The Business, Innovation and Skills (BIS) House of Commons Select Committee released a report on student loans. The report damns the departments methods of estimating repayments and likely realisable value in a sale to investors.
The minister’s off the cuff announcement over the weekend appear to preempt the reports publication (see yesterday’s post).
The question that emerges is how sustainable is the current system of income contingent, government backed student loans. The system has brought more money to UK universities and may not cost the taxpayer more because, even with 45% estimated non-repayment, the student contributions roughly equal the extra inflow. The system is somewhat fair because those who manage to privatise the benefits of their education repay their education costs. However, treating the education costs as a fee and loan creates the impression that many do not pay back what they owe. The idea of education having mixed private and social returns is lost in the accounting.
The sale of the loans is already booked on the government’s accounts and is the basis for funding 30000 extra places. In the short term, the booking of the sale will need to be reversed and the extra places may need to be cancelled. Andrew McGettigan in his Critical Education blog has thoughtful comment and links (here, here and, on the rollback of student numbers, here).
In the longer term, three paths present themselves.
First, the government could continue down the privatisation path, altering the conditions of the loans to be more like that of the USA, with higher interest rates and, perhaps, removing the income contingent repayment system. Higher education as a public benefit is lost.
Second, there could be a return to a system largely funded from the recurrent higher education budget, perhaps with a more modest (e.g., £3500) fee backed by government loans as was in place until recently. This keeps some balance between the private and public contributions to higher education and prevents the headline write-downs of the current system. The total cost to the state need not change significantly, but those who successfully privatise their education get much larger returns to their private contribution than under the current system.
The third way is to keep the current system and accept that the write-downs are the state’s contribution to public benefits of higher education. This goes some way to ensuring that those that benefit financially the most repay their tuition but does not halt the tendency to see higher education as a consumer’s purchase.
Note: updated 22 July, 2014 to correct number of extra places announced in Autumn Statement.