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How to read today’s expected announcements on higher education from the Westminster Government: 10 points of note

  • 24 February 2022
  • By Nick Hillman

HEPI Director Nick Hillman tries to make sense of what we already know about today’s higher education announcements.

1. An increase in the student loan repayment term to 40 years: The increase from 30 to 40 years will mean the average former student will in future repay for longer and that a higher proportion of all graduates will extinguish their loans. As a result, it meaningfully reduces the student loan write-off bill for taxpayers. There hasn’t been much prior chatter about such a long increase – HEPI’s own modelling with London Economics, for example, considered a 35-year repayment term. But the Augar report provides Ministers with covering fire, as that recommended a 40-year term on the grounds that ‘borrowers should continue to repay their loan for as long as they benefit’. Moreover, the 35 years that we modelled affected key variables – such as the proportion of the student loan book expected to be repaid – less than we initially expected and, as 40 years is materially longer, it will make more difference. Nonetheless, the new repayment term is a whopping eight times longer than the repayment period faced by the first cohort to have student loans back in 1990, as the original (mortgage-style) student loans generally had a fixed repayment term of five years. It is worth noting too, however, that – even after the extension from 30 years to 40 years – the repayment period will continue to be capped, in contrast to Australia and New Zealand where there is no term limit. (Indeed, in Australia there have even been calls to add student loan debt as a claim on people’s estates when they die so that it can never be escaped.)

2. The removal of student loan Interest for new students: This tackles a middle-class concern – in his recent HEPI paper, the former Minister for Universities and Science, David Willetts, called the real rate of interest ‘the key political problem.’ Eradicating it for new students will affect them in different ways after they leave higher education:

  • The very richest graduates won’t benefit as much as some others because they would pay off their loans relatively quickly even if the current interest rules continued to apply.
  • Other graduates will see their total loan balance reduce more quickly than they would under the current system and so, even if the increase in the loan repayment term were not happening alongside, they would be more likely to extinguish their loans. Given the longer repayment term, many will still repay more in total despite the abolition of interest, which explains some of today’s newspaper front pages. In other words, for some people the removal of a real rate of interest offers an appearance of more jam today while providing less actual jam tomorrow.
  • Even with the longer repayment term, abolishing interest will not affect the very poorest graduates because, if you are not going to get close to repaying your loan before it is wiped out, it does not matter much what interest rate is applied – this is why Martin Lewis says: ‘For some graduates, student loans are INTEREST-FREE, and most won’t come close to paying the full interest’. It is also important to recall the oft-forgotten fact that, after leaving university, the real rate of interest currently only (gradually) kicks in once you reach the repayment threshold (£27,295 in 2021/22). So abolishing the real rate of interest only affects the loan balances of graduates on medium to high salaries because those on the lowest salaries already face no real interest.

Given that removing real interest is regressive in its effects, why is it happening? The answer lies in New Zealand. As HEPI has previously shown, when the real rate of interest on student debt was abolished there, it was described as ‘a blatant, unapologetic pitch for the middle class vote – and it probably worked’. When asked whether he would reimpose interest, the centre-right Prime Minister John Key bluntly replied: ‘it’s not politically sustainable to put interest back on student loans. It may not be great economics, but it’s great politics.’ While I have focused here on the impact on graduates, it is important to note too that the abolition of a real rate of interest will help hold down the loan balances of all borrowers while they are students, as the maximum real rate of interest (3% plus RPI) is currently applied during study. This is something the Augar report recommended ending, calling on Ministers to: ‘Remove real in-study interest, so that loan balances track inflation during study.’

3. A lower student loan repayment threshold: The reduction in the repayment threshold to £25,000 will be seen by many as controversial, especially when considered alongside the increase in the repayment term to 40 years. Yet, judged on its own, it is not that radical. The threshold will remain much higher than others have modelled or recommended, for example: HEPI’s modelling with London Economics considered a threshold of around £20,000 and the recent paper by David Willetts recommended a threshold of £21,000. Last year, it was rumoured that Ministers were considering a threshold of £23,000. Now, they have plumped for announcing a new threshold that is just 8 per cent lower than the current one and which is broadly in line with average graduate starting salaries, and then limited it to new students only. On the other hand, if the threshold is set at £25,000 for people entering higher education in 2023/24, their repayments are not due typically to begin until 2027, by which time £25,000 will be worth less in real terms than it is now.

4. The shadow of new student number caps: Ministers plan to consult on the ‘principle of controlling student numbers’. Backdoor student number caps, for example those which bar some people from attending higher education for failing to secure sufficient grades at school or college or which have only a small number of courses in their sights, are less damaging than a macro number cap, which limits the overall size of the sector. The former type is a (very blunt) tool for tackling low-quality provision; the latter more clearly holds social mobility back by stopping the whole sector from growing in line with aspiration, potential and qualifications. The removal of student number caps announced in 2013 and implemented in the following years abolished all number caps (for example, at an institutional level and a sector-wide level) but even those behind that change accepted there was a case for tackling courses with poorer outcomes (hence, for example, the publication of the Longitudinal Employment Outcomes data). This seems to be the current administration’s direction of travel too. My sense is that, even though it is clearly true that it is possible to thrive in higher education without impressive school-level qualifications, it would be hard for the sector to win a public argument that people with minimal evidence of past academic achievements should be subsidised to attend higher education, especially if the new measures include – as expected – some exemptions, such as for mature students. We will be running a blog from Mary Curnock Cook later today which delves into this whole issue in more detail and which is well worth a read.

