Undergraduate fees revisited

The Higher Education Policy Institute (HEPI) today publishes Undergraduate fees revisited (HEPI Debate Paper 39).

The author Tim Leunig, who is a former Chief Analyst at the Department for Education and Visiting Professor at the LSE, argues for 10 changes:

1. A 20-year, rather than 40-year, repayment term on student loans.
2. No increase, even in nominal terms, of the amount owed.
3. A minimum student loan repayment of £10 a week after graduation.
4. An additional repayment of 3% of income between the income tax and student loan repayment thresholds.
5. Letting graduates reduce their pension contributions in order to make higher student loan repayments more affordable.
6. Reintroduction of an interest rate supplement for graduates earning over £40,000 a year, set at a maximum of 4% for those on over £60,000.
7. A new 1% National Insurance surcharge for employers with graduates.
8. New maintenance grants for students with parental incomes up to £65,000, with full grants of around £11,000 for those with household incomes below £25,000.
9. Provision of maintenance loans for all students not receiving a full grant, provided their parents’ income is below £100,000 a year.
10. Additional teaching grants averaging £2,000 per student.

This fiscally neutral package means:

• universities would be better funded and better able to deliver outstanding teaching quality;
• students would receive more maintenance support, allowing them to concentrate on their studies with less need for paid work;
• students from the poorest backgrounds would no longer graduate with the most debt;
• the pain of seeing their Student Loan Company debt rise year after year would end for all; and
• graduates would be able to look forward to being debt free in their early 40s, with any outstanding loans written off after 20 years.

Students would repay more per month. Although the system would remain primarily income contingent, there would be a flat fee of £10 a week as well as an additional income contingent repayment, capped at about £1 per day. The highest earners would pay the most, as is appropriate in a social insurance scheme. This short-term hit to incomes can be reduced or eliminated by allowing graduates to pay less into their pensions. Pensioner poverty is uncommon among graduates, and they can use their 40s and 50s to save more as appropriate.

Finally, employers would benefit from a better skilled workforce. The paper argues that a 1% employer National Insurance graduate surcharge is a small price to pay for access to the best educated workforce in our country’s history.

Tim Leunig, the author of the report, said:

‘This is the only zero-cost reform package out there – offering a proper maintenance package for students, shorter repayment periods for graduates, and more money for universities. The new Government should just get on with it.’

Polly Mackenzie, Chief Social Purpose Officer at the University of the Arts London, said:

‘The student finance system is broken. It doesn’t work for students, is unfair to graduates and has left universities in an increasingly impossible position, dependent on international students to cross-subsidise our own young people’s education.

‘This paper encourages us to think about substantial changes to the funding model for our universities, instead of just tweaking at the edges of the current system. I welcome Tim’s characteristic radicalism and ambition.’

Bobby Duffy, Professor of Public Policy and Director of the King’s College London Policy Institute, said:

‘This report contains exactly the type of radical thinking we need, given the scale of the challenge facing universities. The ideas and solutions it sets out do not shy away from the stark financial realities that face both government and students today. It is an excellent analysis and provocation of the sort the sector needs.’

Lindsey Macmillan, Professor of Economics in the Centre for Education Policy and Equalising Opportunities (CEPEO) at University College London (UCL), said:

‘It is good to see the emphasis on maintenance grants. These are critical to allow students from poorer backgrounds to make the most of the opportunity that university offers.’

Professor Eric Neumayer, Deputy President and Vice Chancellor, London School of Economics and Political Science, said:

‘Tim Leunig provides a costed and principled proposal for radically reforming the current system of student finance. One may quibble with some of the details he puts forward, but one cannot argue with the fact that student finance in its current form is broken and leaves all stakeholders dissatisfied. It desperately needs the kind of radical reform that Leunig’s hugely welcome intervention puts on the table for discussion and serious consideration.’

Lee Elliot Major OBE FAcSS, Professor of Social Mobility at the University of Exeter, said:

‘How to create a sustainable but also fairer student finance regime is one of England’s thorniest policy dilemmas. These proposed reforms should be given serious consideration, most importantly because they would end a current indefensible system that saddles students from the poorest backgrounds with the most graduate debt.

‘Re-introducing maintenance grants would address a growing divide in student hardship, providing low and middle income students with much needed support during their university studies.’

HEPI Debate Papers are designed to stimulate informed conversations about topical issues. They do not represent a fixed HEPI position.

Notes for Editors

1. Tim Leunig served as the Education Adviser to the Prime Minister (Rishi Sunak), Economic Adviser to two Chancellors of the Exchequer (Sajid Javid and Rishi Sunak) and Chief Analyst, Chief Scientific Adviser and Senior Policy Adviser at the Department for Education, as well as serving in three other Whitehall departments. He invented Britain’s first ever jobs furlough scheme, the National Funding Formula for England’s schools and Progress 8, the method by which our secondary schools are evaluated. He has taught at the London School of Economics for 25 years, and has held visiting Professorships at universities in the US and continental Europe.
2. HEPI was founded in 2002 to influence the higher education debate with evidence. We are UK-wide, independent and non-partisan. We are funded by organisations and higher education institutions that wish to support vibrant policy discussions, as well as through our own events. HEPI is a company limited by guarantee and a registered charity.