The truth about tuition fees

After the burning of benches on Parliament Square and the sons of rock stars swinging from flagpoles on Whitehall now that the embers have died down what's to make of the changes to university funding that have now passed through Parliament?

So how did we get to a position of what appears to be the near trebling in the cap on tuition fees? As discussed in our guide to applying to university the impending funding crisis in higher education has been growing for some years as the previous Labour government championed an increase in student numbers which was accompanied by an increasing contribution from students via the introduction of tuition fees which steadily rose from £1,000 a year to £3,290 a year. The expansion of places, despite the prospect of increasing fees on students and their families, fulfilled Labour's aim of getting thousands more disadvantaged children into university. However with the spiralling student numbers came a ballooning Higher Education budget - as contributions through fees only went someway to bridging the cost of a degree - and concious of this the last Labour government set up the Browne report to look at the funding of higher education. It was the publishing of this report which first proposed an increase in fees as the foundation of the new legislation.

With this soaring cost of Higher Education coupled the task of addressing a national debt increasing at a rate of £3bn a week it was perhaps inevitable that higher education would fall under the radar in the government spending review, however what appears to be a near 80% reduction in the university teaching budget does seem savage when compared to the average cuts in other departments of around 20%. On this measure students have a right to be angry whilst they see pensioners keep all their perks and spending on the NHS is maintained. This is where political capital may have got in the way as Mr Cameron and Mr Osbourne are able to keep the promises they made to the electorate whilst Mr Clegg - concious of having to address a hefty budget deficit and being the minority party in a coalition government - was unfortunately unable to keep his. Moving on from politics after digesting the details of the new plans for university funding let's consider why the Coalition Government argue they may be fairer and more progressive than the ones they replace.

Under the new plans nothing will be paid up front by students for their university education but rather once they graduate they will make repayments at 9% of earnings above £21,000, a level which will rise in line with inflation. So by way of example a graduate earning the average starting salary of £25,000 will pay 9% on £4,000 (£25k-£21k) which amounts to £360 per year or just £30 per month. This salary level repayment level is higher than the current one of £15,000. If after 30 years a graduate's earnings over the period haven't been high enough to repay the loan in full then it will be written off, only a third of the loans are expected to be repaid. Where students come from families whose income is below the average wage they will get an annual, non-repayable maintenance grant of £3,250. So actually those from disadvantaged backgrounds will now be getting paid to go to university, and then only if they go on to earn a decent salary will they be asked to make a contribution for the higher education they received. This suggests a fairer system than asking low-income taxpayers to fund an education to which they were unable to access, as is currently the case where effectively general taxation supplies businesses with a steady stream of well educated graduates. Perhaps the graduates will now demand a return on the investment they have personally footed the bill for through a higher salary. The money has to come from somewhere and clawing it back from those who have directly benefited appears to be the fairest method. Another inequality with the previous system was its discrimination against those who took part-time courses, many of which were women, by demanding fees were paid upfront. Again this will no longer be the case.

So could there have been an alternative to the tuition fees hike? Opposition Labour politicans including Ed Miliband have floated the idea of a graduate tax, in fact it could be viewed that that is practically what we have ended up with, except that the tax idea carries complications as students from the EU could not be charged the tuition fees and would have returned home and therefore not pay any tax in the UK, even UK graduates may have been inclined to follow suit with an incentive to work abroad. Another concern is the fees will inhibit graduates from taking on a mortgage or other types of debt later in life. Again here it is helpful to consider them a deferred tax than debt as student debt does not appear on credit files and will not count against you in this way. In fact as student loan repayments will be lower under the new system this will boost graduates' disposable income and therefore most likely improve their ability to get a mortgage. Clearly the downside with bigger loans and lower repayments coupled with proposed higher interest rates for higher earners means that it will take longer to repay the loans, although there may be an option to pay down the loans faster than the minimum requirement.

On the face of it up front tuition fees have now been abolished and replaced by a fairly benevolent loan with its "pay us back if you can" terms. From a purely financial perspective the investment in a university education still stacks up to us, as covered in the following article. The opposition to the reform fairly argues that the prospect of c.£30k of student debt will put off those from lower income backgrounds, whilst the Coalition counters that the maintenance grants and directing elite universities to widen access should negate this. Yes it's a far from perfect outcome and to an extent a miscalculated shambles in that the majority of universities have since announced they will be seeking near enough the maximum £9,000 of annual contribution from students - and you can hardly blame them when trying to provide their students a decent education on a stretched budget. Further the argument remains out there that Higher Education should remain taxpayer subsidised as a public good, or that there is an alternative to the cuts such as by overhauling property tax. In the meantime let's hope the prospect of earning £21k, before having to make a contribution back for the cost of an university education, appeals to those contemplating university, rather than act as a deterrent. Tweet