Social media has seen a complaint about the English student finance system go viral. Simon Crowther, a recent civil engineering graduate from Nottingham, was shocked when, on receiving statements from the Student Loan Company, it transpired his student finance arrangement was not what he thought it was.
He accused the Government of having "misled" him and other students when it came to the student loans system. He took-out a student loan in 2012 under the scheme introduced under the Coalition Government, which overhauled completely the way Universities and student maintenance was funded by government.
What changed in 2012
The key changes to the system included the raising of tuition fees to a maximum of £9kpa, a significant up-rating of the "repayment threshold" above which graduates have to begin to repay their loans, a substantial expansion of the maximum maintenance payment for which a student was eligible (especially those from disadvantaged backgrounds), the imposition of a 30-year rule wereby unpaid balances of a student loan are written-off after that period, and a move away from charging RPI inflation on the balance of a student loan, to something resembling more closely, but still well below, a commercial borrowing rate.
All of this information was extensively made available and was able to be read about on both the Student Loan Company's website, the Department for Business Skills and Innovation website, was discussed at length in government information campaigns about the new system, was disclosed in all the paperwork made available to students applying for a student loan, and was spoken about almost non-stop by people like Martin Lewis on his MoneySavingExpert website and in television interviews. At the time many of us were frustrated that the mainstream media, including the BBC, and the opposition political parties, were focused obsessively only on the £9k fees, ignoring the other changes to the system that, in fact, cut the contributions made by low-earning graduates, both at the beginning of their careers and across their earning lifetime.
What's the problem?
The news coverage of Crowther's letter has perpetuated or accepted several myths and pieces of misinformation about the new scheme. The letter makes the false claim that the government has "sold our loans to a private company which has caused the interest rate to skyrocket". This is wrong on two levels.
"THEY SOLD OUR LOANS!" No. No they didn't.
Firstly, it is not true that the government has sold-off the right to receive loan repayments to a private company, at least not with respect to people like Simon. His loan is disbursed and administered by the Student Loans Company, which is wholly owned by government actors in the UK (85% by the Department for Business, Skills and Innovation, responsible for support of tertiary education in England and 5% each by the devolved administrations). The government has owned and run student finance through the SLC for almost three decades. This is nothing new. Nothing has changed here.
It is true that some legacy loans were sold-off by the Student Loans Company in 2013. These related to what were "mortgage-style" borrowing arrangements that existed to meet tertiary education/living costs between the formation of the SLC in 1989-90 and 1998. One of the reasons for the decision to sell-off these loans is that they individually had very low outstanding balances, and those that didn't were becoming a lot more expensive to collect. This was a consequence of difficulties tracking-down graduates that had long since disappeared off the radar of the SLC. The effect of this is to divert time and other resources available to the SLC from focusing on ensuring that more recent loans are paid back promptly. Even though the "book value" of these loans was about £890 million, the actual amount the government would stand to realise from enforcing these debts themselves would likely have been much lower. This explains why a £160 million lump sum, paid by the successful bidder, is not the terrible or outrageous sham its critics say it is.
It is also true that, since the Conservatives acquired a majority in May 2015, there has been renewed consideration given to whether the loans incurred between 1998 and 2012 should be sold-off. Vince Cable, as Secretary of State for Business Innovation and Skills, had been strongly opposed to this move, and blocked some efforts to take this idea further than exploratory stages. However, it should be noted that in the last budget this idea was put back on the back-burner and a recent OBR report suggested the plan was not advancing in the near future.
"THIS CAUSED INTEREST RATES TO SKYROCKET!" No. No it didn't.
The second problem with Crowther's open letter is that he has seriously misunderstood how interest works in student loans. It is not the case, even among the loans that the Student Loans Company has sold-off, that the new beneficiaries have the right to change the terms and conditions, like the rate of interest the lender can charge on the remaining balance of the principal debt. That would be a breach of contract and those taking out loans between 1990 and 1998 could contest it.
But it's not even true that interest rates have rocketed on student loans under the new system, which remember hasn't been privatised. Part of the new scheme did, it is true, change the system that previously charged RPI inflation as the rate of interest on the accrued student loan balance. It changed it to RPI + 3% when you are studying, then RPI inflation on graduation if you earn less than the repayment threshold (£21kpa) and then a variable rate of interest between RPI and RPI + 3% until a student earns over £41kpa. These terms were made completely clear at the time and were readily available on the Student Loans Company website.
