Scottish Conservative plans for a graduate contribution: maths and myths

Note: I have had this piece sitting in draft for a few days.  A Daily Record piece published yesterday appears to clarify a couple of points and those are noted below:  but it also perpetrates one red herring (as predicted below).

The Scottish Conservatives have set out their plans to introduce a graduate contribution/charge/back-door fee (circle according to your rhetorical preference). This notes works through the maths.

Liability and proceeds

The charge would be calculated as £1,500 per year. It would have the same exemptions as the old graduate endowment. So it would not affect part-time students, mature students (age 21 at start of course is the dividing line in most cases), single parents, disabled students, those on PGDE (post-grad teacher training) or – and this is very important – those on HN courses, mainly in FE colleges.

Under the graduate endowment, around 45% of the full-time students receiving funding from SAAS were exempt.  Let’s assume for simplicity that around half would be unaffected by the proposed charge/contribution/backdoor etc. Those liable would be most of the young students on a full-time degree course.

The Conservatives estimate that this would raise around £100m a year.  That looks about right in the long term. There are around 135,000 Scottish and EU SAAS-funded students: 50% of those would be 67,500, which multiplied by £1,500 a year gives roughly £100m.

However, given the way debt has risen for poorer students in recent years as a result of bursary cuts, it would be hard to justify adding to the financial load of those students already affected by those. The Conservatives have previously said that one call on this funding will be to increase bursaries for poorer students.  The percentage of young degree (specifically) students who have been affected by cuts to the  Young Student Bursary is not directly calculable from official statistics. But on a rough guess, it might be up to around one-third. So it’s a reasonable assumption that the first third or so of that £100m would need to be recycled into compensating grant for low-income students, simply to avoid adding further to the larger financial burden they already face as a result of decisions by the out-going Scottish Government.

That would still leave around £65m of net proceeds to make the world a better place.  The Record quotes the Conservatives identifying their scheme as producing £60m for investment in FE, so it looks at first sight as though this may be the sort of underlying calculation.

Income-related repayment

The party has said a loan would be available to cover the immediate costs of the charge. When they talk about people only paying it once incomes reach £20,000, they appear to be referring to the income threshold at which that loan would be repaid. In Scotland and Northern Ireland, student loans currently start to be repayable once income reaches £17,335 income: it’s £21,000 in England or Wales.  If the Conservatives plan on following the precedent set by fee loans to Scottish students going to other parts of the UK, the new loan would be added to students’ other borrowing for living costs (where they have any), implying a general increase in the threshold for all loans.  An increase in the repayment threshold  would be a sensible, progressive move. A higher loan repayment threshold benefits lower earners and is advocated by NUS (Scotland).

Timing

On the timing of the income, on which the Record concentrates, there’s one substantial point and one superficially persuasive but disingenuous one, which was often quoted in relation to the graduate endowment. [Note: the Record clarifies the first, but perpetrates the second.]

The substantial timing point is about when the charge is levied.  If it’s payable each year as a student actually studies, it’s not a back-door charge but a straight-through-the-front-door one.  That system means that the proceeds become available to spend earlier. I start my course, pay the charge in cash or take out a loan to pay  (as with existing fees in  rUK) and the face value of it converts into immediate income for whoever I pay it to, whether it’s the university or the Scottish Government.

If, however, it’s levied only once students leave, as the graduate endowment was, then the income takes about 4 years to build up to its full level. Note: The Daily Record appears to have got the Conservatives to clarify that it will be this, with the amount becoming payable in the April after graduation, following exactly the model of the graduate endowment.  As The Record notes, it will be around the time of the next election before those leaving will start to be liable.

So, rather than 67,000ish people paying £1,500 a year, somewhere between one-third and one-quarter of that number will pay either £4,500 or  £6,000 in one go, as the first liable groups start feeding through, depending on whether they have studied for three years or four.  Only by that point will the total amount coming head towards £100m. If everyone is on a 4 year course, the sum is 67,000/4 x £6,000 = £100m and takes 4 years to pull in; if everyone is on three years, it’s 67,000/3 x £4,500 = £100m, and it arrives after 3 years; if it’s a bit of both, it still heads towards the same total, and phases in over 3 to 4 years.

