Tuition Fees (Part One): Money

Jul 19, 2011

Money and CalculatorNote: I started writing this piece back in January, the recent (and completely predictable) announcements that everyone who can get away with it will be charging the maximum spurred me to go back and finish it off.

I saw Aaron Porter on the 10 o’clock the other week (note: now many, many months ago) criticising fees and loans on the basis that it will put students into debt for decades, which coming from the NUS position of a graduate tax is a little unfair as there is no practical difference between repaying a loan for three decades and being subject to an additional tax for the same amount of time (especially if both the tax and repayments are structured in a progressive way). If we imagine a situation where universities charged an infinite fee, an infinite loan was given and repayments were structured progressively and had a sunset after a few decades, there is no difference whatsoever in the effect on the payee. There is however a psychological difference between a debt with an exact price attached and a fuzzy commitment to higher taxes that’s given too short a shrift in the report. Given the choice, giving people good news (free university!) with hidden bad news (new higher tax!) is better than giving bad news with hidden good news (Expensive university! Which you might not have to pay all of! And the repayments process is good! But the frogurt is also cursed etc) and efforts to reassure people that university is actually pretty affordable have to fight uphill against that basic gut reaction, no matter how nice the numbers look.

Because of that problem you’d hope that fees-and-loans had some pretty substantial advantages over a graduate tax, but the Report’s criticisms of it are quite revealing of what it’s actually trying to do. There are a few areas where fees-and-loans is cleaner than a graduate tax would be e.g. a graduate tax has issues reclaiming money from graduates who move abroad and in dealing with students who didn't complete their courses (not deriving enough benefit from their courses to justify a tax but still a drain on the education budget), but the big issue Browne finds with it is that it’s economically unfeasible given that it won’t start to produce enough money to fund itself until 2041. This nicely overlooks that fees-and-loans also requires the government to borrow/spend a large amount of money year on year to be able to give loans to students and the average student won’t start come close to paying back the original amount until around the same time period.  [update:  the difference here is a quirk of government accounting where loans only need to be accounted for at the rate of non-repayment (RAB rate) - the actual lost money over the long term - whereas spending money resulting from a tax requires the full education budget to fit on the government coffers].  In both systems investment is not paid back for around 30 years – and in the meantime the money still has to come from somewhere. I think what the report’s criticism of a graduate tax is really getting at is the notion that runs right through the report that government has historically failed to make the investments necessary and cannot be trusted to provide the general investment or per student funding the system needs.

As I read it, the unwritten purpose throughout the report is to safeguard university funding from future government action under the (perhaps not unreasonable) assumption this government or likely future governments will not substantially increase the amount of money going into education through the block grant to universities, especially under the current austerity plans. It takes the approach of rather than arguing for increased public investment in further education, assume that that’s a lost cause and try to find ways to do it without government needing to be involved. By transforming all government spending on further education into a guarantee of providing loans and letting universities set the fees (with no caps) this gives universities a semi-blank check from the government coffers to invest in themselves. This I suspect is the serious objection of the Browne Report to a graduate tax, despite shifting the cost onto graduates as a group it leaves the funding decisions to government. With Fees-and-Loans that year on year spending is hidden and occurs automatically behind the loans, no actual decision is required to fund it. it’s hard to see any government challenging the idea of deferred payment and it’s far easier for fees-and-loans to hide behind this than a graduate tax.

However the problem here is that giving universities a blank cheque is a really bad idea because in the unlikely, “why would that ever happen?” event that lots of universities change high fees (ironically as Stephen Tall points out, this might not have happened without fee caps), the government is then on the hook for more than it’s really able to be and we end up with the situation where they’re desperately looking to offload some of the debt load onto the private sector. As the next post will go into, at the same time as a market-based system still runs into the money problem it’s also opened up a whole new can of worms in terms of what a market in education is actually supposed to function.

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