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Nicholas Barr on Labour’s fee and loan plans

April 28, 2015

A piece here on the Economics of HE site,  by Nicholas Barr on Labour’s proposal to reduce the fee cap, which challenges it as progressive,  argues for making the loan scheme more self-funding by reducing the repayment theshold, for increasing the public investment in teaching and in pre-HE activities, and making more loan available for post-grad, part-time and non-HE students.

It’s thought-provoking material.  An omission, in this author’s view, is any discussion of the total amount of debt students might end up with under these proposals (particularly if the aim is to have system where most loan is repaid).  Do we have a view as a society about how much debt a person can reasonably be expected to accumulate, to obtain certain levels of education?  That debate’s been absent in the UK and that’s been to the detriment of low income students in Scotland, especially mature ones, as well as those in other parts of the UK.  Also worth noticing is the assumption that the way to improve collection rates is to reduce the threshold rather than (say) adopt the Australian model – which has a higher threshold, but once the threshold is crossed, collects more (and increases the rate of collection as income rises – see here: it’s roughly AUS$2 to £1).

In a twist on the dominant rhetoric in Scotland,Barr argues (emphasis added):

Private benefits should generally be paid for by the beneficiary. However, students are credit constrained and hence generally cannot afford to pay fees. The purpose of student loans is to make higher education free for students, enabling them to pay for their private benefits when they can afford it, i.e. as graduates rather than students. In the language of economics, loans are a device for consumption smoothing. Saying the same thing in more political terms, with a well-designed loan, access to university is determined by people’s ability to learn, not their ability to pay.

His conclusion:

Lowering the fees cap might have limited merit as a political quid pro quo for reducing the loan repayment threshold, but on its own uses scarce resources in a way that is both inefficient and regressive.

England has the right strategy for financing higher education, but with the wrong parameters. To restore the progressive 2006 strategy:

  • The threshold level of income at which loan repayments start should be reduced in real terms;

  • Spending on improving access should be rebalanced, with more emphasis on spending earlier in the system;

  • The balance between taxpayer support for teaching and tuition fees should over time be adjusted by restoring an element of teaching grant.

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