The Government has missed an opportunity to take more radical action on tuition fees, and address the looming problem of loan write-offs, argues a new report by Michael Johnson.
‘Tuition Fees: A Fairer Formula’ says that while the Government’s announcement of raising the repayment threshold is “an acknowledgement that a fairer funding split between students and the state is required”. In practice, it will further increase write-offs of student debt.
The government’s current expectation is that one third of loans will be written off. But Johnson calculates this is likely to be a significant underestimate and that they could exceed 60% - and will be even higher (potentially hitting 75%) under the Government's proposal to increase the repayment threshold from £21,000 to £25,000. This burden will fall on future taxpayers, including today's students.
Within the current tuition fees architecture, the simplest and fairest alternative is to lower both the cap for tuition fees (to either £5,000 or £7,500 per year) and to cut the interest rate charged, to RPI flat (better, CPI flat) throughout the loan term. And, crucially, the current repayment threshold should be maintained. These proposals would result in a lower debt burden for graduates, and also ensure that the Government gets much more of its money back.
Johnson acknowledges that his proposals would create a funding shortfall for universities. This would need to be met by central government. But the costs could be mitigated by separating funding for teaching and research, and treating the latter as investment rather than expenditure, as recommended under international accounting rules.