Hysterical Nonsense on Tuition Fees Again

Iain Macwhirter has pushed my rage buttons (The Herald). Every single one of them.

This piece he's written for The Herald is completely and utterly hysterical about how tuition fees are a dreadful idea that should be opposed regardless of context.

He would do well, of course, to take a look at this very blog, in which I showed three years ago now how a student finance system that includes a fee component can actually lead to poorer graduates paying less and richer graduates paying more.

But let's deal with some of the specific nonsense in his Herald article today.

"Of all the injustices perpetrated by my generation on young people in the UK – absurd house prices, job insecurity, stagnant earnings – the worst is probably the imposition of unsustainable debt through university tuition fees."

Yes, because the exponential growth in house prices relative to general inflation and earnings isn't as bad as a student finance system that has increased admissions, increased maintenance payments (above inflation) and reduced lifetime contributions for the lowest earning graduates. Okay, Iain. If you say so.

"I keep being told by university figures that free tuition is unsustainable and that Scotland is somehow out of step with developed countries. This is not the case. In countries like Norway and Denmark universities are tuition-free, and elsewhere in Europe fees are mostly minuscule. England is alone in Europe in imposing fees of £9,000 (and rising)

Germany, that great industrial powerhouse, has just scrapped university tuition fees altogether. The Germans believe higher eduction is too important to leave to the private sector, and that the system the UK has been trying to import from America is ruinous for students and society alike."

Right, but you're not comparing like with like. These other countries do not have as high University admissions rates as we do, nor do they have the same kind of maintenance support. Those that do, do so at significantly higher cost to the public purse. Is Iain suggesting that we should cut the number of University places available to school-leavers or that we should cut maintenance payments? Now those measures really would hurt access for the most disadvantaged!

"Indeed, in America, where student debt is now $1.3 trillion, there has been a widespread reaction against the very policy Labour and the Conservatives introduced here. Hilary Clinton has made debt-free tuition the centrepiece of her campaign for the Democrat presidential nomination."

This is a non-sequitur straight out of the NHS school of lowest common denominator debate. The US system of student loans is completely different from the one in the UK. Repayments are not connected to earnings, there is no write-off period, and you can be sued for non-payment. As countless external commentators have pointed out about student "debt" in this country, it functions much more like a time and contributions limited graduate tax than it does any "loan" anyone will be familiar with in the conventional sense. When Hilary Clinton starts talking about "debt-free tuition" she means that the disadvantaged won't have to take out a commercial loan to pay for college. Commercial loans for tuition is something that has never even been remotely contemplated by the governments in the UK that have charged tuition fees.

"The rest of Europe rightly believes education is a public good and should remain so. Yet in Scotland there has been a strand of right and left-wing opinion that has argued vociferously that free higher education is wrong and regressive: that tuition fees are a middle-class subsidy; and even, following the arguments of the educational blogger Lucy Hunter Blackburn, that students are worse off in Scotland than their counterparts in England.

This argument is based on a false assumption that, through maintenance grants and bursaries, poorer English students somehow are compensated for the debt they take on in fees. The former NUS President, David Aaronovitch, has even claimed that poor students in England don't pay fees at all. This is nonsense. All students south of the Border pay tuition fees though, as in Scotland, some can apply for bursaries and scholarships, which may defray some of the cost."

Something can be a public good without being funded entirely out of general taxation. This is meaningless rhetoric. Indeed Lucy Hunter Blackburn made many of the points I made three years ago. It is specifically lower earning graduates in Scotland that are worse off than their English counterparts. At the time I wrote the piece, 3 years ago, the repayment thresholds were such that those with lifetime inflation-adjusted average earnings of £28,500 or less would be worse off under the Scottish system than the English one. That will have fallen slightly with subsequent threshold changes, but not hugely.

Macwhirter is also straw-manning the argument about maintenance grants and bursaries. This is a misunderstanding that has led to similarly hyperbolic language from Labour with respect to the Tories cutting grants and bursaries. Some grants and bursaries, it is true, are, under the old Coalition model, funded out of part of the fees that Universities charge and are supplementary. They were, however, never the major change that "compensated" for the fees though. The increase in general maintenance payments was the major change, which for the poorest students almost doubled. It meant that they had a much larger disposable income while at University, which is the main obstacle for those from disadvantaged families going there. What the Tory government is doing now is replacing the grant component with a loan component. This is actually very similar to what the SNP did in the last couple of years.

This is neither a fantastic idea nor a dreadful one. It's a very simple trade-off that says the more of maintenance that takes the form of a student loan, the more money you can give students up-front when they are studying. The students that end up "paying the price" of this shift to loans and away from grants are, because of how student loans are repaid, the higher paid and those later on in their careers. The impact of this is only felt when they make larger contributions later on in life.