5. Lifelong Loan Entitlement (LLE) consultation: As yet, we know little about this. The LLE could be the most significant education reform of the 2020s so far. But it could also be watered down from its initial conception – if, for example, the Treasury worries about the potential costs. Today we should find out more about which of these it is to be, though it is equally likely that some of the key parameters will remain up in the air for a long time to come, given the LLE is not due to kick in until 2025.

6. An increase to the teaching grant: One of the new announcements is a significant increase in the teaching grant which, alongside fees, funds teaching in higher education institutions. This is welcome but beware of Gordon Brown-style accounting tricks: £900 million of new money does not mean £900 million of recurrent annual spending, as the money is to be spent over a number of years and half of it is capital spending. While the money will flow through the Office for Students (OfS), it is likely to go on Ministers’ priorities. In a recent piece for Wonkhe, I recalled the wise words of Les Ebdon, who foretold that the OfS ‘will do whatever the government of the day wants it to do.’ On this, John Gill’s editorial in this fortnight’s Times Higher, which is headed ‘Heavy hands on the tiller’ is worth a read. He warns ‘that [the] “buffer” between universities and ministers is being eroded’.

7. National scholarship scheme: For many, this new idea may seem to hark back to Nick Clegg’s National Scholarship Programme of 2012/13 to 2013/14, which was designed to soothe the pain of £9,000 fees, and which was routinely lampooned as ‘not national, not a scholarship and not a programme’. However, from the little that we currently know, the new policy is different and possibly smaller, as it seems to be more obviously a ‘scholarship’ programme designed to reward only those students from poorer backgrounds ‘achieving certain grades at A level.’ If so, it probably has more in common with the old state scholarships in place from the 1920s to the 1960s than the Clegg scheme. The new proposal sounds like it may be in tune with the growing vogue among official bodies for refusing to take someone’s background into account when judging whether their academic performance has met their prior potential, which is contrary, for example, to the principle underlying contextualised admissions. There is a long-standing view on part of the political right that treating some people more generously than others provides poor-performing schools with an excuse for their poor performance. But even if it were to provide a new incentive on schools to improve their future outcomes, is it fair to treat students now as if they are all the same? 

8. Relief: Overall, people who dislike the Government will claim today’s package lets students, graduates and universities down – the NUS has labelled the announcements ‘classist, ableist and racist’. Meanwhile, those who like the Government will claim it is a bold set of reforms. In reality, it is a quite carefully balanced package that sends some powerful signals about the Government’s priorities – more teaching grant for STEM, more support for poor-and-bright students, more control of costs – while not hitting institutions too hard (no cut in fees, more details on the LLE, no overall student number cap). Some new costs will land on graduates but the financial changes are aimed at bringing the scheme back towards the sort of costings that were originally envisaged when higher fees were introduced and may therefore have staved off really bad policies like a new overall student numbers cap just as the number of 18-year olds shoots up. Some people may question why the package has taken two years to craft but, for others, the main feeling will be one of relief that it is finally out.

9. Plus ça change: While people are likely to focus on the changes being announced, there is one thing that is even more important: the student finance model England has chosen to adopt remains in place. The Augar report was set up because the Labour Party’s fee-free higher education policy appeared to be popular at the 2017 General Election. Yet the fierce attacks aimed at the student funding system for years have yet to hit their target successfully. Alternative funding models proposed by, for example, HEPI’s own authors like Alan RoffJohnny Rich and Alex Usher and Robert Burroughs have been left on the shelf today. In short, the income-contingent student loan system originally implemented by Tony Blair and then extended by the Coalition and tweaked by subsequent Governments remains recognisably the same. Increasingly, people are guessing that the current Labour leadership may want to junk their commitment to free higher education as well: I am not the only person who was struck by the absence of any mention of the no-fees policy in the new Redbox piece for The Times on Labour’s higher education policies by Bridget Phillipson, the Shadow Secretary of State for Education.

10. What about maintenance grants? Finally, while it might appear churlish to point out omissions given the volume of long-awaited paperwork being published, it is nonetheless true that some important things have been left out. Pretty much all those in the sector who have ever given the issue detailed thought, including Philip Augar and his team, have tended to conclude that student maintenance grants should be brought back in England as a way to support students from the least well-off households. (They never disappeared elsewhere in the UK.) Even with the small new state scholarships, this has yet to happen. Perhaps, now that we are finally getting a more complete picture of the Boris Johnson Government’s approach to higher education, it is one policy for the Official Opposition to look at as they continue their own search for an alternative package of support?

