Select Committee on Education and Skills Sixth Report


89. It may be argued that with the present arrangements for student support still bedding down it is too soon to conduct a major overhaul of the system. It would certainly be possible to make a series of relatively minor, technical changes that might ameliorate some of the negative effects of the current system, while maintaining relative stability. For example, increasing the value of student loans would help to relieve student hardship, particularly for those students who are dependent upon, but fail to receive, parental contributions towards their maintenance and fees, while an increase in the repayment threshold would relieve low paid graduates of the repayment burden.

90. In the context of the priority given to increasing participation in tertiary education by Government and the importance of student support in achieving this objective we consider the time is right for a more radical response. There follows a summary of some of the main options. This is not intended to be either exhaustive nor are the options mutually exclusive.

Focus on Further Education

  91. Proposals for the management of student support have been made by Dr Wendy Piatt and Mr Peter Robinson at the Institute for Public Policy Research.[97] They identify the disparities between further and higher education as a key issue, in terms of addressing economic demands for a skilled workforce, but also in recognising the role that further education plays in preparation for higher education and in the social inclusion agenda.

92. Dr Piatt and Mr Robinson advocate a more rational distribution of resources across the tertiary sector, reflecting the different rates of return offered by different learning opportunities. A system of loans and tuition fees, while well suited to higher education, does not meet the needs of much of further education. Piatt and Robinson thus advocate a universal entitlement for publicly funded tuition up to level 2,[98] for a maximum of two years and a reduction[99] in the fees subsidy for qualifications at level 3 and above. This approach has been supported by the Association of Colleges.[100]

Education Maintenance Allowances

  93. The apparent success of the Education Maintenance Allowance for 16 to19 year-olds is encouraging.[101] The EMA currently excludes learners over 19. We have not been able to cost the extension of the scheme to other groups, but believe that the principle is a good one and is capable of being applied to higher education and that an appropriate model could be developed.

94. Dr Piatt and Mr Robinson suggest that the living costs of students studying at level 3 [A Level or equivalent] should be met through unsubsidised loans at market rates, with possible exceptions for students from disadvantaged backgrounds, while for 16 to19 year olds studying up to level 3 and for 19 to 24 year olds taking an initial level 2 [GCSE or equivalent] qualification, the national expansion of the Education Maintenance Allowance (EMA)[102] is proposed together with the adaptation of the EMA scheme for higher education for students from disadvantaged backgrounds. This extension of the EMA might be labelled a Higher Education Maintenance Allowance (HEMA).[103] Higher Education Maintenance Allowances could be targeted at students from under-represented groups and tied into additional academic and personal support.

95. It is clear to us that much greater emphasis should be placed on encouraging and supporting the continuation of learning for the 16 to19 age group. The retention of this group in the education system is critical to the development of a sound skills base and progression into higher education.

96. We found the IPPR perspective on student finance worthy of further analysis since it sets out to target assistance on those who need it most, while expecting greater contributions from those better able to pay. We urge the DfES review group to consider the Piatt/Robinson proposal in detail and to develop a model based on its recommendations for further consideration.

97. Our predecessor Committee identified the critical nature of the first year of higher education in progression and retention.[104] In the light of this evidence, we recommend that the Government should thoroughly explore the costs and implications of a seamless support system, based on the EMA model, spanning further and higher education, to underpin this progression. Such support should continue at least as far as the conclusion of the first year of a full-time higher education course, and should include those between 19 and 24 studying full-time for an initial level 2 [equivalent to five or more GCSEs at A* to C] qualification.


Guaranteed grant funding for students from low income families

  98. In order that students from the most disadvantaged backgrounds and other debt-averse groups[105] can be encouraged to participate in higher education and not be put off by the fear of debt, it is appropriate that their financial risk should be moderated by limited non-repayable support. This should not be part of a universal entitlement, but targeted on those who need it most.

Redistribution of the current subsidy

  99. There is a strong case for the redistribution of the existing level of public subsidy. Current arrangements offer significant financial subsidies to those from the most affluent families (who also have access to substantial family support), while rationing access to loans for the very poorest students. Moreover, present arrangements make it advantageous for students from better off families to take out maximum loans that they do not need for living expenses and invest the money in high interest savings accounts, making a net gain at taxpayers' expense. Public subsidy should be focussed upon those who need it most.

Increase loan repayment thresholds

  100. The repayment threshold for student loans is currently £10,000, which is well below average earnings.[106] The rationale for greater individual contributions to the cost of higher education is that substantial personal and financial benefits accrue to graduates. While this is undoubtedly the case, such returns are subject to significant variation, particularly for those groups that the Government wishes to target for greater participation. We consider that repayments beginning at such a low level do little to reassure prospective students that higher education will pay off.