At the moment RPI inflation is about 0.9%, meaning the maximum rate of interest on the loan is 3.9%. This is actually lower than the rate charged on loans in the two years immediate preceding the introduction of the new system, because RPI inflation was itself higher than 3.9% in those years! It is also lower than most mortgage rates at the moment and much lower than most unsecured credit arrangements. It is straight-up fiction on his part when he claims that, when he took out the loan "the loan was at a very low interest, and at the time was around 0.5%."
This is, admittedly, one of the most complicated aspects of the system. Crowther has clearly misunderstood how this works. The impression his letter gives is that the 3% above inflation rate is charged on all graduates, and that therefore, as he claims, he would need to be earning over £41kpa to begin to repay the principal debt over and above the interest.
How it actually works
This is wrong for two reasons. Firstly, someone earning, say, £27kpa, the national median household wage, will only be paying interest of 1.8% on the principal. The purpose of having a sliding scale of interest levied on graduates is actually to prevent higher-earning graduates from getting an unfair advantage in saved interest with respect to saving money by paying-off their debt earlier than those earning less than them. It isn't a perfect way of doing it, but, assuming we are talking about those who do in fact pay off the whole principal of their student loan, this isn't unfair and only hits graduates earning almost double the middle income of someone living in the UK. Instead, these people would, just like anyone else, have to make a conscious overpayment if they wanted to extinguish the debt early, though why they'd want to given the generous terms of repayment I cannot for the life of me understand.
The second reason it is wrong is because it completely ignores the fact that interest, for many graduates, will function as a hypothetical accounting exercise and for most will only slightly increase the total amount for which they are liable. The fact that student loans are written-off after 30 years means that, regardless of how much you've paid, you don't have to pay any more. If you are paying 9% of all your earnings over the threshold for 30 years, and the total of that contribution is less than the original loan amount you took out, the government is effectively writing off both the amount of the principal you didn't pay, and every single penny of the interest you accrued.
Even if you would have just and no-more paid off the principal but for interest charged, then the amount of interest you are effectively charged is still only the difference between your total repayments and the original sum you took out; not the whole amount of interest nominally charged to your account.
The only people actually affected by high rates of interest are those who are paying off their student loan with several years to spare.
The frustrating thing
If Crowther is right about one thing, it's about just how much of a gap there is between how the student finance system actually works, and how many people think it works. The problem is that how he now thinks it works, having had this "veil of secrecy lifted", is in fact... not how it works. What we are seeing is a culmination of media dumbing down of the system, to such an extent that it seems clear that bright, generally mathematically literate, students, secondary school teachers and politicians alike do not understand the mechanics of it all, despite the information being readily available and easy to communicate to those taking out those loans.
It is also clear that headline grabbing about "selling loans to the private sector" and "commercial rate interest" and the like are being used as dumbed-down signals to suggest that education is being marketised in some sort of free market frenzy. This makes the debate turn into one of ideological criticism of what the political extremes think the system is motivated by, rather than an evidence-based approach that properly considers how the scheme works compared to others.
It also distracts from the ability genuinely to criticise changes made by the government that actually are unfair and retrospective. When the new scheme was introduced, it was understood that the £21kpa repayment threshold was supposed to rise in-line with inflation. This would mean that, as the cost of living went up, graduates were not left with less real disposable income in the years to come. Alas, in George Osborne's Autumn Statement, he left in the fine-print the fact that this was no longer going to be the case.
The effect of this was a bit like cutting the personal allowance for taxpayers: more of a graduate's income would be subject to the 9% deduction from their pay-packet than if it had held with inflation. In terms of the impact on real disposable income, this most affects those whose debt repayments are least contingent on the size of their principal debt. Put more simply, it affects those earning between about £21k and £40k the most. Those earning much more than that don't suffer as much from a lower threshold as they end-up repaying their debt in full, and do it earlier than they otherwise would. The effect of that is... that they don't accrue as much interest on the debt as they otherwise would have so pay less for their University education!
