Sunday, 25 September 2011

The Lib Dem's and *that* pledge.

It's time to accept it, the Lib Dem's have not really broken their pledge on Tuition fees. Reframing higher education funding in a way that the Tories and Labour were likely to do anyway, they have reduced the cost of tuition for the majority.

Cheaper degrees than those from 2006-2010, and more accessible than any system since tuition fees were first introduced, the cost of going to university hasn't been this low for a decade for those that need that cost to be low.

Preface: All figures below are calculated using the Money Saving Expert calculator on their standard assumptions. It assumes a retention of current student numbers at around 1.8m Full Time Equivalent (FTE) undergraduates in Higher Education (HE) in any one academic year, of which about 800,000 take out a maintenance loan of a average of £3,650, and all take the average university cost of £8,600 per year over a three year course. It assumes the average graduate salary is £20k. It assumes all values rise with inflation. It also obviously assumes the policy won't change in the next 30 years, as unlikely as that may be.

The Lib Dem plan... what's the problem?
The real problems with the system coming in to effect are as simple as the system is overly complex. The rich still have a way of getting out of contributing "their fair share", the system is not truly progressive in that those graduates who earn more money, earlier in their career, will pay back a much smaller total amount than those who earn the majority of their money later in their career or don't achieve high salaries.

It also relies on up front payment by the state for HE, with a significant lag before the majority of the funding is recouped, creating a form of deficit at a time of deficit reduction. A strange choice for a supposedly deficit reducing government!

These issues, along with the issue of the system being complicated and hard for people to understand as more progressive and *cheaper* than previous systems for funding HE, would be solved if funding was provided for purely through taxation in some form or another; graduate taxation, or general taxation.

There is also the problem that is the main reason for the Lib Dems taking a beating over this issue; the chance and perception that students will pay more than they had to when fees were capped to £3,000. In part this is true, for those who take out loans and earn above average wages. Students have long wanted education to be funded from general taxation. In this sense a graduate tax does not solve the final problem of the Lib Dem funding system, that of not shelving a burden on the students themselves for their own education.

However that is, as I say, a perception issue. It is only partly true. Educational costs have been passed more on to students themselves, but not all students...and it is certainly not the case that a tripling of fees is leading to a tripling of cost. The problem that is most often cited by angry students isn't really a problem at all.

Niggles, not problems
The reality, not accepted by the NUS who's official line is "FEES BAD (nswf link)", baulked at by those who have failed to return from their knee jerk break up from the party when the plans were announced in 2010, and ignored by Labour supporters that would rather deceive ex-Lib Dem's to keep their new found support, is that the system is fundamentally more progressive than anything Labour have brought forward in the last decade.

This system is better for poorer graduates than anything that's existed since tuition fees were first introduced to fund HE, in relative terms.

More than this, it in practice gives any student that doesn't earn over the average wage in this country a free HE education. Not just free as in the bursary scheme that Labour introduced, free as in they won't have to pay for their education, they won't have to pay for the maintenance loans they took to help pay rent and buy food during those years. For the first time graduates that earn money, but not enough money to put them in to the "better than average" bracket, will have a completely free university life.

This system, in all it's ugly convolution, is closer to "free" education than any system since Labour started us on student contributions.

There has not been a time since 2006 where so many will have a free education. Since 1998 we will not have seen as low a cost for education and living for the majority, with the benefit of repayments being more manageable than their upfront nature.

There are losers of course, but only where the losers can afford to subsidise those who lose out in their own way of not taking the premium that they were idly promised before they enrolled.

University degrees and three years rent, only £12k!
The only people interested in keeping the focus of this discussion on £9k tuition fees and £4k maintenance loans each year, and the "debt" that it accrues over three years are those that wish to make political capital out of it. They know that such a stance is now disingenuous, but they find it easier to try to confuse supporters of free education with scary sounding numbers.

In particular it's hard to make the new system sound evil when the amount that most would repay under this system is just £12k, while those paying under Labour's "cheaper" and "less debt" system would pay back all of their roughly £22k loan.

The reason for this is the values, the "debt", have been increased to such a degree that we're now looking at something much closer to a graduate tax, and a tax that has it's thresholds set fairly for earners. "Tuition fees" are dead for the majority, and it's time we should call a spade a spade.

Yes...graduate TAX
Debt this is not.

Debt does not disappear after a set of time before it is repaid, debt doesn't even disappear if you are unfortunate enough to die before you have repaid it. Debt repayment isn't based on your ability to pay.

What other system is there where you pay a set percentage of income, as long as you're over a threshold, to the state as standard? Income tax, of course...national insurance too. Both taxes, but could be described as hundreds of thousands of pounds worth of "debt" that you are continuously paying off at a set rate dependent on income.

