This blog was contributed by Dr John Cater, Vice-Chancellor of Edge Hill University.
Throughout the past decade, and to some extent for the 15 years that preceded it, politicians, the media, families, graduates and aspiring graduates have obsessed about student tuition fees and maintenance grants and loans. And for good reason. An income ‘tax’ it may be, but the loan is still perceived by most as a debt. It is the largest or, if one is lucky enough to get onto the housing market, the second-largest (perceived) debt an individual will incur in their lifetime.
But, throughout the last decade, whilst litres of printer ink have been devoted to headlines about fees, precious little has been written about the impact of the £9,000 fee and the shift from bursaries and grants to income-contingent loans on socio-economic behaviour. Why? The effect is (mostly) delayed far beyond immediate political or media horizons, but with over half the population experiencing higher education by the age of 30, the impact is becoming more significant and will be considerable and cumulative over time.
Let’s start with the housing market. It is often stated that banks do not regard a student loan as a debt (although banks are interested in disposable income). Graduates are, for the most part, deemed ‘low risk’. But paying basic-rate income tax at 29 per cent (when the additional nine per cent repayment on earnings above £27,295 is factored in) has a significant impact on affordability. The gap has become a chasm for many, with supply-side shortages contributing to inflation-busting house prices. It should be no surprise that home ownership rates are plummeting, particularly amongst those under the age of 35.
Equally important is the effect that the tax system may have on labour market behaviour. A reasonably successful graduate employee, earning circa £60,000 each year, will pay around £19,000 in income tax, national insurance, and student loan repayments. A couple, each earning some £30,000, will have the same gross household income but, for those able to make the choice, pay at least £7,000 less in income tax, national insurance, and student loan repayments. In this scenario, only the working couple would be entitled to child benefit. Job-sharing, fractional employment, and flexible working – all doubtless accelerated by COVID-19 – have a financial as well as a lifestyle benefit, whilst denuding the centres of towns and cities of activity.
Over time, a positive outcome might be better distribution of domestic responsibilities, with more dads involved in childcare, more in evidence at the school gates. But this hits on another variable, the reproduction rate. The number of live births in the United Kingdom has fallen in each of the past five years, and there is no sign of this trend reversing. The age at first conception, where it occurs at all, continues to shift markedly later, and economic uncertainty and an insecure place in the private sector housing market are hardly likely to reverse that trend. The fertility rate in much of the west is now well below the renewal rate of two live births per woman, and we could easily see the implications of China’s one child policy play out across Europe. In the past, inward migration has bridged any gaps, but a more restrictive policy environment lessens the likelihood of that recurring.
It would, of course, be both naive and wrong to align all, or even most, of these societal changes with tuition fee and maintenance loan policies. But it would be equally wrong to presume they have no effect on individual behaviour; the impact of high levels of perceived debt shaping aspirations and, for some, their wellbeing and psychological health. Using the example above, the Chancellor’s tax take is hardly secure either.
We await the Department’s response to the Augar Report and, in all probability, an Education White Paper. But the most heavily trailed possibility, a lowering of the threshold at which graduates start making repayments, would undoubtedly contribute further to the trends identified above. Perhaps a conversation about the kind of society we may wish to help shape is at least as important as the policy headlines the current year will bring?
HEPI’s other recent work on student finance includes a call for a new sort of graduate contribution scheme, an assessment of how to support higher education while reducing public spending and modelling on different student loan repayment thresholds.
The critical point for me in this interesting article is “Perhaps a conversation about the kind of society we may wish to help shape is at least as important as the policy headlines the current year will bring?”
If we compare the way a degree is funded with semi equivalent apprenticeships, the complexity increases. For the individual student there is no “student loan contribution repayment – SLCR” to worry about or to weigh up. The employer pays for the bulk of the cost and the Government has less to worry about “under recovered student loans”.
A fully qualified law student under a Legal Apprenticeship degree, probably has the least to worry compared to a standard University law degree when it comes to net income after the deductions mentioned above.