Martin Lewis has been very vocal about this change, and it is one people should be angry about. That really is a case of going back on an implied undertaking or changing the rules of the game after the fact.
Wider context
This debate also takes place, from the perspective of observers like me in Scotland, against the backdrop of a vastly oversimplified public debate about the full state-funding of tuition fees in Scotland. This is a policy that benefits those who frankly don't need the state to underwrite their education for them. The evidence shows that this policy has done nothing to widen access to Scottish Universities when it comes to admitting those from deprived backgrounds. While the gap is closing in fee-ridden England, it is stubborn and static in Scotland.
We are also seeing Scottish Universities increasingly dependent on international and rUK students being admitted in order to meet their costs of operating and providing a diverse range of courses and subjects. This need to admit those bringing external sources of funding is holding back admissions levels for Scottish students, which disproportionately hits those from disadvantaged and minority backgrounds.
The dangers of misinformation in public debate allow governments to advocate things that are symbolically powerful, but ultimately terrible policies. And in the age of social media, the myth can travel half-way across the world before the truth has so much as got its boots on. We need to demand better.
Showing posts with label tuition fees. Show all posts
Showing posts with label tuition fees. Show all posts
Thursday, 26 May 2016
Thursday, 21 January 2016
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.
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.
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!
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.
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.
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.
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.
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?
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.
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.
Wednesday, 27 March 2013
Just what is a constitution for, anyway?
Much has been made of the SNP's public plans for a written constitution to be formed in the event that Scotland becomes an independent state following the 2014 referendum. The quest for codification is something that has been, if put unkindly, a perpetual pet project of many a constitutional reformer (myself included). Hardly any states do not have some form of comprehensive document detailing the supreme or basic law of their state: the United Kingdom, New Zealand, Israel (sort of) and Saudi Arabia lack a central constitutional document setting out the bodies of state and what they may lawfully do.
I have long been in favour of the codification of the UK constitution. Though we have relied, historically, on the evolution of conventions and ad hoc solutions to constitutional conflict, it has left us with a patch-work of law, much of which is incoherent and inconsistent. We also have anarchronisms like the Royal Prerogative, which though largely exercised by government ministers these days, provides totally unaccountable powers used for malignant purposes. Even devolution is by its nature constitutionally conservative: minimalist in the way it changes the way the state operates. It is a politically, rather than a legally entrenched settlement, which relies on goodwill rather than institutional rigour to deliver its aims.
Constitutional introspection, though a risk, is also an opportunity. Properly revisiting the way you do governance provides an excellent chance to clean up the loose ends of a constitution, and to start anew in other respects. Iceland recently attempted to crowd-source its constitution. Though I think that's not a particularly good way to do it, some degree of consultation on the specifics, before having a referendum to ratify the constitution, would be a good way to go about it. One of the strongest arguments I think that exists for Scottish independence is that the call for a codified UK constitution has gained very little traction. It is symptomatic of the institutional aversion of the British state to radical all-encompassing reform of the way it governs. In that regard, independence presents an opportunity to have a serious discussion not just about how the central state runs itself, but also what kind of relationship it has with more local forms of power.
This is why I am so disappointed that the SNP have tried to turn the debate about the constitution into something it's not. A constitution is supposed, for the most part: to declare as lawful the existence of the different branches of the state (i.e. executive, legislature and judiciary); the extent and nature of their powers and who may limit them; and to enunciate the fundamental rights of the citizens, which the state is required to guarantee as a pre-requisite for its legitimacy to make sovereign acts on their behalf. A constitution does not exist to restrict the state on matters of broad policy as to how a state should allocate its resources. It is in that respect that talk of constitutionally protected state-funded University tuition and council houses for all is an absurdity.
These things should not be constitutional rights. There is significant debate about how we prioritise state funding, and what public services we expect people to contribute to in other ways. Now of course there is an emerging, particularly solidified consensus within the western developed world that there is a general moral right to education, and to a home, and states recognise broad duties to deliver the goals of these social aims. In education, our states legislate to provide primary education for all who seek it, increasingly secondary education is provided by the state out of general taxation, and there is a recognition that to leave people destitute is something that is not acceptable. But these are not the same kind of rights as the right not to be tortured, or the right to freedom of expression. These are delivered through substantive policies and extensive discussion about how and where to raise taxes and distribute government spending. You get the big discussions about whether benefits and services should be universal, or whether they should be means tested. You get questions in the NHS about whether we should fund a cancer drug or prescriptions. You get questions about whether we should build a new school, amalgamate existing ones and so forth. And yes, we get discussions about whether Universities and student support should be funded out of general taxation, or whether students should make a contribution in-lieu of that support.