101. Our predecessor Committee commented on the repayment threshold in its Fourth and Sixth Reports of the 2000-01 Session[107] and recommended that it should be raised very substantially so as to relieve pressure on recent or low earning graduates' income. We concur with this view and we recommend that the repayment threshold for student loans should be raised significantly closer to the level of average earnings and should keep pace with changes in the level of average earnings.[108]

Additional funding

  102. Since expansion is dependent on higher levels of participation from social classes IIIm, IV and V, it follows that any additional resources should benefit students from these backgrounds, a matter that will require careful monitoring. However, the funding of institutions is a matter of grave concern and we are clear that any additional resource for student support should not be at the cost of investment in institutional infrastructure. We fully support Universities UK in this regard and echo the words of Baroness Warwick: "it would be quite intolerable if we were to produce a solution for student support that was at the expense of decent provision while students are at university".[109]

Graduate tax

  103. During the course of our inquiry we were keen to explore the potential of the graduate tax model and were therefore disappointed at the Minister's unwillingness to discuss it in oral evidence.[110]

104. It is taken for granted by some that it would not now be possible to provide higher education free at the point of delivery simply through raising income tax. Increases in income tax rates have been ruled out by the Government, even though (or rather, precisely because) income tax is highly visible and well understood by the public. But additional money has been raised by a small surcharge on the earnings (but not unearned income) of highly paid individuals above the previous cap of the national insurance upper earnings limit. A further surcharge on high earners would impact mainly on people who had enjoyed a university level education and who had benefited financially from it.

105. A new "graduate tax" which levied additional income tax only on taxpayers who had enjoyed a university education in this country would have the advantage of shifting the financial burden for student support onto those who had benefited from it. The sophisticated system for tax collection would be well placed to implement income-sensitive methods for collection and to identify target groups, such as teachers or medical professionals, for particular policy initiatives.

106. On then other hand, a graduate tax might create new unfairnesses and perverse incentives. Without an individual ceiling on repayments, successful and highly­paid graduates would be required to repay many times the cost of their education; not going to university would become a tax break; failure to complete an HE course would become a smart way to avoid tax; and able students who anticipated a lifetime of high earnings would be encouraged to undertake their studies abroad. A graduate tax might be limited in some way, perhaps both by the ability of the individual to pay and to the amount of benefit the individual had received. The "graduate tax" would then come very much to resemble an income­contingent repayment of money issued as a loan.

Refined income-contingent loans with reduced subsidy

  107. Building on the work of Barr and Crawford amongst others, there is scope for some manipulation of loan allowances, repayments and interest rates, all of which are within the combined powers of the Department for Education and Skills and the Treasury. Increased loan value, financed by a reduced subsidy in the interest rate, would achieve much in relieving student hardship while an increase in the repayment threshold would send a clear signal that the graduate benefits of higher education would be well established before loan repayments begin.

108. We have been disappointed in the Government's dismissal of the Barr and Crawford proposals. In our view they provide a challenging critique of the current system and present an innovative approach to student support policy. We were therefore astonished to discover that neither Professor Barr or Mr Crawford have been invited to meet with the review team and discuss their proposals in detail.[111] We urge the Department to correct this omission at the earliest opportunity.

Higher means-tested fees

  109. The current maximum contribution to fees is limited to approximately 25 per cent of the average cost of tuition. At a little over one thousand pounds a year, this is significantly below the cost of private school fees. If means-testing mechanisms can be made effective in assessing the ability to pay, there is little logic in limiting the fee contribution to 25 per cent of the average cost. Increasing fees would not disadvantage those students from the poorest backgrounds and could raise significant funds for institutional investment and student support.

Graduate endowment

  110. The Scottish model of student support has included the development of a graduate endowment scheme for Scottish students who study to degree level in Scotland. The scheme is intended to shift the financial burden of making a contribution to fees until after graduation and therefore relieve student hardship. Contributions to the graduate endowment are compulsory and limited, the liability being known to the student at the point of registration. Logically, funds raised by this means effectively replace the up-front tuition fee, and therefore should be invested in education.

Differential fees

  111. The Australian Higher Education Contribution Scheme (HECS) was introduced in 1989 and has remained substantially unchanged. It requires payment of tuition fees, differentiated by subject band, from graduates' income, with discounts for up­front payment. Fee levels are set nationally in three bands, broadly in relation to the expected return on study in each subject area. Law, Medicine, Medical Science, Dentistry, Dental Services and Veterinary Science attract the highest fees and Arts, Humanities, Social Studies, Sciences and Education the lowest.

112. The proposal that in the UK is usually described as 'top-up' fees would enable fees to be set at the institutional rather than national level and institutions to apply either an institution-wide fee or to vary fees on a course by course basis.[112] This would enable certain institutions to levy higher fees based on teaching models, level of demand, or other variables, while other institutions might reduce fees.

