Scottish symbolism over fees obscures options on university funding

There’s the sticker price on your fees (which to some extent dictates how much is spent on your education), the threshold over which you’ll start repaying debt, and how long you’ll be paying “back” for – dictated by the repayment rate, the term length and any interest put on your loan.

I’ve written on here before that the symbolic debate over debt and the “sticker price” on fees tends to obscure realities about how much graduates in different lifetime income deciles will actually pay for their education.

In Scotland, the symbolism for the SNP Government of not levying fees is powerful. But with Universities Scotland now ratcheting up the warnings over quality and places, it’s worth a brief dive into the detail from a Scotland point of view.

In England, thanks to frozen fees, a lower repayment threshold and a 40 year term, the majority of the cohort entering higher education in 2023 look set to pay the majority of their loans back over their lifetime.

Depending on how you weigh the value of graduate repayments in 20, 30 or even 40 years time, that means either that the Treasury will make a much smaller loss on those loans (what we used to call the government’s contribution to higher education) or even, via some estimates from some economists, make a profit.

That’s why the difference for Scottish domiciled students on free fees has not, in the past, been nearly as pronounced as has been made out. Because Scottish students borrow less, they have tended to pay much more back over their lifetime.

The IFS reckons that 2023 entrants will borrow £25.9k in maintenance on average – and will pay back £22.2k over their lifetime in real terms, a subsidy of around £2,600 each.

Interestingly, if the UK government used the Treasury’s discount rate, IFS estimates the RAB charge for the 2023 Scotland cohort using the UK government preferred discount rate to be minus 11% – suggesting the UK government will actually make around £2,800 on average per student.

What’s fascinating about that is that the loss – or profit – isn’t in the Scottish budget. It’s covered by the Treasury as an “annually managed expenditure” (AME) programme, and so financed by the UK government.

In other words, if the SNP government sticks to its guns, it has to find extra funding for Scottish universities from its own budget. But it can, within reason, increase student maintenance loans with no hit to its own budget – as it is set to do this coming September.

I say within reason because the official rules say that the loan outlay and eventual write-offs being funded by the Treasury have to result in broadly comparable costs to the English policy – although it’s never been clear whether that means in total, per student or whatever (or whether worse terms in England will have an impact on what Wales, Scotland and NI offer).

Either way, the increase in maintenance loans – one that notionally allows the SNP to say that it hit its maintenance commitment being anchored to the living wage – obviously hasn’t resulted in a barney with the Treasury thus far.

That leaves the SNP in quite a bind. General public expenditure is under pressure in Westminster, with cuts pencilled in for after the election. That has Barnett consequential impacts that make it hard to find money for universities.

But what it also means is that on the assumption that the Westminster government would cover any subsidy on student loans if fees were reintroduced, the policy cuts its subsidy nose off to spite its funding face.

Let’s imagine that Scottish students were paying £3,000 fees, and take into account that they’ll be borrowing more in maintenance from this coming September. Let’s thumb in the air and imagine that would represent a RAB-charge subsidy of 30 per cent – more borrowing and less gets paid off overall.

Per student, that would be a £1,080 extra subsidy from the Treasury that wouldn’t touch Scotland’s budget. Yes it’s the case that students would pay more over their lifetime – but it’s therefore also the case that because the Scottish government won’t generate student debt out of tuition/university funding, it’s passing up a lot of subsidy cash that the Treasury would in theory give it for free.

You might think “well, surely the Treasury should hand it over then”. But that’s not how it works – because that RAB charge is so sensitive to ups and downs in the macroeconomic environment, it’s not simple to just convert it into cash now. Which is precisely why it’s managed by the Treasury rather than by the Scottish Government.

It results in a weird pickle, where in theory the Scottish Government could ratchet up maintenance loans even further with no impact on wider budgets, but won’t or can’t allocate any debt to university budgets.

That’s where things could get interesting, though. Pretty much everyone in the UK looks at a lot of Europe and sees free or almost-free fee policies – where there are often student services, contribution, registration, or compulsory SU fees lurking around.

Tuition is free in Ireland, for example, but the maximum rate of the “student contribution” fee for the academic year 2023-2024 is €3,000.

Today in Holyrood, Scottish education secretary Jenny Gilruth said she was “content” with the funding the Scottish government is providing to universities “in the context of a funding cut to the UK government.” MSPs had raised recent comments from Queen Margaret University vice chancellor Paul Grice about the need to rethink the Scottish HE funding model – Gilruth said the SNP was committed to “free tuition”.

So in theory, one option would be for Scotland to keep “tuition” free, but to levy some sort of admin/registration/welfare fee – and loan students the money to pay for it.

If it was up to me, that would come with some conditions – separate governance (possibly city-wide as we see in countries like Norway) or with heavy student input (as is the case with the separate student services budget line in Belgium), as well as some specific things it should pay for – minimum funding for mental health and student associations, “hardship funds” that are more like student insurance funds, as well as a transfer of some other costs from existing university budgets.

If a Scottish student were to pay, say, £2,000 extra a year in that sort of fee, “tuition” would still be free – and if the RAB was up a bit at my thumb-in-the-air 30 per cent, they’d only on average be paying £5k more on average over their lifetime. They’d borrow more, but it’s the richest grads that would pay most of it, and everyone would have spent more on their education and support.

But I suspect it won’t happen, such is the power of the symbolism. That’s a shame, arguably.