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The autumn statement, the Treasury and postgraduate funding

  • 10 November 2014
  • By Nick Hillman

The Director of Hepi, Nick Hillman, discusses some of the issues around postgraduate funding that are under discussion in the Treasury.

As the UK’s only specialist think tank on higher education, Hepi keeps a close eye on the higher education work undertaken by the generalist think tanks of the left and right – and centre. For example, we recently evaluated new proposals here on undergraduate finance from the free market Institute of Economic Affairs.

A newer contribution that is receiving wide coverage is the proposal by the centre-left IPPR to extend undergraduate loans to some postgraduates:

‘All students studying a taught masters course would be eligible to borrow £10,000 to cover the cost of their tuition fees, irrespective of the duration of study, or whether they are studying full-time or part-time.’

They have impeccable timing, given that the Treasury will announce their own proposals on postgraduate funding in early December. If Ministers do plump for extending loans to taught postgraduates, which seems likely, the IPPR will claim some influence.

But policymakers should recall the ball was started rolling by CentreForum, a generalist think tank close to the Lib Dems. They were the first to model carefully the extension of undergraduate loans to postgraduates in an important report authored by Tim Leunig, now a senior official in the Department for Education, that appeared in 2011.

This is not just an issue of parentage. It is also a matter of modelling. The CentreForum proposal differs in an overlooked, but key, way from the IPPR one.

IPPR: ‘We assume that no maintenance support is available to students.’

CentreForum: ‘This additional loan would be for maintenance’.

The classification of the loan as tuition or maintenance may seem dull and esoteric. But it is important for at least two reasons:

1. it is harder for institutions to price their courses at the maximum loan level if the loan is formally designated as being for living costs; and

2. students from other EU nations are not entitled to support for living costs, unless they have resided in the UK for a number of years, but they are entitled to any support available to cover the costs of tuition.*

There is another important issue with the modelling undertaken by both the IPPR and CentreForum. The low cost is dependent on the new postgraduate loan having a lower repayment threshold than undergraduate loans – £15,000 versus £21,000. This ensures that the two loans are repaid concurrently and is neat in public finance terms. However, I would wager a half-decent sum that the officials inside HMRC will currently be telling their political masters that it is unworkable.

The figure of £15,000 entered the frame because it was the threshold for pre-Browne student loans. But it is now a piece of history. The earliest a new postgraduate loan system could start is autumn 2015, by which time the old £15,000 repayment threshold will have reached £17,335 – as it is increased each year in line with inflation. Because student loan payments are taken from payroll, HMRC find it hard to run two thresholds side-by-side. They will baulk at the idea of running three: £15,000 for postgraduate loans; £17,335 for pre-Browne loans; and £21,000 for post-Browne loans.

This matters because the affordability of the system relies crucially on the size of the gap between the threshold for the new postgraduate loans and the threshold for the repayment of undergraduate loans. If it is £6,000 (£21,000 minus £15,000), then the postgraduate loans get repaid much more quickly and the default rate is much lower. If it is £3,665 (£21,000 minus £17,335), the loans will be repaid sluggishly and costs will be higher.

The gap between the two figures also depends on the uprating of the £21,000. While the Government says the £21,000 repayment threshold will go up in line with earnings in April 2017 and thereafter, that commitment could well fall, for example during the spending review that follows the next election.

I recently wrote in Times Higher Education about the intellectual challenge faced by those critics of the Government who argue concurrently that the undergraduate funding model is broken and that it should be extended to postgraduates. That is not a problem the Government faces, given that they continue to regard the undergraduate funding model as financially sustainable. But, as they finalise their autumn statement package for postgraduates, they may need to undertake their own careful modelling – as well as digesting the latest warnings from some Russell Group institutions who want a scholarship rather than a loan-based model.



CentreForum: ‘Notice too that because the proposal creates a maintenance loan, eligibility is limited to UK domiciled students only. This reduces the upfront cost to government, by reducing the number of students who are eligible to receive it. It also eliminates the difficulties of trying to ensure repayment by foreign students who return home after studying here. The British PAYE tax system is reasonably good at recovering student loans from people in Britain, but it has no ability to recover them from foreigners who are not domiciled here, and do not pay tax here.’

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