"But student debt is vastly higher in England because of tuition fees, and is growing so fast the Government is in a panic. Repayments have been dwindling, which is why the Conservatives have just broken their word and abolished maintenance grants for students from low-income families. Undergraduates have to finance their higher education living costs and tuition fees entirely from loans.

Students in England face emerging from university with debts of around £55,000. They will spend the rest of their lives with this ball and chain, the burden of which will be most acute just as they are trying to start a family and buy – or rent – a home.This will have profound economic consequences as student debt crowds out consumer spending."

Yes, the UK Government is in a panic. Because the gamble they took that graduates would be earning a lot more than they actually are hasn't paid off. So in effect, we have more, direct, state-funding of Universities and students because they'll never repay all their debt. How is this any different from a government having to pay up-front? At best here your complaint is that the UK government is only asking high earning graduates to pay more and that there aren't enough high earning graduates. This is absurd.

It's also total nonsense that "this burden is most acute just as they are trying to start a family and buy - or rent - a home". This deliberately misrepresents how student loans are repaid, which is a flat percentage of your income over a threshold. It bites least severely when you are earning less. Moreover, as has constantly been pointed out, student debt is not taken into account by a mortgage lender as an existing credit risk, like any other debt would. It is merely treated as a deduction from gross income, just like income tax is.

"However, it can only be a matter of time before students realise what is happening. Some have been deluded into believing they can avoid debt repayment by keeping their earnings below the repayment threshold of £21,000. After 30 years, the debt is extinguished. But they are in for a shock.

The Government has already lowered the threshold for repayments by breaking another promise to raise it annually in line with inflation over the next five years. The forecast is that a majority of those entering higher education in England will still never repay their debts, the interest on which rises each year. This cannot be allowed to happen, so there will inevitably be further fiddling with thresholds to increase debt repayments."

No this is total nonsense. Students aren't deliberately trying to keep their income below £21k. This is like saying that people deliberately try to keep their income below £10,500 so they don't have to pay income tax. This is stupid. Stop it.

It is true that the Tories have welched on the undertakings made by the Coalition about the threshold for repayment. Advocates of the Coalition system like Martin Lewis have been very critical of this recent change. However, any change to the write-off period would require legislation, and may encounter legal challenges for representing retroactive changes to the terms on which someone took student support. As we have seen, though, the dangers of thresholds being fiddled with is hardly unique to a system in which tuition fees are charged. The Scottish Government let the repayment threshold for our students consistently lag behind inflation until relatively recently, and it was only dealing with maintenance debt.

It was anticipated early-on, even before the changes the Tories are proposing to make now, that "the majority" would never repay their debts in full. That was actually the point of the system. The real question here is how much the UK Government is willing to underwrite. This feeds back to a much simpler and more fundamental question about government and it is "how much money are you prepared to spend on the higher education system". This is a question you have to confront regardless of whether or not you ask for some sort of graduate contribution. And since the type of graduate contribution England has is one that asks more of high-earning graduates than low-earning ones, it's not an aberration.

"And it's not only the threshold that is being raised; so are the fees themselves. Oxbridge colleges have been lobbying hard to charge “the market rate”. The new vice chancellor of Oxford, Louise Richardson, formerly of St Andrews University, appears to want see the American system introduced in its entirety, with no fee limit. In America, fees of $40,000 or $50,000 a term are not unusual."

This is scaremongering. There are no plans to do this. The Browne Review recommended that this should be possible. The Coalition said no. Emphatically. Where is your evidence that the Tories are seriously contemplating this?

"Why are universities so keen on fees? Essentially, because many vice-chancellors are attracted to the idea of universities being run on the model of private schools. Many already regard their institutions as private, which is one reason they are so opposed to the Scottish Government's Higher Education Bill that asserts, rightly, that they are public bodies dependent for their survival on taxpayers."

This is baseless. Where is your evidence that Vice Chancellors think this?

Universities are not government bodies. They are supposed to be autonomous places of learning. If governments want to support a large proportion of the students that want to go to them for a public interest reason, that is entirely their prerogative. The objections Universities have to the HE Bill is that the Scottish Government is effectively proposing to subordinate Universities to governmental, not public, control. The Bill included provisions that would have weakened the authority of University Rectors (something Macwhirter should be aware of given he used to be one), the individuals elected by the student population to represent their interests, and would have allowed the Scottish Government to set the rules for election to, and decide who gets to sit on, the governing bodies of Universities. Opposition is not some private sector conspiracy; it is opposition to an attack on autonomy in the public sphere.