Let's just assume for a moment that you buy into the idea that access to University can only be secured through full state funding and that it is an imperative (for various reasons why this is wrong, see elsewhere on this blog). How has this and other provision of "free" education more generally been delivered in society. By a constitutional guarantee? Of course not. It's been delivered by ordinary legislation. In the UK, school education was delivered by the Education Acts in both Scotland and England. Yes, the Republic of Ireland has a constitutional commitment to the provision of primary education. This is a direct importation of the substantive expectaitons of the international agreements many western states have signed up to. But no one is seriously saying that that constitutional provision is any causal link to the delivery of primary education in Ireland.
Why does its state provide secondary education if that isn't in the constitution? Why has virtually every modern western liberal democracy, even that market driven United States of America, provided primary and secondary education through state funding for all those who need it? Because it's about a political consensus about the broad way tax should be spent, and not a fundamental right. That's why. No one seriously suggests that the state is fundamentally illegitimate if it were to start charging for these things, but they might accuse it of being undemocratic and unrepresentative of the views consistently expressed by people at the ballot box. Other states that deliver state-funded university tuition do so without a constitutional amendment. Meanwhile, South Africa has a constitutional right to education. Yet millions remain illiterate and living in absolute poverty. It would be an absurdity if a court were to insist, by judicial diktat, that a state keep a particular school open or keep a particular course at University running and such-like, to the exclusion of being allowed to do other things with its budget to try to provide different kinds of education to other people. To borrow the title of Ted Heath's 1966 Tory Manifesto, "Actions, Not Words". That's how you satisfy socio-economic rights.
But now let's suppose that governments did consider themselves bound by this constitutional law. What does the fact it's a constitutional law, and not an ordinary law mean? It means that it's likely to be more difficult to repeal or to change. Constitutional provisions typically require some sort of special procedure to be overturned, unlike an ordinary Act of Parliament, with the effect that if the consensus changed, or someone who did not share this policy came to government, they would be prevented from implementing their own economic policies by a static spending commitment that they could not alter. What right do the SNP have to entrench their own policies into the very legitimacy of the Scottish state? One of the most strongly resonating messages of the YesScotland campaign is that independence is not just about the SNP. It's hard enough trying to convince Unionists that independence isn't an eternal fiefdom for Alex Salmond without his party making clear that it is their intention to impose his manifesto in the constitution if his party have control over the constitution. If we are to have a clean slate, that means being able to make these decisions as a country for ourselves. Independence is about having more control over our own affairs, not less, and placing unnecessary limits on the policy process makes us have less influence over our own affairs, and actually, less democratically accountable.
Moreover, the SNP policy doesn't even resemble what we understand as a right. It's a policy. It doesn't enshrine and encompass a general principle about education. Free tuition in Scotland applies to a very distinct and carefully defined category of person. It doesn't apply to non-EU international students and (at the moment) rest of UK students. It doesn't apply to students who have to resit years and can't get false-start funding. It doesn't apply to postgraduate students (as every lawyer and teacher will tell you!). It is a very specific commitment to fund the tuition fees of those who are accepted to their first undergraduate degree who are Scottish domiciled or an EU student. It doesn't go to the heart of a fundamental "human" right, because it doesn't apply to all humans. It doesn't encompass education generally because many courses that people get offered to become a part of on merit cannot afford the post-graduate costs. It doesn't encompass all courses, but specific ones approved by the state. If you don't meet their special criteria for what constitutes education, you don't get help. There is no general commitment to continuing access to universities for lifelong learning and personal development. This is a policy, based on finite resources. And that's fine. But its not a fundamental right and it doesn't deliver or guarantee a fundamental principle. Provision of things is different from, for example, the right to free expression. We have the right to speak out and to communicate, but the state doesn't give everyone a phone and a newspaper business. You don't have to be socialists or communists to believe in human rights, because they don't require specific provision of things by the state, except insofar as the state interferes with your rights in other ways.
