The student loans story rumbles on.
Today’s “one of the few stories still running alongside the Mandelson scandal” intervention comes from former NUS President Wes Streeting, who was asked on LBC about the fairness of the system.
He argued that it is “fair” to ask graduates to “make a contribution”, but insisted that a “serious discussion” about the current repayment system is needed.
Producers had a run at linking his day job via a caller from Bournemouth who’s a dementia nurse that has £105,000 of student debt, and needs to earn £90,000 a year to break even on current interest rates.
Are student loans “fair and reasonable for healthcare”, asked Elliot. Streeting:
I think it’s fair to ask graduates to make a contribution… when everyone’s fees were funded and there were maintenance grants, a privileged group of people could go to university.
You’ll note that “a contribution” is a line that suggests that nobody knows quite how high that contribution is, and masks that it has in fact being getting smaller a) to cover poor initial projections on recovery, b) to cover poor economic performance, and c) to cover the fact that even now repayment recovery seems to be getting worse every time someone in DfE looks at the figures.
As I often say, there are no “Mickey Mouse” courses, but some provision in the system doesn’t half look like it has ears.
Quite right
Meanwhile on the discussion on student loans on Michael Gove’s Spectator podcast “Quite Right”, there’s a grimly amusing machinery of government story, a huge wedge of nonsense about skills and massification, and a clue as to the biggest problem that graduates are raising that government is going to need to address.
First the Gove-gossip bit, on the introduction of £9k fees:
… the reason it was Vince Cable who introduced it is because when Peter Mandelson was taken back into government by Gordon Brown to be business secretary, he agreed to be business secretary, but only on condition that what was then a separate department for universities and skills and innovation and all the rest of it was subsumed. So he came back to have a bigger empire and to be first secretary of state.
Fast forward to the coalition negotiations of 2010:
Vince Cable was going to be business secretary. The Conservatives had said that we were going to take universities away from the business department and put them back in education where they belonged. And I remember a conversation with George Osborne and I said uh to George, well, you know, if you’re going to make me the education secretary, which you know, that’s wonderful and I’m delighted and thank you, but surely the universities should be part of it. I’m not sort of empire building. It’s just logical.
So what then happened? Osborne replied as follows:
Firstly, Vince will only accept the business department or the Lib Dems accept the business department uh if it is just as grand as Peter Mandelson’s business department. Vince Cable won’t accept any diminution in the scale of the business department.
Gove wondered why they would give in to the Lib Dems’ “vanity and grandiosity” on the issue. Osborne looked at him pityingly and said:
Do you want to be the minister who’s introducing this tuition fee reform or would you like the Liberal Democrats to?
Gove continues:
And then there was a Cheshire cat smile on his face. And I realized then that it would be the undoing of the Liberal Democrats to introduce tuition fee legislation when, as I’m sure listeners will remember, they had campaigned so vigorously before the 2010 election against it.
Yep. Higher education was a whisker away from a DfE that had Dominic Cummings roaming around it as the key special advisor.
Cable ties
Of course the fact that delivering a version of the Browne Review was handed to a Lib Dem-led department then had a major impact on the character of the scheme that was delivered.
Over that summer, several press stories suggested that Cable was interested in a graduate tax, principally because it would be more progressive than a loan system – something that Wes Streeting had had a serious run at when at NUS.
As I’ve discussed on here before, when considering a graduate contribution scheme people make competing arguments about fairness. Some say it’s fair for all students to pay the same amount, even if it takes some to pay longer. That’s the features that make a scheme feel more like a loan – here’s a debt, you pay it off.
But in the end, partly under pressure from the Treasury who at the time had fiscal rules that allowed the subsidies in the loan scheme to be hidden from the books (the so-called “fiscal illusion”), it had to be loan – albeit one whose repayments were to be collected through the tax system by HMRC.
So to make it more “progressive” – to make it more like a tax – the design was to ask better paid graduates to pay more than average (via interest on their loans) to subsidise less successful graduates who, via the repayment threshold and the 30 year term, would pay less than the average.
