Shall we get on with fixing student finance? or just change the name?

In an environment where there is unlikely to be money in the pot for raising the graduate repayment threshold, cutting repayment rates, cutting interest rates – and where even (as reported on Wonkhe last month) the small residual amount of direct funding for higher education teaching is under threat – will changing the name of the system do?

How do you feel about (as has been suggested, apparently seriously) a “graduate contribution”? What if we redesigned your annual statement from the Student Loan Company to make the massive and growing amount that you are told you owe less prominent?

Think-tankers (the ever-impressive Kate Ogden from IFS, Toby Whelton from the Intergenerational Foundation), Universities UK’s Vivienne Stern, and the last man who had even a small opportunity to fix higher education finance (Philip Augar) were questioned on how the impossible might be achieved by MPs from the House of Commons Treasury Committee in the first of a series of inquiry hearings.

The genesis of the hearing stemmed from the howls of anguish heard among 30-something plan 2 student loan holders, who in January of this year started to see their SLC balance grow inexorably towards six figures. As such, we heard very little about the postgraduate (plan 3) scheme that sees 9 per cent monthly repayments start at a threshold comfortably below the full time minimum wage – and the plan 5 offered to current students (a lower threshold, forty years of repayment, but no interest rate) was described as a better deal in the very narrow sense that the total repayable won’t grow quite so fast.

Things started promisingly enough as we entered into a discussion about what the split between state and graduate contributions to higher education fees should be. Philip Augar’s report has recommended a 50-50 split, and the recent threshold freezes have pushed things beyond the point where graduates cover three quarters of the cost (figures vary depending on underlying assumptions).

While the interest rate makes the amount look scary, the things that most affect recent graduates are the repayment threshold and the repayment rate. The questions of the balance of contributions, or on the signalling regarding the overall fairness and nature of the system, or indeed the interest rate, are second order presentational problems that would do little to address the real problems faced by young graduates at the start of their career.

Augar himself was still keen on parity, but rather than calling for the government to fix things unilaterally he sought a public debate on the balance of contributions. Toby Whelton argued that there was little justification for above inflation interest rates, as subsidy from higher earners was “not a sensible system”. Kate Ogden wants to scrap the use of RPI in setting the interest rate, but wants to use the government rate of borrowing (or at least CPIH). Vivien Stern agreed with Augar on a conversation about balance, and almost with Ogden (CPI not CPIH).

RPI will, of course, become a methodological variant CPIH in 2030, eventually converging with CPI. So all we have to do there is wait.

The conversation also addressed the transparency of the system – Stern noted that even substantial detrimental changes to repayment terms generally resulted in “Wonkhe hopping up and down” but very little wider attention. I think she was suggesting that more people should read Wonkhe.

What we seemed to building towards in part one of the hearing was that the student loan system is so byzantine in nature that it was difficult to understand whether or not students could reasonably be expected to understand it. Although to be clear when applicants were told (as they were) that the repayment threshold would rise with the cost of living each year, that feels like a fairly straightforward statement.

Rather than agreement on fixing a state of affairs that the panel pronounced “outrage” about, we moved on to the idea that satisfactorily explaining it, and higher education more generally, would be helpful – from here came the “graduate contribution system” idea and the SLC statement redesign (as per Martin Lewis). Kate Ogden suggested that income tax should be calculated after student loan deductions, a suggestion that would make for a much more appealing student finance system, but would cost the Treasury several billion pounds.

This comes at a point the Treasury is hoping to save some money by cutting the Strategic Priorities Grant – the remaining £1bn used by the Office for Students to support “high-cost” subject provision. Stern tells us a letter is on a desk at the Department for Education, waiting to be sent (we suspect the OfS annual guidance letter) that contains significant – Treasury directed – cuts. This gave Augar a chance to rehearse his scepticism about the true cost of teaching: despite significant evidence to the contrary, he feels universities are spending too much on “world-class” teaching.

On wider information, Philip Augar had spotted “a little known website called” Discover Uni (perhaps he was the only one?) and pronounced it “clunky”. But what was never clear is whether information – be that about the wider system or the courses it supports – was enough to address the baked-in problems in higher education finance or student repayment.

What’s salutary to note is that the panel (with the notable and welcome exception of Vivienne Stern) were happy with Plan 5, which removes the opportunity for subsidy within a cohort while extending repayment terms and lowering the repayment threshold as a means of reducing government subsidy of the system. Augar, interestingly was very happy with 40 years of repayments on the grounds that graduates benefit from their qualifications throughout their working life, without noting that those who really benefit paying far less.

The main point of interest from part two of the hearing – featuring NUS’ Alex Stanley, campaigner Oliver Gardener, and Kieran Walters from the Prospect trade union – was that students and young graduates were not as concerned with the interest rate (which generates the scary number at the bottom of the SLC statement) and more concerned with the repayment threshold and repayment rate (which control the amount deducted from their pay each month). There was not a lot of support for changing the name, and only limited appetite for better explanations of the system.

Part three – featuring Jacqui Smith as responsible minister, and chief Treasury secretary Lucy Rigby, will be on 10 June.