Chancellor Urged to Means Test Tuition Fees and Restore Grants – the Staffroom

20th November 2017

The Sutton Trust is calling on the Chancellor to support a £3.2 billion reform to student funding – means-testing tuition fees and restoring maintenance grants – in this week’s Budget, in a new report that includes detailed projections of their potential costs and benefits.

Fairer Fees finds that plans to raise the threshold at which graduates start paying back their student loan from £21,000 to £25,000 will mean that 45% of student debt will never be paid back, up from 28% when the threshold was set at £21,000, and four fifths of graduates won’t repay their loans in full.

The analysis by London Economics for the Trust finds that while the reforms announced by the Prime Minister in October will save graduates an average of £8,000 over their lifetime.  However, they will increase the long-term costs to the Exchequer by £2.9bn for each student cohort.

Students in the UK pay some of the highest fees in the world. The typical graduate of an English university will leave university with debts of around £46,000, with young people from households in the lowest 40% of earners taking on the biggest burden and average debts of £52,000. This is almost double the level of debt which American graduates leave university with. October’s announcements mean that four-fifths (81%) of graduates will never repay their debt in full, up from 72% when the threshold was set at £21,000.

The Trust is concerned that the current system has substantial adverse consequences for students, graduates and the Exchequer. To address this, the Trust is calling on the government to introduce a system of means-tested fees and restored maintenance grants.

Analysis in today’s report finds that introducing a means tested system – where students from households with an income of under £25,000 would pay no tuition fees and those from the very richest would pay £12,500 a year – with a sliding scale in between – would cut average student debt by a third (from £46,000 to £29,500). Reintroducing maintenance grants at the same time would cut debt even further, to £23,000, at a total net cost to the Treasury of £3.2bn per year – broadly the same cost as raising the threshold to £25,000.

Most importantly, it would slash debt among the 40% poorest students by 75%, from £51,600 to £12,700. Under the current regime – where maintenance support is provided in the form of additional loans – the poorest graduates leave university with debts over a third higher than those from better-off homes (£51,600 to £38,400).

The changes would also reduce the proportion of graduates never repaying their full loans from 81% to 56% and the proportion of debt not paid back would fall to 35%. With changes to the repayment threshold in October, the average graduate currently repays £54,900 over their lifetime in cash terms (£25,200 at 2017 prices) compared with £69,500 (£33,200) before the threshold changes. This would change to £30,200 (£15,400 at 2017 prices) under the proposed new system, though the poorest 40% of graduates would likely repay about four times less than the richest fifth.

Sir Peter Lampl, Chairman of the Sutton Trust and of the Education Endowment Foundation said today:

It’s an absolute scandal that the poorest students graduate with the highest debt.  A typical graduate will leave university with whopping debts of £46,000 while young people from households in the lowest 40% of earners will graduate with debts of nearly £52,000.  These debt levels are almost double those of American university graduates.

“We are proposing that fees should be means tested and maintenance grants reintroduced so that those from low income families incur the lowest debts. Our proposals are an affordable and fair alternative to the current system where fees are not means tested and there are no maintenance grants.”

Read the report in full here

Read an summary of the report here

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