Also unsurprisingly it's been met with heavy criticism, with people
claiming that it will double or triple average student debt, and put
off people from "middle-class" backgrounds from going to university.
There is a lot to criticise in the review, but the fees model is
actually a pretty good deal for students and universities, and the
reason is in the unusually favourable terms under which student debt
is repaid.
The student finance terms
The Browne Review recommends that all students be given a
£3,750 annual maintenance loan, with up to a £3,250 annual
grant for those students from less rich families. "Less rich", in this
case, starts at £60,000 annual family earnings, with the full
grant being available at £25,000 annual family earnings or
lower. It also recommends extending provision of loans and grants to
part-time students. £7,000 a year isn't a lot of money, but it's
enough to fund the typical cheap student lifestyle.
There remain problems here with students whose families are rich
enough to be expected to support them, but for whatever reason - LGBT
students are often vulnerable to this - don't do so, but the review is
unlikely to make these problems worse. There are also problems for
students with disabilities, or with dependents, who will have much
higher costs than the typical (mostly-privileged) student, but the
extension of financial support to part-time study does at least
increase their options.
Tuition fees, likewise, will be paid by the government on the same
terms as the maintenance loan, as they are now. The difference is that
whereas now there is a cap just over £3,000 on fees, this is
removed by Browne. Direct government funding for teaching will be
mostly withdrawn, so universities are expected to need to increase
their fees into the £6,000 - £7,000 range for most courses
(comparable, incidentally, to the fees already charged to
international students coming to the UK to study).
So, the headline figure is probably about accurate. £7,000
annual fees, plus £3,750 maintenance loan, gives a student debt
of over £30,000 for a typical 3-year course. That's really quite
a big number. Furthermore, Browne recommends that the interest rate
for this debt be the government borrowing rate of 2.2% above
inflation, rather than the current inflation rate.
Fake debt
I said this was good news for students, didn't I? The good news
comes in from the repayment terms. Student debt is not like normal
debt. The repayment rate is not connected to either the size of the
debt or to the interest rate - instead it is 9% of any income over
£21,000 - and any unpaid debt after 30 years will be written
off. Furthermore, the non-inflationary portion of the interest rate
only applies to the extent that it does not increase the real
(i.e. inflation-adjusted) debt owed. These continue to be incredibly
generous terms.
They also give a very odd incentive at a certain point. Because the
debt gets written off after 30 years, regardless of its remaining
size, there's no difference between a debt that after 30 years has
£2 remaining in it, and a debt that after 30 years has
£20,000 remaining in it - you pay exactly the same in repayments
either way.
So, at the point at which you calculate that your likely future
earnings will be insufficient to pay your current debt, there is
absolutely no penalty to accumulating any more, which means that you
might as well do so. (This is not strictly true: you might become
unexpectedly rich, and so end up making more payments than you
expected - in which case, you're now rich, so that's fine
too).
The key thing about the Browne plans is that the point at which
additional debt becomes "free" is actually very low. If your browser
supports Javascript, have a play around with this calculator.
Some examples
The expectation is that universities will need to charge
£7,000 annual tuition fees just to restore the government
teaching funding they'll be losing under the Browne model. Without
taking any career breaks in those 30 years, a graduate would need to
start on a marginally above-average graduate salary of £25,000,
with an average real-terms increase of £1,000 each year, to
repay the loan resulting from a three year course. That gives a final
real salary of £55,000. Very few people - graduates or otherwise
- currently earn that much.
Let's take another (well-paid) example. A student of chemistry, on
a 4-year MSci course. They then do a PhD, for another 4 years (so no
significant income there), before starting as a post-doc at a
university on a salary of around £23,000. After another 25
years, they've managed to become a professor on a generous salary of
around £80,000 (but let's say that she took a year of maternity
leave somewhere in the middle of this, for five years of career break
in total). If the tuition fees for their course were over
£8,726; annually, then even this extremely well-off graduate
will not repay them all.
A less well-paid example: After a three-year degree, they start
work at a salary of £20,000. After five years, in which they
only get inflationary rises in pay, they go to part-time work to look
after their children, and remain part-time (earning well below the
repayment threshold) for the next fifteen years. Once their children
are old enough to let themselves back in after school, they go back to
full-time work, and get lucky with an (inflation-adjusted) salary of
£25,000, which then increases by an impressive £2,500 a
year as they quickly rise up through the company. Actual debt repaid -
around £14,000, which means any tuition fees over £1,000
are essentially free money. Put a more likely - and lower-paid - job
in, and the university has to start paying them for the pleasure of
teaching them.