113. This approach was examined by the Universities UK Funding options review group.[113] The review set out the strengths and weaknesses of this and other funding options and noted that while differential fees would offer significant flexibility for institutions and additional income for some, there are difficulties associated with the use of public funds to support deregulated and institutionally driven fees.[114]

114. The discussion over differential fees for particular courses or for particular institutions has been blighted by a failure to discuss issues seriously. UK universities already charge different rates to different students, particularly those from countries outside the EU and indeed many research-rich institutions are particularly dependent on such an income stream. This Committee believes that there should be serious consideration of this issue.

115. Much heat and little light has so far been shed on the top-up fees debate. There is a serious debate to be had on fees policy and the Government should not shrink from evaluating the costs and benefits of a differentiated fees strategy.

Tiered interest rates

  116. Dr Piatt and Professor Callender suggested to us that consideration should be given to tiered interest rates for students in different income groups and circumstances.[115] In this way, interest subsidy could be more effectively targeted and linked to the ability to pay.

117. Differentiation could be based on a means test so that those from better of backgrounds would pay a higher rate of interest. Alternatively, an amount sufficient for basic living could be made available at a low interest rate and additional sums at a higher rate. Differential fees could be paid for courses either to encourage students to study particular subjects or to recognise the high earning potential of training in subjects like medicine. Interest discounts could also be brought into play for those entering certain professions. Students on sub-degree level courses could be offered the opportunity to borrow at a lower rate.

118. It is our view that the proposal to reduce the interest rate subsidy for those who do not need it and the intention to expand take-up of further and higher education are not irreconcilable positions and that the Government should be encouraged to develop innovative and potentially radical solutions to this challenge, without introducing excessive degrees of complexity.

Simplification/consolidation of various existing hardship funds

  119. Universities UK has proposed the reintroduction of grants for the poorest students funded by "rolling up all the complicated support schemes we have at the moment and putting them into a simple grant instead of having multiple schemes for which they have to apply and work out".[116] The current system of hardship funding is managed by individual institutions and applications are subject to locally agreed criteria. Although this may offer the flexibility to respond to local needs, it also means that the system is complex and difficult for students to navigate.

120. The Department should give consideration to renaming the hardship fund. The language of hardship conveys an unfortunate stigma and we are concerned that it may discourage some students from making an application. Reforms to streamline and simplify the administration of such funds are urgently needed to give greater certainty to vulnerable students or those in difficult circumstances that timely and effective assistance will be provided to help them successfully to achieve their potential in higher education.

97   Opportunity for Whom? Options for the funding and structure of post-16 education, Wendy Piatt and Peter Robinson, IPPR, 2001 Back

98   In the National Qualifications framework, level 2 qualifications include [five or more] GCSEs at A* to C, intermediate GNVQ and NVQ level 2. Level 3 qualifications include [2 or more] A Levels, NVQ level 3, an Advanced GNVQ or the equivalent Back

99   Opportunity for Whom? Options for the funding and structure of post-16 education, Wendy Piatt and Peter Robinson, IPPR, 2001 Back

100   Ev 130 paragraph 16 Back

101   Implementation of the Education Maintenance Allowance Pilots: The Second Year, Sue Maguire (CRSP), Malcolm Maguire (NICE formerly at IER) and Claire Heaver (CRSP), DfES Research Report 333, March 2002 Back

102   The EMA is currently being piloted in 41 areas with the intention of raising participation and attainment in post-16 education. Eligibility for the scheme is means-tested and restricted to pupils in the first 3 years following compulsory education. Initial findings suggest that the EMA has had a significant impact on improving retention and attendance, although it is too soon to say whether this impact will extend to attainment Back

103   See Financial Times, 27 June 2002 Back

104   Sixth Report from the Education and Employment Committee, Session 2000-01, Higher Education: Student Retention, HC 124, paragraph 82. See also Improving student achievement in English higher education, National Audit Office, HC 486, January 2002 Back

105   Professor Teresa Rees commented on the prohibition on usury (Riba) in the Islamic faith, Q 109 See also Lindsey Fidler of the National Union of Students, Q 184 Back

106   The average gross annual pay for full­time employees in Great Britain for the 2000­01 tax year was £23,607, according to the ONS New Earnings Survey Back

107   Fourth Report from the Education and Employment Committee, Session 2000-01, Higher Education: Access, HC 205, paragraph 71, and Sixth Report from the Education and Employment Committee, Session 2000-01, Higher Education: Student Retention, HC 124, paragraph 109 Back

108   A threshold of £20,000 would be 85 per cent of the average gross annual pay for full­time employees in Great Britain for the 2000­01 tax year of £23,607. Source: ONS New Earnings Survey 2001 Back

109   Q 344; see also Q 7  Back

110   Q 278 and Q 280 Back

111   Ev 134 paragraph 6 Back

112   New Directions for higher education funding, Universities UK, March 2001, page 17 Back

113   New Directions for higher education funding, Universities UK, March 2001  Back

114   New Directions for higher education funding, Universities UK, March 2001, page 23 Back

115   Q 380 and Q 382 Back

116   Q 331 Back

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