By increasing the amounts that universities can charge, and fundamentally reforming the way that we pay back loans, a tax system has been created for all but those who choose to pay off the loan early or earn a significant sum of money. It is a clear move away from the situation of tuition fees and even loans as a principle. Instead, the focus is now on long term funding through a taxation model.

Why is this something that is worth praising rather than deriding? Progress. We need to move the language of fees away from loans and payments to that of taxation. Until we start to enter the realms where a tax, even a graduate tax, is the most effective solution, we cannot re-enter the cost of HE funding back to general taxation.

The future
We have to consider where this system will take us in the future. With 1.8mil FTE students in education at any one time there are loans that will be going out every year in excess of £15.5bn of loans delivered to institutions on behalf of students, and £9bn in maintenance loans. Each year (after 2015) a certain proportion of this will be paid back by the students. With a cut off point of 30 years we will be looking at having accrued over £475bn+£280bn (at today's money values) going out. That's £755bn.

Coming in is much harder to define, but an "average" student would likely pay back £12k over the course of their 30 year loan term. Over 30 years this would work out at £268bn paid in. This is, of course, just a "guesstimated" likely minimum. We know from the "top fliers" survey that an average salary of £25k is earned for the top 6% of graduate earners, but wage progression is also likely to be better than for average students too (in the medical profession we know this to be true). I can only guesstimate more that these people would certainly bring another £28bn, by assuming a most cost scenario for wage progression (that is RPI +6%, any higher and the amount they pay back actually decreases as they repay their loan quicker and thus interest is reduced). By doubling this I hope to conservatively get a likely average for loan repayments over 30 year of £325bn;

It's not as simple as saying this apparent large shortfall is a problem though, as 30 years worth of loans should be paid back over 60 years of repayments. In this sense the figures roughly, maybe with a slight shortfall, add up (at least £650bn brought in versus the £755bn out).

The problem is if the system continues then we will have a constant deficit of around £400bn that will have to be borrowed from somewhere to service HE funding year on year. This doesn't make sense from a government that has put their flag in the ground of deficit reduction.

In general taxation terms we could cover this quite easily. With graduates being forced to pay 9% tax on earnings over 21k it's just a case of how the yearly £15.5bn cost of HE (other sources say £12.5bn, I'm being conservative) could be shifted on to taxpayers that will, over time, largely be graduates anyway. At around 2.5-3% of the total current income tax receipts the amount of additional tax needed isn't insignificant, and it's true that this would likely be seen negatively by the public at large.

However the negative view of tax being increased is only masking the fact that as time goes on most people in this country will be paying tax rates of 29% and 49% rather than 20% and 40%. Could it go up to (for example) 22% and 44%? A tough sell right now, to change either of those rates...or to add an additional layer of tax band in between the two, but in the future? Perhaps not so tough.

It is an improvement, it is better, it is to be applauded
Anyone that is annoyed at the Lib Dem's breaking their pledge not to raise fees has some right to feel aggrieved. I am. Or at least I was. We also have a duty to see things as they really are. Rich graduates have their fees increased, in that sense the pledge has been broken, but poorer graduates have had their fees reduced, even middle income graduates will see no change to the amount they end up paying, if they're not lucky enough to still pay less than 2006 prices in real terms as well.

Are we really to cry over the Lib Dem's, in a de facto manner, keeping their pledge for the majority of students, but breaking it for those that earn significantly more than the average worker in the UK?

I'd prefer absolutely that the pledge was never made, the politics since has been complicated and the simplicity of the message was begging to come back and bite Nick Clegg and his team. However the coalition have moved us in the right direction, an it's what we do next that is important.

If we accept and applaud this situation within the confines of graduates providing repayments, but criticise the fact it is confined to graduates at all, we have never had as stronger footing for an argument to remove tuition fees since they were first introduced over a decade ago.

Next stages
The important thing now is to make it clear what the real cost of university now is. Students should not be told that they will face £60k of debt, this is irresponsible and simplistic. If poor people are getting put off from university it is because politicians are letting them get dissuaded. It's a no brainer that those that understand the value of money will be put off by a large figure being put on their back.

Tell them, however, that if they earn an average wage in this country that their debt will effectively be just £12k and they might have a different stance on whether to enter university. Tell them that they will likely have to pay just 1-1.5% of their income each year as long as they earn a middling wage and they might see the "debt" as less threatening.

Let them know that if they are unsuccessful, choose a low paid path in life, get unlucky...that the real cost of their university life, fees AND living cost loans, could decrease even further from £12k to maybe not needing to be paid back at all and their perceived threat of penalisation for not achieving, of having huge debt with nothing to pay it off with, must surely be swept away.

Let them know that there hasn't been a better, more financially managable, less risky time to try to get a university education.

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