But actually, what this shows is that the SNP want to make the independence debate about something it's not. It's not about whether you get more or less "free" stuff on independence. It's about taking responsibility for our own decisions. Their policy is hotly contested in respect of what it guarantees. As I've shown elsewhere on this blog, the continuing existence of maintenance loans, which are repaid under the same system as fees anyway, actually means education isn't even a free and accessible endeavour. For those who earn a career average salary of £28.5kpa in today's money, the Scottish student finance system actually requires you to pay more for your education than the English one does. If you believe in the principle of free education, you have to go the whole way and have the guts to return to maintenance grants. That means either finding the revenue to pay for it elsewhere, or cutting the number of people that go to University. The truth is that if your principle is fair access to all, a form of graduate contribution is likely to be the best way to facilitate more education and better education throughout Scotland, even if we are well off and raise more revenue in an independent Scotland than we do in the current UK situation.
You see, socio-economic rights are complex. They're about the art of the achievable and how best to manipulate the productivity of society (largely engendered by market capitalism) to pursue social goals without reaching unintended consequences. This is the same week as news reports show despite free tuition, Scotland consistently performs less well than England at getting kids from disadvantaged backgrounds into its Universities. Independence is about facing up to these questions and trusting the Scottish people to come up with the best, often very nuanced, answers. Political grandstanding about jam and honey is just the inversion of BetterTogether scaremongering about how we'll pay for everything. The best argument for independence is that Scotland can make these decisions for itself in a way that engages its people to a better extent than the United Kingdom can. It's not about the particular policies. So please. Stop talking about them.
I have long been in favour of the codification of the UK constitution. Though we have relied, historically, on the evolution of conventions and ad hoc solutions to constitutional conflict, it has left us with a patch-work of law, much of which is incoherent and inconsistent. We also have anarchronisms like the Royal Prerogative, which though largely exercised by government ministers these days, provides totally unaccountable powers used for malignant purposes. Even devolution is by its nature constitutionally conservative: minimalist in the way it changes the way the state operates. It is a politically, rather than a legally entrenched settlement, which relies on goodwill rather than institutional rigour to deliver its aims.
Constitutional introspection, though a risk, is also an opportunity. Properly revisiting the way you do governance provides an excellent chance to clean up the loose ends of a constitution, and to start anew in other respects. Iceland recently attempted to crowd-source its constitution. Though I think that's not a particularly good way to do it, some degree of consultation on the specifics, before having a referendum to ratify the constitution, would be a good way to go about it. One of the strongest arguments I think that exists for Scottish independence is that the call for a codified UK constitution has gained very little traction. It is symptomatic of the institutional aversion of the British state to radical all-encompassing reform of the way it governs. In that regard, independence presents an opportunity to have a serious discussion not just about how the central state runs itself, but also what kind of relationship it has with more local forms of power.
This is why I am so disappointed that the SNP have tried to turn the debate about the constitution into something it's not. A constitution is supposed, for the most part: to declare as lawful the existence of the different branches of the state (i.e. executive, legislature and judiciary); the extent and nature of their powers and who may limit them; and to enunciate the fundamental rights of the citizens, which the state is required to guarantee as a pre-requisite for its legitimacy to make sovereign acts on their behalf. A constitution does not exist to restrict the state on matters of broad policy as to how a state should allocate its resources. It is in that respect that talk of constitutionally protected state-funded University tuition and council houses for all is an absurdity.
These things should not be constitutional rights. There is significant debate about how we prioritise state funding, and what public services we expect people to contribute to in other ways. Now of course there is an emerging, particularly solidified consensus within the western developed world that there is a general moral right to education, and to a home, and states recognise broad duties to deliver the goals of these social aims. In education, our states legislate to provide primary education for all who seek it, increasingly secondary education is provided by the state out of general taxation, and there is a recognition that to leave people destitute is something that is not acceptable. But these are not the same kind of rights as the right not to be tortured, or the right to freedom of expression. These are delivered through substantive policies and extensive discussion about how and where to raise taxes and distribute government spending. You get the big discussions about whether benefits and services should be universal, or whether they should be means tested. You get questions in the NHS about whether we should fund a cancer drug or prescriptions. You get questions about whether we should build a new school, amalgamate existing ones and so forth. And yes, we get discussions about whether Universities and student support should be funded out of general taxation, or whether students should make a contribution in-lieu of that support.
