The Political Economy Research Centre (PERC) at Goldsmiths, University of London, recently put up a post entitled ‘Debt Briefing 01: Student Debt in the United Kingdom‘. This was part of an ESRC-funded project on ‘Crafting an Alternative Politics of Debt’.
The piece is a useful summary of some of the debates around the current model for undergraduate finance (particularly the debates against the model). But it also includes some highly contentious claims that benefit from a cloak of objectivity.
Here are six that are perhaps worthy of more debate.
- ‘Policy-makers justify loans by claiming that students are the ultimate beneficiaries of the attainment of a university degree – a student loan is like a mortgage, you are borrowing to invest in an asset. This belief is based on seriously flawed assumptions about the contributions of students and universities to the wider UK economy. … If student loans are like a mortgage, then it is a subprime mortgage.’
It is questionable whether policymakers justify student loans by drawing comparisons with mortgages. They may have done so when mortgage-style loans were taken out between 1990 and 1998, but the distinctive feature of the income-contingent loans that replaced them 17 years ago is that the size of repayments is not linked to the size of the debt, as occurs with a mortgage. These days, policymakers are more likely to claim student loans resemble a type of graduate tax than a mortgage. (There are plenty of other differences between student loans and mortgages too, such as the built-in life insurance and the 30-year write-off period.)
- ‘The UK’s current student loan market is a hodgepodge of different types of government-backed loans, with limited success in selling them on in secondary markets. Rothchilds [sic] Consultancy independent review of the student loan book concluded that it was so dismal that the proposed sell-off during the last Coalition Parliament was halted.’
It is a hodgepodge and much of the loan books remains on the nation’s books. But, on the other hand, the original mortgage-style loans have been successfully sold in their entirety via three different sales (in 1998, 1999 and 2013). While sales of the other loans have not been made (yet), there is legislation on the statute book to let it happen and the report from Rothschilds backed further sales rather than opposed them, as admittedly one might expect given their line of business. Vince Cable (as the relevant Secretary of State in the Coalition years) was not so keen on any such sales, although it was at least in part for political rather than financial reasons (http://www.theguardian.com/money/2014/jul/20/vince-cable-cabinet-tensions-scrap-student-loan-sell-off), but the current Government have confirmed they will sell off some of the income-contingent loan book – just as Labour had planned to do had they remained in office.
In other words,
- the sales that have gone to market have not had ‘limited success’;
- Rothschild did not paint a ‘dismal’ picture of future sales;
- the Coalition made one student loan sale on top of the two made by Blair’s Government, but other sales were halted at least in part for political reasons.
- ‘Income-Contingent Repayment Loans are an untested new loan product whose entire value is determined by opaque and highly optimistic modelling of repayment across a student’s life-cycle.’ ‘[Greater student debt is] creating a financial market for highly suspect “income contingent loans” which are a totally new loan product.’
Income-contingent loans are not new. They have existed in the UK since 1998 and were used in other countries before then. For example, there were income-contingent loans to cover the costs of higher education in some parts of the United States, including at Yale, in the 1970s and Australia has had income-contingent student loans since the 1980s. While the modelling of repayments from the current English loans may have been ‘highly optimistic’, recent changes to the repayment terms (such as the freeze to the repayment threshold) will increase the repayment sums – indeed, that is why the change is so controversial.
- ‘Given the current global financial climate, there is unlikely to be much appetite from investors for this type of loans.’
Possibly. On other hand, pension funds and others want index-linked securities, which are quite hard to come by. The independent Office for Budget Responsibility, who admittedly have displayed a rather poor understanding of higher education in recent times, accept the Government’s assumption that student loan sales worth over £11 billion could take place over the next few years.
- ‘the latest Green Paper continues the trend of expecting students to take on private debt so the government can claim to be reducing its public debt. In reality both private and public debt levels continue to grow.’
Not quite, as the green paper is not really about funding. Student debts will go on getting bigger – not least because of the regrettable abolition of maintenance grants, which was announced before the green paper appeared – but official documents are clear about the impact on the national debt of much bigger student loans. (See, for example, the sources quoted in https://www.hepi.ac.uk/wp-content/uploads/2015/05/Accounting-and-Budgeting-FINAL.pdf and Office for Budget Responsibility material.) This recent story from the Mirror shows how easy the figures are to come by: http://www.mirror.co.uk/news/uk-news/student-loan-debt-hit-1trillion-7032408.
- ‘Rising student debt levels are exacerbating inequality, threatening to eliminate a university degree as a route out of poverty and potentially be a source of downward social mobility.’
This argument is hard to sustain, at least beyond part-time and mature students. For example, UCAS have just issued a press release with the headline, ‘Record numbers of students accepted to UK universities and colleges this year’. The growth was most impressive in England and particularly benefited students from poorer backgrounds: ‘Students from the least advantaged backgrounds in England were more likely to enter higher education, including “Higher Tariff” universities, than ever before.’
The Goldsmiths blog additionally claims:
The slow recovery in the UK job market means that it is uncertain whether today’s graduates will be able to enjoy the same income gains from a university degree as previous age cohorts (the same groups that had a state subsidised university education).
Few would argue against the idea that this ‘uncertain’, for one can know for certain what will happen in the future. But the claim should perhaps be counterbalanced by the arguments of those who think the financial benefits of attending higher education could continue to remain high. Andreas Schleicher put it rather more even-handedly in his recent HEPI Annual Lecture:
Despite the rapid decrease in knowledge workers in virtually every OECD country, this has not led to a decline in the labour market value of qualifications. That tells us that the demand for better skills is rising faster than the supply. At least so far. Nobody knows how long this will continue. But maybe if we had asked ourselves the same question 100 years ago for school education, we would have had the same debate. How many people do we really want to complete school? How many of them do we really need? Maybe we are living in a time where tertiary education, whether it is university or other forms of tertiary education, is becoming the norm.