The effect of this should be fairly clear. If, in practice, almost
all graduates - even the well-paid ones - will not clear their student
loan before it gets written off, at relatively modest tuition fee
levels, then the cost-benefit curve actually starts going backwards
for a while. If given the choice between a university offering a
course at £6,000 tuition a year, and a different university
offering the same course ay £12,000 tuition a year, then given
that it is unlikely to make a difference to the actual amount of money
repaid, it makes sense to pick the more expensive one (which
presumably is spending at least some of the difference on providing a
better degree).
Breaking cost-benefit
The effect of that, of course, is that if there's no economic
incentive for students to choose the cheaper universities, there's no
economic incentive for universities to choose to be a
cheaper university.
So, every university puts its tuition fees up to £12,000 or
more. The Browne review recommends that there be no cap at
all1, but that an increasing proportion of fees taken above
£6,000 annually must be paid back to the government to
compensate it for the risk of non-repayment. There's still no
incentive for either university or student not to go up to whatever
the cap is, though.
The end result is that for 30 years after graduation, graduates
essentially get an extra income tax band that appears at
£21,000.
Browne's proposals have been criticised quite heavily, with a
graduate tax often being suggested as a better alternative. In
practice, this looks very much like a graduate tax, but on far better
terms than are usually suggested for graduate taxes...
So, universities are happy, and once students understand that their
giant debts are mostly fake, they should be happy too (explaining this
in a way that overcomes the general aversion to running up five-figure
debts will take a little doing, but should be relatively easy to do).
The government, which is left holding the actual money that backed
up the fake debt, on the other hand, is not going to be happy. Or
perhaps it is - the amount of money it puts towards funding
universities is not going to change that much, but it's now much less
obvious that it's being funded by general taxation because in theory
it's being paid back by the graduates (who will - in a graduate tax
way - pay more towards this repayment than non-graduates).
As with the current system, it's the potential students who don't
have the repayment mechanism explained to them who lose out.
Politics
The chances of the Browne review actually being adopted wholesale
are relatively small, of course. The ministers are already talking
about a £7,000 cap on fees, which, if they implement the rest of
the review's proposals as-is, will definitely result in every
university charging that for every course.
The Lib Dems, of course, all signed up to an NUS-sponsored promise
to vote against tuition fees. Back then, they probably didn't expect
to end up in government having to implement it, so putting in a low
fee cap makes political sense for them - "look, it wasn't as bad as it
could have been", they can say.
Stealth recommendations
The big change as a result of Browne is not going to be in the fees
- which even at £7,000 run to the level of "fake debt" for most
students - but in the less-discussed recommendation that regulation of
student numbers is removed. At the moment, universities are given an
annual quota of UK-origin undergraduate2 students. Universities that
under-recruit lose funding because they don't have as many
students. Universities that over-recruit also lose funding,
firstly because they only receive government funding for the allowed
students, and secondly because the government takes even more back as
punishment.
Combine this with most applications being made before the student
or the university knows whether the student will get the grades to
meet the offer, and it's a tense time in university admissions trying
to guess how many offers to give out to hit the narrow window around
the quota.
Not being required to hit a narrow window like that will certainly
help universities plan, but it also allows many universities to offer
far more places than they currently do. The only limit becomes the
size of their facilities and the population of applicants. (The
housing availability in the surrounding area also becomes a
consideration, but not one that the university has to directly manage).
This deregulation is likely to be a much more significant and
disruptive change to the higher education sector in England than any
of the fees questions, and so far, it has received relatively little
attention - it doesn't come with big numbers, and the intricacies of
student admissions processes are not well known.
It's a natural consequence of the fees change - if the government
isn't providing funding for students (except via the oblique student
loans mechanism) then there's no need for it to enforce particular
levels of student numbers. The long-term effects of it, though, are
extremely complex, and I expect several universities to end up
collapsing or merging as a result.
Feetnotes
1 In practice, at some point, the government is going to
have to put a hard cap in place, because otherwise a university can
charge £1 billion in fees. Sure, most of this gets taken back by
the government, but the university still gets £100,000 per
student, and the student's debt is almost entirely fake. Universities
start competing on fees measured only in scientific notation, and the
economy collapses into massive hyperinflation. So, there's going to be
a cap at some point, and probably a relatively low one.
2 There is already, because the government does not fund
these places - or at least not in the same way - no quota for
postgraduate students or for international undergraduate
students. Universities that have reached their UK undergraduate quota
have been focusing their recruitment and expansion on these areas
instead, which are generally more profitable for the
university. Expect the universities that have done well with this area
of recruitment to also do well in an deregulated UK undergraduate
market, and vice versa.
