17 Feb 2014
MPs on the Public Accounts Committee (PAC) are right to question the metrics used by the Department for Business, Innovation and Skills (BIS) to calculate the percentage of the student loan book that will be written-off. The department’s 2010 analysis initially ignored the fact that more women than men currently study for a degree. Little wonder then that, as million+ predicted, the Government’s original estimate of the RAB charge (the loans that will never be recovered) proved wide of the mark. BIS has now conceded that under the 2012 HE reforms in England at least £40 in every £100 of loans lent to students will be written-off. There are some suggestions that some modelling in BIS puts the write-off at nearer 50%.
The report* of the PAC shines a light on another side of the coin: the administration of the student support system. Under the Government’s 2012 reforms this is destined to become even more complicated than it was before. The Coalition’s decision to reduce direct investment in universities in England by 80% over a three year period requires institutions to be funded indirectly via fee loans. In turn much larger tranches of taxpayers’ money has to be transferred between government, the Student Loan Company, universities, students and graduates, with recoupment from the latter happening over 30 years according to earnings. This has the potential for inefficiencies on a grand scale.
To add to the mix, a whole series of changes are being applied to individual student and graduate loans and the terms under which they have to be repaid. The SLC has to apply a 3% interest rate to all student loans with the rate then tapered according to graduate earnings over £21,000 per annum. This earnings threshold will be uprated on an annual basis (not a common practice in many countries). Different repayment regimes are to be applied to full-time and part-time students. Accordingly, the SLC is required to trigger repayments from part-time students earning more than £21,000 on the fourth April after they have started their course (although they may well have not finished their course at this point).
One can’t help but think that the whole approach rests on an old-fashioned premise – namely that all those who study and all those who work do so on a full-time basis. This is far removed from both the flexibilities of the labour market and the realities of life for many of today’s students. It remains to be seen just how well the SLC will cope with an infinitely more complex student support regime and the new assessments required whenever wages are amended as women and men take parental leave, students switch from full-time to part-time study (and vice-versa), graduates change jobs, gain promotion and for a variety of reasons agree to a reduction or an uplift in hours and pay.
Of course, it is not just fee loans that the SLC has to administer. Quite rightly, checks have to be made about maintenance loans and grants, including whether students fulfil residency criteria for the latter.
The story does not end here. The SLC is required to administer loans to students of private providers. Until autumn 2013 (when BIS put the brakes on), these providers were free to expand unrestricted by the niceties of the student number controls applied to universities. The jury is out on whether this expansion has been accompanied by the checks and balances required to protect the interests of both taxpayers and students. In January 2013, BIS and the SLC reported that one provider had given students inaccurate advice about their loan entitlements. The SLC now has to chase not only the provider but also students, who through no fault of their own, received loan support to which they were not entitled.
In addition from 2013, BIS removed all funding from those studying for Level 3 courses when they were over the age of 24. Some may consider this a strange way to incentivise those who want to step back on the learning ladder later in life but it is the Student Loans Company that has to pick up the administrative tab for these ‘Advanced Learner’ loans. The SLC must also distinguish between these older students on the basis of different Level 3 qualifications. Students who complete an Access to HE course and then a higher education qualification later down the line will have any Advanced Learner loans written off - but only if the HE qualification is itself eligible for student finance. This loan ‘forgiveness’ does not, however, apply to mature students who studied for A-Levels or BTECs.
Understandably politicians, students and universities get hot under the collar when changes to the higher education funding system are proposed but the debate is rarely informed by an analysis of the long-term costs and benefits. In particular, there is almost never any public debate about the efficiency and costs of the administration of the system or whether its outcomes are likely to prove transparent to individual borrowers - in this case students and graduates.
All of this points to a major opportunity for the next government. The complexities and potential inefficiencies in the higher education funding system in England should be integral to any debate about the future of higher education funding in England. Creating a more holistic system of student support which encourages flexible routes of study, simplifying the graduate contribution system and redressing the balance in favour of more direct public funding for universities, may well produce savings that could be reinvested in higher education and achieve better long-term returns to the Treasury and the taxpayer than the current system. To keep on sailing a potentially leaky administrative ship may not be the best long-term plan.
*Public Accounts Committee - Forty-Fourth Report: Student Loan repayments
A copy of the Public Accounts Committee report can be found here.
Together with London Economics, million+ has published a Behind the Headlines series analysing the HE funding system in England which can be found here.
Follow Pam on Twitter @millionplusCEO