Do we need to rethink student tuition and maintenance loans?

Maintenance Loans have never been enough, but in the past two years, students in England have seen real-terms cuts of up to £1,500 due to errors in forecasting inflation. The minimum parental income threshold has been frozen for over a decade, meaning fewer and fewer students are entitled to the maximum loan. Universities have had their real-terms income cut, making them less able to support their students, and more reliant on the income from international students – simply not feasible for some unis.

Short-term, loans must be increased above and beyond the rate of inflation to close the shortfall that's emerged. In the medium- to long-term, we need overall levels of maintenance funding to increase to adequately cover living costs, with some of this covered by the reintroduction of grants.

The minimum income threshold must rise to reflect inflation since it was first implemented. Experts place this between £30-35,000.

The government must give more direct funding to universities, and not increase fees. This should be seen as an investment in one of the country's most valuable, enviable and profitable assets.

UK HE is facing challenges on several fronts: a rapidly changing jobs market, international and digital competition, and the emergence of AI tools like ChatGPT. The current regulatory environment adds costs and limits innovation. The present university funding system fails to deliver adequate resources to meet these challenges. Further, it fails to align the interests of students and universities, creating moral hazards on both sides. To address these challenges, the university funding system needs to be radically reformed.

Dearing and Browne had both proposed a direct funding relationship between student and university. Instead, because of the belief that only the government could administer income contingent loans (ICL), government remained the intermediary – paying universities and receiving payments from graduates. This is like the block grant system; neither university nor student has any ability to materially influence the unit of resource. Using an administrator, it is now possible for universities to offer their own ICLs, with terms tailored to their needs and different types of students.

The expansion in the use of institution-specific ICLs, where the institution shares in the repayment risk, so aligning their economic interests with those of their students, suggests how the funding system might be reformed. If fee-cap universities were allowed to charge top-ups to their home undergraduate tuition fees above the level of the state loan, they would secure the resources they need. 

If they are obliged to allow students to meet the additional fee through an ICL offered by the university, then the direct funding relationship envisaged by Dearing and Browne is delivered and taxpayers have no additional liability and access is secured for all. With interests aligned it then becomes possible to significantly reduce regulation which will save considerable cost and facilitate innovation. A risk sharing approach is, therefore, the sustainable solution to the university funding problem.

The most significant issues facing the current university funding system are the regressive repayment system, poor maintenance package for students, and a frozen unit of resource.

The Department for Education’s proposed reforms in response to the Augar Review are deeply regressive. Compared to the current repayment system, the extension of the repayment period to 40 years and the slower uprating of the repayment threshold results in substantially larger repayments for low to middle income graduates, while the removal of real interest rates results in a significant reduction in repayments for the highest earning graduates. Therefore, the proposals result in low to middle income graduates subsidising the highest earning graduates. 

The removal of maintenance grants and their replacement with loans from 2016-17 onwards has resulted in students from the lowest income households graduating with the largest loan balances. In addition, failure to uprate either the loan eligibility criteria (i.e., household income thresholds) or the value of loans in line with inflation has resulted in significant student hardship. To resolve this, maintenance grants should be reintroduced (on top of existing loans) while maintenance loan eligibility and loan levels need to be significantly uprated. 

Tuition fees for English domiciled undergraduate students have remained essentially frozen for the last decade and have not kept up with inflation. This has led to a significant real-terms erosion in the unit of resource available to institutions for teaching home undergraduate students, and an increasing need to try and cross-subsidise the costs of teaching domestic students with tuition fee income from international students (which are also increasingly used to cross-subsidise research activities).

There are several alternative repayment system approaches that could generate comparable savings to the Department’s proposed response to Augar. For example, we recently modelled a stepped repayment system that would deliver comparable Exchequer savings as the Department’s Augar response but would be much more progressive.

This approach could also be used to fund the reintroduction of means-tested maintenance grants.

The quantum isn’t enough, but I find it difficult to see political will for that increasing, either from government or from graduates via fees. Non-traditional students (such as mature students, part time and commuter students) are not well-served by the loan model. Students don’t have enough cash in hand during studies, and I’d be sympathetic to increasing loan amounts.

In principle, I don’t mind the issue that the system is partly regressive and partly progressive – or rather, that while a wholly progressive system would be better, the cost of achieving this (as in the costs that might need to be placed on top earners, or the lowering of the repayment thresholds) might not be worth the candle.

We need to stick to the main principles of the current system - specifically, that: students pay nothing up front; that the costs of study are shared post-graduation between graduate and taxpayer; that payments should be income contingent; and that universities receive sufficient funds directly to themselves without going through the Exchequer. 

I am amenable to different models for how we might address some of the biggest weaknesses, which may include student number control - though I am reluctant to lead with that. However, I fear above anything else a system that will either harm institutional autonomy and control over their funding, or that will likely in turn deliver funding shortfalls to institutions.

I think it is wrong to regard the current system as broken:  it has become log-jammed or silted up (choose your metaphor of choice) because the key parameters for tuition and maintenance have not kept up with inflation, but that is altogether different to saying the system itself is broken.

The crucial thing is to maintain the absence of student number caps as the number of school leavers rises, yet most other funding systems I’ve come across would cost taxpayers more, risking the return of such caps. Many other systems would also, in practice, involve giving up a lot of institutional autonomy. 

Therefore, I think floating alternative models, whatever their superficial attractions, is a rather dangerous game. However, if one change could be made, I would reintroduce maintenance grants as it shames our society that we expect the poorest students to emerge with bigger debts than others.

Tuition fees for domestic students have not kept pace with inflation and increasing costs: they were capped at £9,000 per year in 2012 and rose marginally to £9,250 in 2017. This is now equivalent to £6,600 in 2012 terms, with no further uplift to be implemented before 2025. Universities therefore provide tuition to domestic students at a loss, which many seek to redress through preferential recruitment of international students – with a consequent squeeze on the availability of places for UK applicants and potential loss of skills as overseas students return home after their studies.

The current cost of living crisis disproportionately impacts students from lower socio-economic backgrounds (IFS) and is exacerbating pre-existing inequalities in access driven by unaffordable tuition fees and accommodation, and a loss of potential earnings while studying. The threshold for maintenance support has not increased since 2008 and is completely dissociated from inflation. Higher than predicted inflation has led to the lowest real-terms value of maintenance entitlements in seven years, with the greatest impact on students from the most disadvantaged families.

Graduate debt levels are increasing unequally. Following the 2022 tuition fee reforms, more graduates will be required to repay loans in full. Repayments will be higher than previously for low/middle earners and lower for high earners. Differences in tuition fee systems across the UK contribute to a disparity in the accessibility of HE between the nations.

Consider a means-based grant support system for students from low-income/disadvantaged backgrounds.