Conclusion

Please, Iain, try to approach this with even a semblance of a level head. You have singularly failed to do so in this piece.

Scotland's Free Tuition Scam

Yes. That's right. Scotland's student funding model is fundamentally disingenuous. The profoundly political decision to impose no notional or actual levy on the tuition component of University study for Scottish domiciled students is a move which only serves to help those with relatively affluent parents. This might seem anathema to the great body of "progressives" within Scotland, but it's true. And here is why.

Student debt is not real debt in the UK. Under both the Scottish system (where you receive a student loan from the Student Award Agency for Scotland) and the English system (where you receive a student loan from Student Finance England) you are given that support on fundamentally different terms from a normal loan. You repay in proportion to your income, pay nothing for earnings under a certain threshold, and your debt is written-off by SAAS or the SLC after a fixed number of years. The particulars are as follows:

So it's not a real debt in the sense that it will not affect your credit rating (or eligibility from a mortgage). It is recovered from you in a very similar way to income tax, and might be seen as somewhat of a time and contributions limited graduate tax.

What about maintenance debt?

The next thing to look at is how much debt students will actually take on. The common component of debt north and south of the border is maintenance debt, which is the component of maintenance support that is a loan, rather than a grant. The two schemes offer broadly similar levels of support. The only significant differences are that bursary support in Scotland falls away far more sharply (no bursary support for those from households with incomes higher than £35kpa, compared to the English system, which hits that cliff at £42kpa), and that English loan support for those from high-earner families (more than £55kpa) is noticeably lower.

There is also a slight additional weighting for students studying in London, which over three years would add about £6.5k to the maintenance component of the total debt owed to the Student Loans Company. I have included two tables below, the first coming from the SAAS website, and the second is from MoneySavingExpert.com (but is a derivative of a table from the Student Finance England website) which demonstrate the broad equivalence of the two maintenance schemes.

There are several things to take into account at this stage. English Universities typically operate 3-year undergraduate courses, whereas Scottish Universities operate 4-year programmes. The typical maintenance debt arising from being a Scottish student at a Scottish University, therefore, will be higher than for an English domiciled student in an English University. A Scottish student will accrue somewhere between £18k and £22k debt in maintenance, whereas an English student will accrue anything between £10.5k-£16k in maintenance debt.

What about tuition debt?

The next step is to consider the impact of tuition debt. English Universities may charge anything between £6kpa and £9kpa for their courses. This adds between £18k and £27k to a three-year undergraduate debt. For generosity of comparison, we will assume £9k fees across the board, giving the typical debt on graduate in England a total of between £37.5k and £43k. Superficially this seems like a massive difference. Notionally, English domiciled students going to English Universities are in twice as much debt as their Scottish counterparts. But what do they actually pay back?

This is the point when our first table really begins to matter. Those going through the Scottish loans system have to start making contributions back when they are earning considerably less money, and under the new funding arrangements, will only have their remaining debt written off after 35 years, compared to the 30 under the new English scheme.

So what do people actually repay?

For a Scottish graduate, if they earn about £16k as their starting salary, and their average salary over 35 years is about £22k over the course of 35 years (in today's money), they will have to pay back their student loan virtually in its entirety over that period. In other words, they will have paid about £18-22k to the SLC in exchange for their whole university experience. Virtually every student earning over, on average, £22kpa in Scotland will repay their loan in full. The only meaningful difference is that higher earners will pay it off a lot more quickly. By way of example, someone with 35-year salary average of about £35k in today's money will have paid off their student loan within 11-12 years.

For an English graduate that earns the same amount, they will start paying their loan back a lot later (because of the higher repayment threshold) and when they do, their payments will be smaller. This, combined with the 30-year write-off, makes it even less likely that an English graduate will repay their loan in full. If they earned the same amount as the low-earning graduate above (£16k starting salary, £22k career average) they would repay... £2700 in today's money. Yes. That's right. About 13.5% of what the Scottish graduate pays. The amount that is actually repaid then continues to rise the more successful the graduate is.

The tipping point (i.e. the point at which the two schemes lead to you actually paying back roughly the same amount) is when someone has 30-35 year average earnings of about £28500 in today's money, or roughly the equivalent of someone who gets a career starting salary of £22k. From that point onwards, it is absolutely true to say that English students at English Universities will be paying more. The peak cost under the English system will fall on earners with career average salaries at around £50k in today's prices, and they will pay about £75-80k towards the cost of their education if they took a £9kpa course.

But what can we learn from this?

What does and doesn't matter?

