Expert evidence on the funding of higher education and tuition fees

Comment from Claire Crawford, Research Fellow , Institute of Fiscal Studies & Assistant Professor of Economics at the University of Warwick comments with further evidence on issues raised in new IFS research, “Government reforms to HE finance currently estimated to save little but long-run impact on public finances is hugely uncertain.”

“Student loans result in a long-run cost to the government for two reasons. First, not all loans will be repaid, since the debt is written off under certain circumstances. Second – and something that is often forgotten in the public debate on this issue – the loans are, on average, made available at subsidised interest rates. In other words, the government charges most students lower interest rates than it pays to borrow the money to lend to them in the first place. This means that providing student loans would be costly to the government even if they were all repaid in full.

The fact that the government subsidises the provision of student loans means that any policy change which increases the value of loans issued will also increase the public cost of higher education. This means, for example, that sending more students to university or raising fees would both cost the government money. In fact, we estimate that an increase in fees of just £500 per year would mean that the total taxpayer contribution to higher education would be the same under the new system introduced in 2012-13 as under the old one that was in place up until 2011-12.

But of course universities are now getting more money to cover the costs of teaching undergraduates than they were before: we estimate that they have seen their teaching income increase by over 25% on average. The reforms have therefore secured an increase in resources for universities by increasing the contributions made by mid to higher earning graduates later in their careers. Whether you think these reforms are an improvement on the previous system thus depends on how you weight these different priorities.”

(IFS Research, “Government reforms to HE finance currently estimated to save little but long-run impact on public finances is hugely uncertain.” Authors: Claire Crawford, Rowena Crawford and Wenchao (Michelle) Jin).

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