the current system, and what they thought the priorities for change were. Among other things, GuildHE said that we needed to reverse the catastrophic decline in part-time higher education and do more to address student poverty.

Raising productivity, widening participation

For part-time, the evidence is convincing that older, potential part-time students are more price-sensitive, more debt averse, and more likely to perceive student loan debt as real debt. So, alongside encouraging employer investment by allowing the more flexible use of the apprenticeship levy, GuildHE thinks the logical policy is to take action on price – by subsidising part-time study through extra teaching grant funding. We think this is justified not only by the generally lower cost to the public purse of part-time students but because of the need to increase the skills and productivity of the current workforce if the government is going to meet its industrial strategy ambitions. A need made even more pressing by Brexit.

There is a lot about the income contingent loan system that works. But the current regime for maintenance costs is regressive because the poorest students graduate with the highest levels of debt. And as the NUS have shown, there is evidence of greater debt aversion among working-class students, while all students face rising costs for transport and housing. GuildHE thinks the answer – as in Wales – is the return of maintenance grants, alongside loans, for both full and part-time students.

Running the numbers

We are aware that our proposals to fix these problems cost money.  And as we didn’t want to look as though we were expecting the government to issue a blank cheque, we asked London Economics to model the costs of:

• Re-introducing maintenance grants for full-time students;
• Introducing maintenance grants for part-time students; and
• Providing extra teaching grant money to subsidise the costs of part-time study and so cut fees.

And also to model the impact on:

• Student debt levels and loan repayments; and
• Key government accounting measures like Public Sector Net Debt (PSND) and the Public Sector Borrowing Requirement (PSBR – a common measure of the national deficit)

Taken together, restoring maintenance grants for full-time students, introducing them for part-time students and providing extra teaching grant to cut the cost of part-time study has an additional cost to the exchequer of £800m. Raising the maximum interest rate to 4% for the highest earners (and arguably making the system more progressive) brings this down to £400m. In a system that costs £8.5bn per cohort, these proposals are costly in absolute terms but significantly less than the £2.85 billion additional cost associated with raising the repayment threshold.

And when you run our proposed changes through the government’s current accounting measures our proposed changes to the student finance system would add almost £600m to the deficit instead of helping to pay it down.

Which is a problem because the post-18 review is meant to produce recommendations “consistent with the Government’s fiscal policies to reduce the deficit and have debt falling as a percentage of GDP”.

Get back

So, we asked London Economics to model something else as well.  Not just what it costs to go about fixing these problems with the rest of the HE finance system untouched but what it would have cost if the Prime Minister had decided to have a normal review of post-18 education and funding. One where you review first, then make changes, rather than make changes first and then review. The problem with Theresa May’s backwards approach is that it makes recommendations “consistent with the Government’s fiscal policies” very much harder to achieve.

But, if the Prime Minister wasn’t living backwards she could, for example, decide to honour the previous Coalition government’s original promise on the student loan repayment threshold – that it would be set at £21,000 rising annually with earnings. If so, this new London Economics analysis shows these policy proposals on student poverty and part-time study would deliver lower annual debt than the baseline, and make a continuing contribution to paying down the deficit (albeit at a lower level than now). Indeed, the government could even increase maintenance grants above their 2015/16 levels by 10% and still be helping to pay down the deficit.

The (backwards) road not taken

In government, developing and implementing policy is about making choices within constrained resources, balancing the benefits and costs of different options. It was right to do something about the repayment threshold precisely because the 2015 decision to freeze it was wrong. Wrong because as a retrospective change to the loan terms and conditions it was unfair and reneged on a promise to students.  And wrong because it undermined wider public confidence in the system, making an otherwise effective policy instrument for sharing cost look dodgy.

So Theresa May was right to address that unfairness. But by more than addressing it, by picking such a big number as £25,000 for no obvious reason (perhaps simply because it was a big number, something her advisers thought would sound good in a conference speech) and by changing part of the system before you’ve reviewed all of it – by living backwards – the government has limited its own choices. As the White Queen explained to Alice, living backwards “always makes one a little giddy at first”.