As there is nothing until the first cohort of graduates leave, any new spending contingent on this income has to be delayed, or funded for a while  from elsewhere. The latter is in effect what happened with the graduate endowment, where bursary spending linked to it was introduced in 2001, but the first set of liable students only graduated several years later. The new bursaries were funded by a temporary increase in the relevant budget line.

The argument not to be seduced by here is that because students only pay it back once they are earning, there’s no useful income until graduates hit the repayment threshold. The Record gets in a tangle over this, which completely ignores that the government will have scored the income in its accounts in full as soon as the face value of the initial loan was handed over by the graduate. Loans act as a buffer between government access to spendable cash and the delay in graduates earning a enough to start paying them back. That is their whole point. This is why the Westminster government has been able to largely replace its own direct grants for universities in England with fee loans, without those institutions going bankrupt. This useless-trickle-in argument was used against the graduate endowment, equally misleadingly.

The speed at which individuals pay back their loans in practice will be irrelevant for the speed at which any new funds become available for public spending. Suggesting the money will dribble in at a useless rate (The Record quotes a £200,000 a year in 2021) suggests either a failure on the part of those providing the briefing to the press to understand how the finances work in this area, or a desire to make sure other people don’t. It’s just unhelpful and doesn’t aid the sort of thoughtful discussion about the significant issues of equity raised by Scotland’s no-fee/low-grant system of student funding we still desperately need.

Footnote 1: The Record’s detailed calculations

The Record bases its sums on there being 30,000 entrants to degree courses each year, of which only around half would be liable. It estimates one-quarter of those will be on three year courses and therefore the first income would come when those pay £4,500 in 2021. That suggests some 3,750 paying £4,500, giving just under £17m.  The Record suggests the net income would be around £15m. Near enough. (As I assume one-third of the income would be needed to stop the poorest students getting into further excess debt, the usable net proceeds for FE in the first year will be a bit lower than The Record estimates, nearer £10m.)

Because it is only interested in the effects within the next parliamentary term, The Record does not carry the calculation forward to the next year, when the scheme would be expected to take almost full effect. At that point, the remaining liable graduates on 4 year courses  (30,000 x 50% = 15,000, less 3,750 = 11,250) would pay £6,000 each, giving £67m, plus a further cohort of three year students would pay a further £17m, giving an income of £84m.  That’s still short of my £100m, probably for two reasons. First, payments  from those who spent more than four years in the system (longer courses, repeat years) are still missing: they might take the number up to somewhere round £90m once the system is in a steady state. The rest of the gap will be due to The Record working from a figure of 30,000 entrants to degree courses, which gives a lower base for the calculation than the SAAS figures I’m using.  I think the SAAS ones should be a slightly better base, but by the time we’re only £10m apart on rough estimates, it’s not really an argument worth having. Let’s assume £90-£100m is the working estimate of the full value of the  scheme early in the life of the next parliament, or £60-65m for FE,  after compensating the poorest HE students for extra debt.

As explained above, the other part of the calculation which purports to show the real value is only going to £200,000 is based on a fundamental misunderstanding of student loans and public finances.

Footnote 2

The article quotes John Swinney suggesting that there has been a one-third increase in graduates from poorer backgrounds. It’not clear what the source for that is, but the figures often quoted by the SG are the UCAS ones for 18 year olds entering HE in  a university from the most disadvantaged 20% of backgrounds. In 2006, there were 425 such students. In 2015 there were 605. That’s in fact a 42% increase. It’s also only 180 people, or an average improvement of 18  per year over a decade, before we all get too excited.

Mr Swinney suggests the Conservative plan puts this progress at risk. A quick look at the pattern in the rest of the UK does not show Scotland performing better than the rest of the UK on this measure.

Data here: https://www.ucas.com/sites/default/files/app_level_report_2015-dr2_038_01.pdf