For most of the academic year, students have been calling for some kind of “tuition fee rebate” in recognition of the year they’ve had.

This isn’t really the place to get into the relative merits of or universality of any case – suffice to say that the fact that universities have had incredible value for money out of the salaries paid to staff over the past year ≠ students have had great value for money from their investment over the past year.

Even if we set aside the harm caused to some students by insisting on a move to campus without a meaningful reason to be there, it’s now looking pretty clear that while the teaching per se has been appreciated, it’s everything else that’s been a problem – and we don’t just mean social lives.

67 per cent of students say there’s been less practical work such as time in labs or on field trips, and 62 per cent say less small group discussions such as seminars or tutorials. 76 per cent say there’s been less informal study discussions with peers and academics and 57 per cent say there’s been less chance to ask for feedback formally or informally on concepts they don’t understand.

So what do you do about that? Frustrated by a lack of recognition that the problem has been fairly universal, and mindful of constraints on both the exchequer and on universities themselves if thousands of complaints were upheld, a couple of students’ unions (LSE and Sheffield) commissioned London Economics to analyse a range of approaches that would provide students with a form of financial rebate equating to 30 per cent of the max home UG tuition fee – in a way that would be both fiscally neutral for higher education institutions and HM Treasury.

And in doing so, they kick off in earnest a fascinating debate about the nature of the current loan scheme, and the way in which pulling some of its levers impacts different graduates.

Rates of interest

Different petitions from students call for different things. Some (naturally) continue to call for all fees to be scrapped. Most call for a rebate of some kind – usually in the form of a straight reduction in the “principal” debt level. Some SUs have worked out that that wouldn’t benefit most graduates who won’t pay off in full anyway, and so have wanted to see how much some maintenance help would cost for students who’ve lost part-time work, or reducing repayments earlier in a graduate’s career to addressing the hostile graduate jobs market that students are being despatched into.

That “reduce the debt” option, by the way, is modelled in London Economics’ “Scenario 1”. To wipe £2,700 off the principal would cost £227m net, but the entire benefit would be accrued by male graduates in the top 3 earnings deciles. Male graduates on the 7th, 8th and 9th deciles would be £4,200, £4,000 and £3,800 better off (respectively). All other graduates would be unaffected.

Some – like these vice chancellors and former universities minister Chris Skidmore – have called for the interest rate on student loans to be cut. So as we enter the counter-intuitive land of loan scheme lever pulling, playing with the interest rate is worth considering too.

London Economics’ “Scenario 6” involves the removal of “real” interest rates – both during study and post-graduation. For the Exchequer, the cost of removing real interest rates would be £1.230 billion (resulting in the increase in the RAB charge (by 6.7 percentage points). The proportion of graduates failing to entirely repay their loan balance would decline by 14.5 percentage points to 73.7%.

Graduates as a whole would be better off (by £1.230 billion). But the removal of real interest rates would remove much of the progressivity from the loan repayment system – the entire benefit would be accrued by male graduates in the top 3 earnings deciles and only the very highest female graduates (by between £13,000 and £20,000). The remaining 80% of graduates would be unaffected by the removal of real interest rates.

It’s a textbook case of “good politics and comms” but “astonishingly bad policy”.

Tough twenties

Lots of commentators bemoan that Theresa May raised the repayment threshold, “putting money back into the pockets of graduates with high levels of debt” and in the process made the loan scheme much more expensive than previously. The Augar review for example wanted to see the threshold fall again.

You can make just as good a case in a graduate jobs and housing market like this to raise it further – and here again a story about what is and isn’t progressive can be told. LE’s “Scenario 7” illustrates an increase in the repayment threshold to £30,000 (increasing with nominal earnings growth) alongside an increase in the interest rate thresholds. At a cost of £1.545 billion, the only graduates that wouldn’t benefit are the third that would not have been expected to make a repayment under the old threshold.

The problem is that while this threshold increase might be good for those graduates, it would be a textbook case of “good policy” but “astonishingly bad politics and comms” – just as it was when Theresa May launched a dizzyingly expensive threshold increase, only to get no credit for it whatsoever.

Good politics and good comms

If “integrity is doing the right thing, even when no one is watching” the holy grail for politicians is a policy that combines doing the right thing with the warm glow of public approval for doing it.

That almost certainly involves “cash in hand” for students and graduates – partly because the maintenance system was broken before the pandemic, partly because students’ ability to earn while they learn has been badly hit, and partly because a large proportion of them are graduating with commercial debt on top of their SLC “debt” that has notably less benign repayment conditions.

So taking the “everyone says about a third” thing that’s in lots of petitions, the SUs asked LE to work up how to get a £2,700 fee rebate – in the form of a non-repayable cash grant (something the Guardian unhelpfully omitted to mention in its coverage) into the pockets of students – and for illustration asked for the modelling to be fiscally neutral for universities and the taxpayer.

To get there – to give a £2,700 cash grant to all students in the scheme – LE modelled three options:

  • One was to increase the term by 6 years from 30 to 36 years – a resource transfer from graduates in the future to students today. But middle-income male graduates would be approximately £3,000 worse off, while higher-earning female graduates could be up to £11,000 worse off.
  • Another was to model reductions in the repayment (and interest rate) threshold – where the reduction required was estimated to be £2,075 – down to £24,500. That would hit lower earning (predominantly female) graduates, male graduates on the 8th and 9th deciles would be unaffected, and middle-income male graduates (5th decile) would be approximately £4,800 worse off, while higher-earning female graduates (8th and 9th deciles) would be up to £5,400 worse off.
  • So the third idea was to model increases in the real interest rate post-graduation – from 3.0% to 6.2%. And here’s the thing. Because post-graduation real interest rates are the key component of the student finance system that delivers progressivity, doing this doesn’t impact male graduates on the 6th decile and below or any female graduates. It’s only the highest-earning male graduates (8th and 9th deciles) who would be approximately £26,900 and £29,800 worse off, respectively.

Will it fly?

We could have a complicated debate about how to compensate international students, or those on PG programmes, or those whose learning has been largely unaffected this year. But to do so – to pick holes in what’s been proposed here on behalf of particular cohorts or circumstances – would for me to be to miss the point.

The important thing that these students’ unions have done for us, via some robust modelling, is to first remind us that maintenance really matters. Putting a cash payment in for students that would hit their actual pocket now would make lots of sense, relieve many of them of some commercial debt, and stimulate economies. And as a gesture of goodwill, it would be inherently fair.

But crucially, it also cleverly reminds us that in the debate about making England’s higher education system cheaper that will now follow in the run-up to the Autumn’s Augar response, there are important choices to make about the “balance” between the three options of reducing student numbers, reducing spend per head and making the scheme more efficient – and there are further important choices within “making the scheme more efficient” that would impact different graduates in different ways.

Above all, in this Gordian knot shapeshifter of a hybrid system that we have – which presents as a loan one minute and a graduate tax the next – it reminds us that the more we move the system “back” towards a traditional loan scheme, the more regressive such a move would be.

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