5 comments

  1. James Seymour says:

    thanks Nick, really useful points for all us to take in. Those of us working in HE guidance, recruitment, teaching and admissions look forward again to making the strong case for HE as a sound investment, and clarifying any confusion around debt, interest etc. Interesting that we are back to the NSP Scholarship scheme, abolished around 2014/15 as it was seen as better to focus on student support/maintenance rather than fees. The NSP was also clunky and hard to administer, and students did not know if they were eligible when they applied to Uni.
    Maybe this new NSS (far more detail required) will focus on maintenance/living costs and not fees.

  2. Michael Picken says:

    England is only mentioned in sections 9 and 10 of this article but in fact it pervades every section.

    An 11th section would point out that under the devolved arrangements for HE across the UK, the policy divergence (called ‘incongruence’ by political scientists) is increasing dramatically between the totally different government parties for HE in each of England, Scotland and Wales.

    However the UK government holds the keys to the UK Treasury and the fiscal levers are through the crudities of the Barnett formula that ties the devolved administrations to spending decisions in England. No doubt there are civil servants in Holyrood and Cardiff Bay trying to work out the consequences of this policy announcement for their own HE funding systems and policies.

    There has ceased to be any pretence of planning HE at UK level by the UK government – their policy seems to be “we’ll do what we like in England and the Scots/Welsh government can get stuffed, bl**dy ungrateful beggars!”.

    A recent conference on Brexit politics asked “Is this the end of ‘British’ politics?” . One has to ask whether this announcement also brings us one step closer to the end of ‘British’ (or ‘UK’) Higher Education?

  3. Nick Hillman says:

    Thanks Michael for these thoughtful comments. I hope the inclusion of the word ‘Westminster’ in the title does at least forewarn readers that the piece is almost entirely about England. We have written elsewhere about whether or not the UK still has a single higher education sector any more – see https://www.hepi.ac.uk/2020/04/16/new-report-asks-whether-the-uk-still-has-a-single-higher-education-sector/ – and it is of course a vitally important issue.

  4. Michael Picken says:

    Thanks for the reply Nick.

    “Westminster” actually is an ambiguous phrase as it has a dual role in relation to HE Institutions and policy, due to the difference between ‘reserved’ matters and devolved issues. Some vital issues for HE are ‘reserved’ – science policy, one half of the dual support system ie Research Councils and their funding, and the visa system for international students, for example – and therefore entirely the prerogative of Westminster based politicians and civil servants.

    However the three devolved governments have considerable but still limited powers in relation to the funding of teaching and research support, the governance of institutions, and some aspects of HE strategy.

    But the Westminster government also has the main levers of fiscal control (most taxes, borrowing) while the devolved governments are argely stuck with the vagaries of the Barnett formula, where their spending is directly and very crudely linked to decisions on spending in England rather than their own needs and distinctly different demographic and democratic situation.

    However, since Brexit, the pendulum has swung back to Westminster, with Brexit-related legislation such as the Internal Market Act imposing the decisions of Westminter. The Sewel convention was supposed to guard against this, but in effect this is no more. This has resulted in the totally anti-devolution outcome of the enforced withdrawal from ERASMUS+ being imposed by the Westminster government on supposedly devolved education systems.

    The Covid pandemic, on top of the particular form of Brexit determined at Westminster, has also highlighted the incongruence. In the public mind his has been on health primarily, and people in Scotland, Wales and Northern Ireland have come to value the distinctiveness of their devolved institutions. But this is against the backdrop of UK government decisions peculiar to England being used to try to press the elected devolved governments into having to follow suit, against their democratic mandates particularly after the elections of 2021.

    UK Treasury measures such as the furlough scheme, the catastrophic Eat-out-to-help-out scheme, and, latterly, the charging for covid testing, the replacements for EU Structural Funds, the totally inadequate Turing scheme, and the regressive National Insurance surcharge are all imposed rather discussed and compromise sought.

    We also have the use of Gramscian and Orwellian language measures, such as the deletion of “for England” from the HE funding body title, the renaming of Public Health England to claim it is primarily a UK wide body (it isn’t), and even the expensive and bizarre renaming of the highways body from “England” to “National”, coupled with the frequent and often derogatory use of the term “DAs” by leading ministers to deny the devolved institutions identity and agency.

    Your report in 2020 looked at samples of student opinion 2015-19, before Covid and before Brexit was implemented. A renewed and wider analysis involving students, staff, politicians, public opinion and policy experts would I think reveal a further widening of the disjuncture, in the light of the incongruence of our political institutions and the consequences of these proposed fundamental changes for England.

  5. Nick Hillman says:

    Thanks again Michael. You make some powerful and important points – I cannot help feeling you should write your own blog (or report) for HEPI, as it would be likely to get a wider readership than the comments do here – and we would welcome the chance to give your views a bigger audience.

    I have tended to default to the ‘Westminster Government’ when talking about decisions taken in Whitehall because we often get draft papers that talk about the ‘English Parliament’, which is clearly wrong. I accept, of course, that some of the decisions taken at Westminster are primarily for England (with, sometimes, knock-on consequences for other parts of the UK) while others are UK-wide.

    On the naming of regulators like the Office for Students, I tend to think that if devolution is meaningful, it must surely mean each part of the UK, including England, has the right to name their own official bodies however they like. And of course the shift from HEFCE to the OfS was not just about nomenclature.

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