Twenty-first century study has been a story of unfair treatment and accountancy tricksby Michael Forsyth / June 26, 2018 / Leave a comment
The proportion of young people entering higher education has increased from 40 per cent to 50 per cent during the 21st century. This growth has come almost entirely from more students enrolling onto full-time undergraduate degree programmes at universities. Has this been in the best interests of students? And given this expansion has been funded in large part through an accounting trick by the government, more of which later, has the cost been in the best interests of taxpayers?
The House of Lords Economic Affairs Committee, which I chair, has just concluded a year-long inquiry addressing these questions and was unanimous in the conclusions of its report, “Treating Students Fairly: The Economics of Post-School Education.”
Higher education should not just be about spending three years at university studying for a degree. There are thousands of technical and vocational qualifications which can be studied in higher education institutions and further education colleges, either full-time, part-time or as part of an apprenticeship.
The evidence we heard suggested that there is a paradox in the labour market: there are shortages of workers with technical qualifications but there are lots of graduates doing jobs in which their learning has no application. For these people, a technical or vocational qualification, relevant to the workplace, may have helped them secure a more satisfying job and left them saddled with less student debt.
Demand for these other options in higher education is low: the qualifications are perceived as inferior by students and parents; schools are incentivised to push students towards sixth form and university, where the proportion of first class degrees being awarded is accelerating dramatically (for example, since the mid-1990s, the proportion has doubled at the University of Oxford and Imperial College and quadrupled at the University of Durham and the University of Surrey); employers are increasingly using degrees as a filtering mechanism when recruiting for jobs, regardless of the level of skill the job actually demands.
How can we alter these perceptions? The main answer looks to be funding. The funding system for higher education is skewed heavily towards full-time undergraduate degrees. Students across the whole of higher education should be able to access loan funding and maintenance support for all full-time and part-time courses. This includes more students who are studying for higher education qualifications in further education colleges.
We also need to address urgently the decline in part-time higher education: there has been a 60 per cent decline in part-time study since 2010, which appears largely to be a result of the increase in tuition fees in 2012. This is a worrying trend at a time when people are expected to have several careers throughout their lifetime which will require them to retrain. We want to make it easier to access funding to study for individual modules which, with the introduction of a proper credit-based system, would allow people to work their way towards a higher-level qualification at their own pace in an affordable manner. This would make it easier to study later in life.
The true cost of sending ever increasing numbers of young people to university is masked by the treatment of the student loans in the national accounts. When higher education was reformed in 2012, overall funding increased by £3bn but with higher tuition fees and student loans replacing direct grants, George Osborne was able to record a reduction in the deficit of £3.8bn.
This magic money tree has a lifecycle of over 30 years: around £16bn was lent by the government to the 2017/18 cohort of students, it is estimated that almost half of this will never be paid back but these write-offs will only show up in the deficit at the end of the loan term which is 30 years after graduation. This generation of students, who are graduating with around £50,000 of debt, will therefore be hit twice: they will be the taxpayers in the 2040s and 50s who a future government will have to ask to foot the eventual bill (by this point the total student loan book will be worth £1.2 trillion in nominal terms).
The outrageously high interest rate on student loans (which will be 6.3 per cent from September) is also part of this accounting trick: even though 83 per cent of students will never pay off the interest on their student loans, the government counts the accrued interest as income, which reduces the deficit, from the year the loans are made. For 2021/22 the accrued interest on student loans is expected to be worth £7.5bn, a significant sum to count as income when the forecast deficit will be £21.4 bn. The Office for Budget Responsibility has referred to this as a “fiscal illusion.”
These illusions and tricks have to end: the expected losses on student loans must be recognised in the deficit today. This would allow for an informed debate on where public funding in post-school education is best spent: we recommend more funding for further education, an important route into higher education. Such a debate could take into account the restoration of means-tested grants, which when talking directly to students we found was their biggest demand.
Our report is an appeal to the government to treat students fairly by ensuring equal treatment and sustainable funding for all forms of higher education. This would benefit the economy and society by ensuring we develop the skills we need and allowing young people to maximise their potential.