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Continuing students: precedent and the law

June 20, 2013

An exceptional feature of the new system in Scotland is that substantial grant reductions will be experienced by those already in the system – some of whom could still have three or more years’ study ahead.  As annual losses could be as high as £2000 in  a few cases and well over £1000 in many more, this will mean substantially more debt (or, if they decline the option of more borrowing,  less income) than students will have expected when they first decided to go into higher education.

There is  precedent for reductions in smaller, non-core elements of student support in Scotland (such as travel grants, abolished in 2011-12 and replaced with £350 additional loan for those at the lowest incomes; and the abolition of EMA bonus payments) being introduced at the same time both for new and continuing students.  However,  it has been normal practice to phase in gradually any  changes which would otherwise cause individuals a significant, unexpected loss part-way through their studies.

The closest precedent comes from 1998, when student grants were cut by £1000 to be  replaced by loan.  In 1999, grants were completely replaced by loan.  The new system was applied only to new students (along with the  introduction of means-tested fees, which had a limited impact, if any, on grant recipients).  As well as leaving existing students under the old rules, additional measures were included to shelter  a number of new starts (eg those with deferred places) from the change.  The change was widely publicised in advance and subject to detailed parliamentary scrutiny.

The original introduction of student loans in 1990 was as a top-up to existing grant.  Real terms increases in support were thereafter provided through loans: but, as far as I can make out, loan was not substituted for existing grant.

Other examples of applying major detrimental change only to new starts include the graduate endowment in Scotland and increases in the fee cap elsewhere in the UK.   The £20 and £10 rates for Education Maintenance Allowance in Scotland were also phased out from 2009 for new students only.  Further afield, a grant to loan switch in Australia is also being phased in for new students only.

A recently released report to the UK government suggesting, among other things, that the interest rate guarantee made to earlier generations of students could be revoked and a higher rate of interest applied retrospectively has been criticised for     as subjecting “all but those from the wealthiest circumstances to an indebtedness that they neither anticipated nor consented to” and “undermining trust in the loans system and the entire university application process”.  At a practical level, this proposal would be no different in effect to the Scottish grant reductions, in terms of increasing the period graduates from low-income backgrounds spend in repayment: potentially, the move in Scotland could have a higher actual cash impact in the most affected cases.  The only difference is that Scottish students have the alternative options of either taking a significant unplanned hit on income or dropping out of their course.

The departure by the Scottish Government from established practice therefore also raises some interesting questions about trust, the nature of the moral contract between students and the state  and the predictability of funding for those considering higher education.  It may also raise issues of law.

A central principle in administrative law  is “legitimate expectation”. In broad terms this deals with situations where a public authority has led certain people to have a firm expectation that something would or would not happen.  (Another is “Wednesbury reasonableness” which deals with situations where a public authority has acted unreasonably: but this is very steep test – it takes a lot to be Wednesbury unreasonable.)

The UK government initially proposed to abolish Educational Maintenance Allowances in England for all recipients, including those already receiving payments, and to replace these with a different, cheaper scheme.  Campaigners threatened judicial review of the planned withdrawal of EMA from existing recipients, apparently on the basis of thwarted expectation.  It is not clear how far that threat was taken.   However, the policy was changed and EMAs were eventually phased out more gradually, although still with some reductions for certain students already in receipt.

Supported by the Union of Students in Ireland, students in the Republic of Ireland  recently took their government to judicial review over a rule change which led to reduced grant for some continuing students, with legitimate expectation as one element.  They lost the case – but the decision was tightly tied to the specific  circumstances, including that the cut applied to a particular change in eligibility rules, the precise terms of the law and process by which the change had been announced and implemented (the court commented that it had been “signalled” in advance), the exact nature of commitments made by the government and – centrally – in the words of the judge, “the dire financial circumstances facing this country”, which the court held to be on such a scale that they had to be weighed against any legitimate expectation.  This is the judgement.

Is it possible a similar challenge could be brought in Scotland and what chance might it have?   Some issues to consider might include:

  • what was originally said about grant in formal government literature for students when they first applied and how far the government can insist that this should have been viewed as a form of completely variable annual contract.
  • other official government statements which the students affected might have taken as indicative of its intentions eg: “the current average graduate debt for Scottish borrowers is £6,480, and we are working to reduce that further” (this figure relates specifically to student loan debt: the quote is from September 2011).
  • the lack of precedent for a mid-course reduction in student grants on this scale.
  • that the fact of reductions in grant levels, including for continuing students, had to be inferred from other information published, particularly the 2013-14 grant tables on the SAAS website, and was never explicitly announced (no parliamentary process was required to approve the change).
  • specific advice from SAAS  for continuing students appears to have been limited to: “Q:  I am currently a student in Higher Education. Will I keep the same funding next year?    A:  No, we will fund you under the new arrangements. However, providing your circumstances do not change, the level of funding you will receive will be the same or higher than the amount you will receive this year”.
  • whether other, more explicit information may have been provided direct to continuing students about reductions in bursaries. The NUS did contact all those students in its membership specifically drawing attention to the new  grant and loan rates (grateful to NUS for providing a copy of this: NUS note to members 22 August 2012), clearly explaining that the new arrangements applied to all students.  However, there is no specific reference to grant rates being lower: the bulletin refers to “financial increases” which would “benefit every single student continuing in higher education through September 2013”.
  • the availability of loan to replace grant.  This would no doubt be central to any defence. Loan deals with the immediate cash-flow effect but  is still a fundamentally different form of funding. It is not a like-for-like  replacement for grant, given it creates an additional charge on  future earnings. An IFS study (see here) provides some comfort to those who argue that loan and grant have interchangeable effects on applications in general, at least among young students.    Prima facie evidence that students regard  grant and loan as different might be argued if there was a clearly lower percentage take-up of loan compared to grant. This House of Commons Research Note  gives the most recent available figures for maintenance loan take-up in England as around 85%, adding that “the main reasons for not taking out loans were that students felt they did not need the money (45%), a dislike/concern about borrowing (36%) and concern about repayments (23%). Concern about debt and repayments were more prevalent among students under the new support system [ie the £9000 fee regime] and those receiving a Maintenance Grant.”  The Scottish budget assumption for loan take-up under the new system appears to be around 70% (see full analysis). I can’t immediately identify actual or assumed take-up rates for grant: it would be surprising  if they were as low as 70%, but that possibility can’t be ruled out.
  • the absence of public consultation specifically proposing cuts to grants.
  • how far there was explicit consultation on the bursary reduction with NUS in private prior to the decision. There is certainly evidence that the NUS can at best only have become aware of the decision relatively late in the process  – see the quote at the end of this story, which ran two months before the government announcement, at which point the NUS was clearly not expecting the new package to increase debt.
  • the absence of any transitional safety-netting, such as the capping of grant losses over a certain amount, which means that the range of detriments suffered is very variable and arguably somewhat arbitrary: students affected by the drop in threshold for maximum (or for mature students, any) entitlement, combined with the move from a tapered to a stepped scheme, tend to be particularly  vulnerable to sharp effects.
  • the pressure on the Scottish Block, in particular how that compares with the scale of reduction required in the Irish budget.
  • whether NUS Scotland would support a case, given  its support for the changes as a package and that its involvement in developing the package might well be central to any government defence.
  • the general reluctance of the courts to interfere with the ability of governments to make policy and manage budgets (to “fetter their discretion”): the cost of reversing the grant cut,  or even just ameliorating it, for continuing students would have to be in the millions, albeit that the cost would diminish quickly.
  • the limited remedies likely in the event of a successful case: a court will make comments about the process but is likely only to require that Ministers reconsider the decision.  It could not be expected simply to order a restoration of lost grant.

Critically, the government might well argue that the bursary cut for continuing students goes hand in hand with their access to the new higher level of total spending power  (“the minimum income”, which is underwritten by further additional loan).   The Scottish Government has previously said that “as the RAB charge [the cost to the government of issuing student loans] is non-cash, according to HM Treasury rules it cannot be spent on bursaries”.  If so, there is no necessary link between sheltering continuing students from the impact of bursary reductions and denying them the minimum income.

Still, the argument might be pressed and if so could discourage a challenge, as it would position the interests of any potential complainants against those of other students more concerned about spending power than debt.  Alternatively, the government might with similar effect insist that any restored funding would have to come from some other specifically identified element of the budget, rather than being absorbed into general contingency as a declining liability.

Interestingly, there is precedent for allowing students to have a benefit without an associated liability in a period of transition.  In 2000, tuition fees were abolished a year ahead of the introduction of the graduate endowment, even though the two had been closely tied together as a policy.  One group of students therefore benefited from a reduced liability for fees, without acquiring any additional liability at graduation.

There is no sign so far of any legal challenge.  However until it is clear that all continuing students fully understand how the changes affect them, it must remain possible that at least some of the most severely affected students may decide to bring the issue before the courts.

Either way, the precedent set here carries significant implications for future policy making, particularly in the area of student funding, and perhaps even more widely.  If it stands, it leaves open the potential for governments in future to make significant further cuts to the cash benefits received by existing students – up to and including their abolition – and to substitute these  with loans, without a specific public consultation on the proposal or, arguably,  even a clear announcement prior to implementation.

Like the grant cuts themselves, if that precedent is absorbed into Scottish policy-making with minimal comment it would raise a more general question about how effectively checks and balances on the exercise of government power are currently functioning in Scotland.

Copyright  Lucy Hunter 2013

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