Let's just assume for a moment that you buy into the idea that access to University can only be secured through full state funding and that it is an imperative (for various reasons why this is wrong, see elsewhere on this blog). How has this and other provision of "free" education more generally been delivered in society. By a constitutional guarantee? Of course not. It's been delivered by ordinary legislation. In the UK, school education was delivered by the Education Acts in both Scotland and England. Yes, the Republic of Ireland has a constitutional commitment to the provision of primary education. This is a direct importation of the substantive expectaitons of the international agreements many western states have signed up to. But no one is seriously saying that that constitutional provision is any causal link to the delivery of primary education in Ireland.
Why does its state provide secondary education if that isn't in the constitution? Why has virtually every modern western liberal democracy, even that market driven United States of America, provided primary and secondary education through state funding for all those who need it? Because it's about a political consensus about the broad way tax should be spent, and not a fundamental right. That's why. No one seriously suggests that the state is fundamentally illegitimate if it were to start charging for these things, but they might accuse it of being undemocratic and unrepresentative of the views consistently expressed by people at the ballot box. Other states that deliver state-funded university tuition do so without a constitutional amendment. Meanwhile, South Africa has a constitutional right to education. Yet millions remain illiterate and living in absolute poverty. It would be an absurdity if a court were to insist, by judicial diktat, that a state keep a particular school open or keep a particular course at University running and such-like, to the exclusion of being allowed to do other things with its budget to try to provide different kinds of education to other people. To borrow the title of Ted Heath's 1966 Tory Manifesto, "Actions, Not Words". That's how you satisfy socio-economic rights.
But now let's suppose that governments did consider themselves bound by this constitutional law. What does the fact it's a constitutional law, and not an ordinary law mean? It means that it's likely to be more difficult to repeal or to change. Constitutional provisions typically require some sort of special procedure to be overturned, unlike an ordinary Act of Parliament, with the effect that if the consensus changed, or someone who did not share this policy came to government, they would be prevented from implementing their own economic policies by a static spending commitment that they could not alter. What right do the SNP have to entrench their own policies into the very legitimacy of the Scottish state? One of the most strongly resonating messages of the YesScotland campaign is that independence is not just about the SNP. It's hard enough trying to convince Unionists that independence isn't an eternal fiefdom for Alex Salmond without his party making clear that it is their intention to impose his manifesto in the constitution if his party have control over the constitution. If we are to have a clean slate, that means being able to make these decisions as a country for ourselves. Independence is about having more control over our own affairs, not less, and placing unnecessary limits on the policy process makes us have less influence over our own affairs, and actually, less democratically accountable.
Moreover, the SNP policy doesn't even resemble what we understand as a right. It's a policy. It doesn't enshrine and encompass a general principle about education. Free tuition in Scotland applies to a very distinct and carefully defined category of person. It doesn't apply to non-EU international students and (at the moment) rest of UK students. It doesn't apply to students who have to resit years and can't get false-start funding. It doesn't apply to postgraduate students (as every lawyer and teacher will tell you!). It is a very specific commitment to fund the tuition fees of those who are accepted to their first undergraduate degree who are Scottish domiciled or an EU student. It doesn't go to the heart of a fundamental "human" right, because it doesn't apply to all humans. It doesn't encompass education generally because many courses that people get offered to become a part of on merit cannot afford the post-graduate costs. It doesn't encompass all courses, but specific ones approved by the state. If you don't meet their special criteria for what constitutes education, you don't get help. There is no general commitment to continuing access to universities for lifelong learning and personal development. This is a policy, based on finite resources. And that's fine. But its not a fundamental right and it doesn't deliver or guarantee a fundamental principle. Provision of things is different from, for example, the right to free expression. We have the right to speak out and to communicate, but the state doesn't give everyone a phone and a newspaper business. You don't have to be socialists or communists to believe in human rights, because they don't require specific provision of things by the state, except insofar as the state interferes with your rights in other ways.
