This report from UK Onward argues that up to a quarter of students in England are doing degrees that will not give them sufficient earnings to justify the cost of their loans. It also suggests tax breaks of up to 50p in every pound owed should be offered to graduates repaying loans.
The report acknowledges that education has a value in its own right and that earning a living is not the only reason people study” but says too many young people “are being sold a false promise.
However, too many students are facing hefty repayments for degrees that won’t help them financially and too few are being offered quality technical and apprenticeship options instead, it says.
The study says, in 2015-16:
- between 18% and 25% of undergraduates were studying for degrees that fail to deliver a lifetime-earnings premium that justifies the average student debt, from tuition fees and maintenance loans, of £50,000
- 40% of undergraduates were enrolled in courses that led to median earnings below the student-loan repayment threshold, of £25,000, after five years
- 10% were enrolled in courses with median earnings below £25,000 10 years after graduation - representing 134,000 students every year who won’t be paying back anything 10 years after graduating yet who will have accumulated significant interest
- 20% would be no better off five years after graduating than if they had chosen to take a non-university route, such as an apprenticeship.
The problems with how higher education is funded are:
- Graduates face some of the highest marginal tax rates of any taxpayers in England and Wales, compounding imbalances of wealth between the generations.
- In economic terms, university represents extremely poor value for money for some graduates, especially those studying certain subjects.
- Low returns and high interest rates combine to ensure most loans are never fully paid back.
- Despite being neglected, technical education is already a better route to higher earnings for many students. If we invested more in higher technical education, it could be even better.
- Those with the lowest prior attainment are the most likely to be financial losers under the current system.
- Perhaps unsurprisingly, the public do not believe the current system of student loans is fair or represents value for money.
Additionally, many of the proposed remedies may end up exacerbating the problem, rather than fixing it. For example:
- Simply abolishing tuition fees does nothing for graduates, and is prohibitively expensive for taxpayers, including many who have not themselves attended university.
- Reducing tuition fees from their current level would do little to reduce the day-to-day repayment burden of graduates.
- Replacing loans with a graduate tax is simpler but is unlikely to lead to lower graduate repayments and would worsen ‘brain drain’.
- Shifting the costs to employers would do little for graduates, and create significant distortions.
- Altering rates and thresholds might have the desired effects, but compound other issues with loan forgiveness and accounting.
Recommendations:
- Halve repayments by introducing a graduate tax cut, worth 50 pence in every pound of loan repaid.
- The graduate tax cut should apply to all student loan repayments, whether paid by past, present or future graduates, thereby treating past, present and future students equally.
- Protect students and taxpayers by reducing the flow of students into low value university courses.
- Divert students into either higher value university courses or graduate level technical education.
- Grow higher technical education, re-investing the savings made from reducing low value university courses to support one-for-one investment in higher and graduate-level apprenticeships.
- Put technical education on the same footing as university courses in school leavers’ application process with a single portal to apply for both.
- In the short term, make university funding more open and transparent, by including a measure of the Resources Accounting and Budgeting (RAB) charge in the ex-measures they publish.
- Over a longer period, deliver on the ONS’ review suggesting that the element of the loan that will never be repaid should be treated as an in-year cost.
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Keywords
Degree, undergraduates, students, England, cost, loans, earnings, lifetime-earnings premium, graduation, technical education, university