There are a number of important lessons we can draw from this comparison. Firstly, it is virtually irrelevant for modest graduate earners (those earning up to £28500) whether they are or are not charged tuition fees. The fact that maintenance loans and tuitions fees are combined under the same loan for repayment purposes means that one type of debt is indistinguishable from the other.

It also means that the terms of repayment matter a lot for all income brackets. The level of maintenance support north and south of the border is broadly equivalent in terms of the up-front support it gives to students to live-off. It is certainly the case that the schemes are not identical, and that both countries (but especially England) could show greater regard to the difference in living costs from city to city. What we see though, is that maintenance delivery has a much bigger impact on what Scottish students have to pay back than it does for English students.

This matters from the perspective of allocation of resources as well, however. In both absolute and relative terms, Scotland's system demands a greater direct contribution from graduates earning typical graduate salaries. This can be attributed almost exclusively to the repayment threshold that is applied, but also to some extent to the 35-year write-off period (for extremely low-earners). Further, we should consider what kind of student is most likely to take out a maintenance loan in the first place.

Who is most affected by debt attaching to maintenance rather than fees?

Students more likely to take out maintenance loans are those who a) come from less affluent families b) are living away from home and c) do not have an alternative source of revenue. Though it is certainly true that the loan component of the maintenance payment is lower for lower earners (under both systems) it is only marginally so. In practice, this means that the children of the affluent in Scotland are less likely to need or seek support from the loans system in the first place, and in consequence will be called upon to contribute absolutely nothing towards its upkeep over and above the general taxation burden they face, which is identical north and south of the border.

Now clearly it's a bit of a false economy even if these affluent students continue to take out these loans. One classic strategy of students was to take out the maximum (interest-free) loan and to place it in a high-interest savings account before repaying in full without penalty. That scheme is broadly circumvented nowadays by very low savings rates and in England by the closer-to-commercial interest rates on the loan amount, but what they're paying back is broadly what they took in terms of maintenance.

Redistribution: when does more of it happen?

Self-styled progressives, left-wingers, social liberals etc. should ask themselves whether such a system really improves access and tackles inequality to a meaningful extent. The Scottish student support system, particularly now that the SNP have reduced the bursary component, is less redistributive than the English student support system. By charging fees, you do two things. Firstly, you make it far more likely that the children of the affluent will tie themselves into the contribution system. They are more likely to take the calculated gamble that their earnings post graduation will not be high enough to make it worth their while having their parents pay it up-front. If they are, by the time they notice, they'll be sufficiently affluent as it will make little material difference to them. Secondly, by charging above RPI inflation for higher earners, you facilitate a far greater redistributive effect, lowering the burden for those from disadvantaged backgrounds and low graduate earners. This has the effect of making the disadvantaged not simply better-off in terms of the education you provide them, but also in raw cash-terms as well, given their maintenance benefit far exceeds what they pay back in terms of loans.

What are our real options to increase access to University?

University of Glasgow

The real lesson in this, however, is that access to education is not determined by the notional price-tag of that education, but by the manner in which that burden is levied upon society. For as long as we tolerate part of student maintenance taking the form of a loan, we have no principled objection to university tuition fees. There is often a call for a return to grants-only systems, but we have to bear in mind that they were possible back in an era when 5-10% of school-leavers went to University. Now that figure is closer to 40-45%. If we are serious about removing all loan components from tertiary education, we have to explain, in explicit economic terms, how we are going to pay for the maintenance of that extra 30-40% of school-leavers. This system also has no regard to the relative lack of part-time and post-graduate state support in Scotland compared to England, funded out of fees. Post-graduate degrees, in particular, receive very little (if any) state loan support, meaning that they are only accessible to those who are affluent or can find an external source of support. Our real options are to increase taxation yield (successfully) or to reallocate considerable expenditure from elsewhere.

Our choice is that, or that we admit considerably fewer students to University. Alas that probably is not a silver bullet either. Unlike 30-40 years ago, we no longer have the option available to us to allow a large number of school-leavers to go straight into apprenticeships or work. As things stand youth unemployment is considerably higher than unemployment as a whole. The demand is increasingly for skilled workers, and that means preserving more of our Further Education Colleges for those who cannot or do not want to entertain an academic or professional career.

Short of a revolutionary and mass-scale redistribution of wealth of the like we have never seen, the most progressive option available to us seems to be to ask successful University graduates to contribute more over and above our progressive tax system. It is in this context that free undergraduate tuition for Scots domiciles is a con. Not only does it not actually make University cheaper for our students, but it also makes it less accessible to the disadvantaged than could be achieved with a tuition-based funding model.