But actually, what this shows is that the SNP want to make the independence debate about something it's not. It's not about whether you get more or less "free" stuff on independence. It's about taking responsibility for our own decisions. Their policy is hotly contested in respect of what it guarantees. As I've shown elsewhere on this blog, the continuing existence of maintenance loans, which are repaid under the same system as fees anyway, actually means education isn't even a free and accessible endeavour. For those who earn a career average salary of £28.5kpa in today's money, the Scottish student finance system actually requires you to pay more for your education than the English one does. If you believe in the principle of free education, you have to go the whole way and have the guts to return to maintenance grants. That means either finding the revenue to pay for it elsewhere, or cutting the number of people that go to University. The truth is that if your principle is fair access to all, a form of graduate contribution is likely to be the best way to facilitate more education and better education throughout Scotland, even if we are well off and raise more revenue in an independent Scotland than we do in the current UK situation.
You see, socio-economic rights are complex. They're about the art of the achievable and how best to manipulate the productivity of society (largely engendered by market capitalism) to pursue social goals without reaching unintended consequences. This is the same week as news reports show despite free tuition, Scotland consistently performs less well than England at getting kids from disadvantaged backgrounds into its Universities. Independence is about facing up to these questions and trusting the Scottish people to come up with the best, often very nuanced, answers. Political grandstanding about jam and honey is just the inversion of BetterTogether scaremongering about how we'll pay for everything. The best argument for independence is that Scotland can make these decisions for itself in a way that engages its people to a better extent than the United Kingdom can. It's not about the particular policies. So please. Stop talking about them.
Sunday, 9 December 2012
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?
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.
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 |
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.
Saturday, 24 September 2011
Ed Miliband's Tax Cut for Rich Graduates
So Ed Miliband has decided that Labour's policy on tuition fees is to reduce the cap in England from £9000 per year to £6000 per year. He says that this will be funded by more taxes on the banks and increasing the rate of interest paid by the highest earning graduates.
The reason? This is what he says, in an ever so pious dig at the coalition:
Now we can debate the rights and wrongs about the Coalition policy until the cows come home. But let us look at what practical difference this actually makes. I have used the projections that MoneySavingExpert.co.uk deduced. I refer you to the red table at bullet point 17 "How much do you pay".
As we have established many times before, the loans repayment programme (thus in practice for a student, their tuition fees) has a 30 year limit, after which any existing "debt" is written off and the system effectively operated as a graduate tax on their earnings over the earnings threshold (currently £21k).
If a student earns less than £35k as their initial graduate salary, and their earnings rise to slightly less than £140k after 30 years, they will not have paid off their student loan, regardless of whether or not they actually chose a course that charged £6k a year or £9k a year. There is no appreciable link between what that graduate "owed" and what they "paid" for their University education.
Contrastingly if a student earns around £50k initial graduate salary and that rises with career progression and inflation etc. so after 30 years they are earning over £200k, they will pay back the whole of their student loan, and will do so well before that 30 year period elapses. In this instance, it therefore matters a lot more how much they "owed" and it correlates much more closely to what they "pay". The difference for that student taking a £9k course rather than a £6k course is that they pay about 50% more, because, funnily enough, they owed roughly 50% more.
So can you see where I'm heading with this? Yep. That's right. Lowering the limit on tuition fees to £6k has ABSOLUTELY no effect on the lowest-earning graduates, but represents a potentially HUGE saving for the most affluent of graduates! Since we have established that the funding system is effectively a kind of graduate tax, this means that Labour are advocating a TAX CUT on the richest beneficiaries of an English University education! The difference between what is owed is substantial enough that the interest rates they'd need to charge the richest graduates to make them pay the same, let alone more, would be of Wonga.com proportions compared to those they pay now.
And of course, this poses the question of where the Universities are going to plug the hole in the finances this creates? Are we to expect more direct state funding? Where is that coming from without increasing the deficit? "Tax the banks" Labour reply. Well here's the thing. Your bonus tax raised absolute pittance compared with the Coalition's banking levy. Just like with the very tuition fees you promised you would never introduce, you command no credibility for delivery.
