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Particularly useful research by the Institute of Fiscal Studies on the impact of changes in grants, loans and fees

June 18, 2013

Grateful to the NUS for the link to this study by the Institute for Fiscal Studies from 2010.

Taking advantage of the way different changes have been introduced at different times in England, Wales and Northern Ireland, the IFS used a complex model to disentangle the separate effects of changes in tuition fee rates, and the availability of grants and loans  (whether for maintenance or fees), on participation rates among school leavers.  It does not deal with the impact on older students – and everything below needs to carry a caveat about that.  It also only examines the effect of fees up to levels of around £3000 a year: whether the findings would hold for higher amounts can’t be shown.

Looking at what impact each element would have if it was applied in complete isolation from any other, the researchers note: “Our main finding is that a £1,000 increase in upfront tuition fees reduces degree participation by 4.4 percentage points, while a £1,000 increase in loans increases participation by 3.2 percentage points and an increase in maintenance grants increases participation by 2.1 percentage points (though after further testing we find that the impact of loans is not significantly different from the impact of grants) .”  The researchers note that variations in take-up (ie fees are compulsory, whereas applying for loans or grants is not) may explain why money out (fees) does not simply have an equal and opposite effect to money in.

It would be easy to seize on  this finding by itself  as an absolute argument against fees. But the conclusions are more complicated.  The researchers went on to examine what has happened in practice and demonstrated that it is the combined effect of changes in all three elements which matters.

In 1998-99, at lower incomes grant was switched to loan, but no fees were applied.  At higher incomes, the only change was the introduction of upfront fees, without specific fee loans (but access to more general loan, which appears to have been widely used in practice to off-set the immediate cost).  A group in the middle lost smaller amounts of grant, became liable for smaller amounts of fee and gained access to more loan.  Looking at the combined effect of all these things on the different groups, the study concludes “there was no significant impact on participation” for low or medium income students.  In other words, the switch from grants to loans did not have any noticeable effect. But participation rates fell at higher incomes. They note: “In summary then, the increased costs of university participation imposed in 1998/99, while reducing participation of high income groups, did not appear to sacrifice the goal of widening participation of low income groups.”

In 2006, things were done differently.  A  package which offset new costs with new benefits was introduced for all students.  All groups saw an increase in fees, of between £1800 and £3000, depending on whether they had been liable before.  However, this time there was a dedicated system of fee loans.  Grants were reintroduced for those at lower incomes.  The report concludes: “In the case of the 2006 reforms, there was no overall change in participation for any of the groups. For the low income group, the large increase in grants and fee loans was sufficient to outweigh the impact of the £3000 deferred fee introduction, so that the net result was no significant change in participation. The same is true for medium and high income students though in each case the separate components of loans, grants and fees are themselves significant.”

As the researchers put it: “These results are highly relevant for policy makers, who ought to be aware of the negative impact of upfront fees – i.e. those not covered by a fee loan [my emphasis] – and the positive impact of aid on participation. Maintenance grants can potentially be used to offset the negative influence of fee increases, given their opposing influences on participation. Policy makers should also be aware of particularly vulnerable groups when setting levels of fees and grants, and may need to target specific groups with more generous aid to counteract any increases in tuition fees.”

As well as being a significant challenge to those who argue that fees will always be a problem, no matter what else is done alongside them, the study also provides some comfort to those who would argue that a switch from grant to loan for living costs is unlikely to have a significant impact on applications from those at lower incomes, despite what might be expected from other studies on the deterrent effect of debt.   The study identifies that grant vs. loan is a far less significant factor in determining applications than “parental education and prior attainment” which are the “key drivers of participation”.

Should we care at all therefore about retaining student grants?  This study provides some strong evidence against relying too much on an instrumental argument about widening access, at least in relation to younger students.  But there are other arguments which also matter here.

Above all, as can now be seen by comparing Scotland with – say – Wales, grants are the main instrument available to avoid passing income inequality down the generations, particularly in a system where those from better-off homes incur no debt for fees and even in ones where fees are relatively low.

Even if  those from lower incomes are willing to take on significantly more debt than before, and more debt than their better off  peers, that does not mean it is right or indeed good social policy in the longer term to take advantage of  that, and to let the ready availability of loan become a reason not to look at the overall use of cash resources within the system.  This is money these graduates will not have later in life for pensions, housing, childcare or further training, compared to their classmates from wealthier homes.  That may not be the most pressing concern for individuals at 18, but the wider community might be held to have some responsibility for thinking ahead about that – not least if the view is taken that entrenching economic advantage has wider damaging effects on society and the economy.

There are parallels here with the argument about fees, where the evidence is also mounting that the widening access argument does not stand up, and systems with fees can perform as well as those without, in terms of attracting applicants from lower-income homes. We might therefore expect now to be reminded more of other arguments (as demonstrated recently in The Herald: “the policy has always been much wider than this in its intentions, seeking to benefit all who are capable of going to university, regardless of social class, and allowing graduates to begin working life as free from debt as possible”).  Indeed, just as with grants, even if the evidence suggests that fee debt, at least up to certain levels,  is not a deterrent it is still reasonable to consider what absolute levels of debt graduates from any background should carry into later life.

Finally, this research also gives pause for thought about the continued use of “up-front fees” in Scottish debate as a way of describing the alternative to what currently happens in Scotland.  Relevant in 1999, it has long since been overtaken by changes everywhere else in the UK.  The explicit provision of fee loans since 2006 to enable the deferral of fee costs might have been regarded as simply formalising what was already widespread practice.  However this study shows that it has in fact been an extremely important shift, with which the terms of the debate in Scotland – still so focussed on the issue of “ability to pay” upfront – have yet to catch up.

(c) Lucy Hunter 2013

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