28 February 2022

Neither students nor taxpayers are getting a fair deal from university

By Elizabeth Dunkley

Britain has some of the best universities in the world, but that doesn’t mean that taxpayers – a majority of whom never got the chance to take a degree – should shoulder an outsize burden for paying for them.

Of course, both society and individuals benefit from an educated work force, and should share the costs, but at the moment neither is getting a fair deal.

Firstly, far too many young people are not getting good value out of their degree. It used to be the case that all graduates, regardless of degree course choice, could expect to earn above median earnings over their lifetimes. This hypothesis simply no longer holds true. Yes, the figures show that graduates, on average, earn more than non-graduates – but that is not the case for everyone. One third of graduates are not in graduate jobs 10 years after completing their course. Worse still, as our research has highlighted, approximately 20% of current students will actually be worse off for going to university. For many more, the economic returns will be negligible.

Secondly, the current system is far too reliant on borrowing, only a fraction of which ever gets paid back. As of 2021, the UK’s student debt stands at £161 billion. To put that figure into perspective, that is enough money to pay the entire population of England’s council tax bill five times over and is larger than the entire GDP of around 150 countries. Without any intervention, this figure is forecast to reach an eye-watering £500bn by 2043. The Government, and by extension the taxpayer, can expect to recoup less than half of all loans. If left unchecked more than three-quarters of students who started a full-time undergraduate degree in 2020/21 will not fully repay their loan.

This is not to say that funding universities through a loans system isn’t the right approach. Not requiring payment upfront enables many more students from low and middle-income families to get degrees. If you are sceptical, compare our system to Europe, where most state supported universities are chronically underfunded and starved of resources. Or the United States, where the best universities are prohibitively expensive, requiring either extremely wealthy parents to get in or requiring young people to take out punitive loans. But the fact that the advantages of higher education to an individual are clear, but the overall benefits to society are less certain, makes it challenging to strike the right balance.

The Government recognises this, and last week, speaking at the Centre for Policy Studies, the Higher Education Minister Michelle Donelan announced a series of reforms to the student loan system.

Perhaps the most eye-catching is that the threshold at which students start to pay will fall from £27,295 to £25,000, and that the period of time for which graduates will go on repaying loans will rise from 30 to 40 years.

As graduates enjoy the benefits of higher education for longer in their careers, it is only fair that repayment terms should reflect this, rather than simply making taxpayers responsible. These reforms means that graduates will not start paying back until they have reached well over the median non-graduate starting salary of £21,500, and will never be worse off in real terms.

This, in turn, is designed to limit the ability of universities to offer poor quality courses to students – as is the proposal to have minimum requirements for university entry, on the grounds that students with poor GCSEs and A-levels results are more likely to study poor value degrees. Instead, the Government intends to diversify higher education with plans to create scholarships for apprenticeships and vocational training.

Apprenticeships and vocational training have been looked down upon for far too long. When was the last time you heard a headteacher boast about how many apprentices they had supplied to a local company?

Vocational training and apprenticeships represent better value all round. Young people are left with less debt, face better employment prospects, the economy gains from having a highly skilled workforce, and the taxpayer gets a much better return on investment, with an estimated return of around £27 for every £1 invested by the Government into apprenticeships.

This package of reforms is not about attacking higher education or punishing poor and underprivileged young people. Rather it is about challenging the ‘one size fits all’ approach to higher education that perpetuates the myth that that university is the only ticket to success, which too often comes at the expense of disadvantaged students.

The Government understands just how valuable our universities are. That is why these reforms represent a welcome first step to ensure we maintain, future-proof and improve our higher education system, to guarantee that the UK continues to flourish.

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Elizabeth Dunkley is a researcher at the Centre for Policy Studies.