But that is not even the worst thing about this sordid affair. The worst thing is that Labour, by engaging in this piece of political misrepresentation, are perpetuating the very myths that they have used to scare young people into thinking they can no longer afford to go to University under the Coalition changes. They are doing the very thing that the Lib Dems got crucified for: politicking with the tuition "fee" when they know full well that that headline figure is of zero relevance to the majority of graduates, for whom the repayment matters. They have scaremongered those from poorer backgrounds into believing they can no longer aspire to a University education and all the benefits that brings. Yet their own policy does absolutely nothing to help these people. There is nothing about maintenance grants, which are what really affect the ability of the poorest to be able to go to Uni. This throws money at graduates who are already benefiting in a huge financial way from their degree.
Remember, this is the Labour Party. The Party of Keir Hardie, of Nye Bevan and of Clement Attlee. Those men would be turning in their graves if they saw what this manipulative and regressive cabal led by Ed Miliband and Ed Balls has become.
The Labour Party. Party of the Poor? Words truly fail me.
The reason? This is what he says, in an ever so pious dig at the coalition:
 |
| "We can't build a successful economy if the kids from all backgrounds are put off going to university." |
Now we can debate the rights and wrongs about the Coalition policy until the cows come home. But let us look at what practical difference this actually makes. I have used the projections that MoneySavingExpert.co.uk deduced. I refer you to the red table at bullet point 17 "How much do you pay".
As we have established many times before, the loans repayment programme (thus in practice for a student, their tuition fees) has a 30 year limit, after which any existing "debt" is written off and the system effectively operated as a graduate tax on their earnings over the earnings threshold (currently £21k).
If a student earns less than £35k as their initial graduate salary, and their earnings rise to slightly less than £140k after 30 years, they will not have paid off their student loan, regardless of whether or not they actually chose a course that charged £6k a year or £9k a year. There is no appreciable link between what that graduate "owed" and what they "paid" for their University education.
Contrastingly if a student earns around £50k initial graduate salary and that rises with career progression and inflation etc. so after 30 years they are earning over £200k, they will pay back the whole of their student loan, and will do so well before that 30 year period elapses. In this instance, it therefore matters a lot more how much they "owed" and it correlates much more closely to what they "pay". The difference for that student taking a £9k course rather than a £6k course is that they pay about 50% more, because, funnily enough, they owed roughly 50% more.
So can you see where I'm heading with this? Yep. That's right. Lowering the limit on tuition fees to £6k has ABSOLUTELY no effect on the lowest-earning graduates, but represents a potentially HUGE saving for the most affluent of graduates! Since we have established that the funding system is effectively a kind of graduate tax, this means that Labour are advocating a TAX CUT on the richest beneficiaries of an English University education! The difference between what is owed is substantial enough that the interest rates they'd need to charge the richest graduates to make them pay the same, let alone more, would be of Wonga.com proportions compared to those they pay now.
And of course, this poses the question of where the Universities are going to plug the hole in the finances this creates? Are we to expect more direct state funding? Where is that coming from without increasing the deficit? "Tax the banks" Labour reply. Well here's the thing. Your bonus tax raised absolute pittance compared with the Coalition's banking levy. Just like with the very tuition fees you promised you would never introduce, you command no credibility for delivery.
But that is not even the worst thing about this sordid affair. The worst thing is that Labour, by engaging in this piece of political misrepresentation, are perpetuating the very myths that they have used to scare young people into thinking they can no longer afford to go to University under the Coalition changes. They are doing the very thing that the Lib Dems got crucified for: politicking with the tuition "fee" when they know full well that that headline figure is of zero relevance to the majority of graduates, for whom the repayment matters. They have scaremongered those from poorer backgrounds into believing they can no longer aspire to a University education and all the benefits that brings. Yet their own policy does absolutely nothing to help these people. There is nothing about maintenance grants, which are what really affect the ability of the poorest to be able to go to Uni. This throws money at graduates who are already benefiting in a huge financial way from their degree.
Remember, this is the Labour Party. The Party of Keir Hardie, of Nye Bevan and of Clement Attlee. Those men would be turning in their graves if they saw what this manipulative and regressive cabal led by Ed Miliband and Ed Balls has become.
The Labour Party. Party of the Poor? Words truly fail me.
Subscribe to:
Posts (Atom)