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HEPI publishes analysis of Government concessions on HE funding and student finance

  • 14 December 2010

Higher Education Policy Institute publishes analysis of the Government’s concessions relating to the future financing of higher education and student fees

Addendum to HEPI report number 50 published today.

In a commentary on the government’s proposals for the future financing of higher education and student fees, HEPI analysed the financial implications of these proposals and concluded that they were extremely sensitive to assumptions about future graduate earnings and also about the level of fees that universities would charge. On the latter, HEPI concluded that unless measures were put in place to restrict the fees that universities could charge then most would charge around or close to £9000, whereas the government’s assumption was that such a level of fee would be “exceptional”, and that an average of £7200 will be charged. No measures have been announced subsequently to control the fees that universities may charge, and so it remains possible – and in HEPI’s view as likely as not – that the average fee that is charged will be considerably higher than the government has allowed. This makes a large difference to the cost and savings that the government can expect, because the higher the level of the fee that is charged the greater the loans that will be required, and because the loans are subsidised, the greater the cost to the government

On the question of graduate earnings, we pointed out that the government’s assumption that graduate earnings would rise by 4.7% each year in real terms was very optimistic, but that also its assumptions about the amount of money that it would recoup was very sensitive to this assumption. A reduction in the assumed earnings growth from 4.7% annually to just 3.3% would wipe out any savings compared to the present arrangements.

Last week the government announced a number of concessions and, in particular, that the earnings threshold for repayment of £21,000 per year would be uprated annually – instead of every five years as had originally been planned – and also that part-time students undertaking one quarter of a full-time course each year would be eligible for loans – instead of limiting loans to those undertaking one third of a full-time course. The first of these concessions – the annual uprating of the threshold – will add substantially to the cost, and we have calculated that on the basis of this further concession alone the government’s assumed savings will be wiped out if graduate earnings increase by 3.75% per year instead of 4.47%. That is to say that if the earnings increase falls short of the government’s assumptions by just 16%, there will be no savings.

It is apparent that whether or not the government’s assumptions are correct, its calculations of future savings are extremely sensitive to the assumption that made, and for that reason we think it would be wise to assume that savings, if any, will be marginal, and indeed that the government’s new proposals are as likely to cost as to save public money.

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