I’ve discussed at length many of the issues with all of that in previous articles. But what’s now becoming very clear is the number one issue for those making a noise isn’t how progressive the scheme is in the aggregates of both all earners and the span of time. It’s the issue raised both on LBC and by Michael Gove’s podcast partner Madeline Grant:
I have friends who earn really good salaries, really like on paper extremely successful and they have hardly made a dent into their student loan because of the amount of interest.I don’t understand why students are being – I would say gouged is the word I would use.
Aside from the interaction between this issue and wider intergenerational issues in the tax system, coupled with wider economic performance and graduate jobs, the design issue runs like this.
Don’t worry, be happy
In the Cable “it has to be loan but I still want it to be progressive like a tax” settlement, there is no real difference between a £50k loan balance and a £250k loan balance. Under Plan 2, the majority of graduates don’t pay any more – they’re not (at least on a strict technical reading) being “gouged”. They will pay their graduate tax for 30 years.
As such, the only real purpose of the balance and interest calculations was to have it treatable as a loan (one that Osborne, for a while, was able to pretend there were to be no losses on), and in system terms to calculate which lucky few rich graduates were to be let off paying their graduate tax in their fifties.
Four problems have come to interrupt the logic. The first is that inflation plus three percent for most of the last decade meant 3.2 or 3.5 percent. The days of ultra low inflation are now long gone – which also makes the borrowing required to then loan it back out to students more expensive too.
The second is that every time new modelling is done on how much graduates will repay, it seems to get worse. That feels bad for them, and bad for the Treasury.
The third – the kernel of the Martin Lewis point – is that government then reserves the right, via fiscal drag, to hold down the repayment threshold to improve its recovery rates long after the initial loan was made. The cheek!
But the biggest problem of all is that to keep it as a “progressive” loan scheme, you end up plunging the majority of graduates into a set of fictions – that they are never paying down their debt, and that they “owe” a ballooning amount as a result.
And theres only two ways out of that bind. One is to reduce interest – which has already been done for Plan 5, but whose graduates will eventually also be in journalism jobs, finding it hard to buy a house and get a job, and who will be upset about repayment rates and just how long it will take them to pay off the debt now the term is 40 years.
The other? To return to the graduate tax.
My beautiful balloon
Whenever graduate tax has been floated as a system, a lot of arguments (and proponents of those arguments) have claimed credit for eventual defeat.
Some argue it’s a surcharge on success with no cap or finish line. But it could be time limited.
Some argue it would be difficult to collect from graduates who move abroad. Just like student loan repayments are.
Some argue that it breaks the link between cost and contribution. But it’s long been abundantly clear that endless cross-subsidies exist in the system, and the same people seem to think that students as consumers means they’re too entitled.
(They really mean a student’s funding voucher should go to a given university, only for the bulk of it to be spent on other students in many cases).
Some argue that hypothecation would mean the Treasury could end up cutting funding to universities. Because the current system is what, delivering untold riches?
Some say that “with tuition fees you know how much you’ll pay (back) in debt”. Actually, it turns out that you really really don’t, because the government can change the terms, and because nobody understands that many won’t pay it all back by design.
Some say that moving from loans to a graduate tax creates a generation who are paying both – existing borrowers still repaying loans while new graduates enter the tax. But nobody’s proposing that all graduates ever start paying a grad tax.
I could go on, but as well as a whole field of straw men, funding (principally) by voucher has other downsides. The people in universities that make calls about programme innovation investment tend to look back at what sells well, not forward at what society needs.
It has encouraged universities to balance the books by flooding the market with cheap-to-teach degrees that the labour market doesn’t need, cheer-led on by the old left on the romantic idea of “education-for-education’s-sake”.
Vouchers have put power in the hands of open day attendees much more than they have current students or graduates, with shiny buildings, posh prospectuses and unhelpful levels of confidentiality and competition in the mix. They encourage raising expectations beyond that which is realistically deliverable or experienceable – just to get the sale.
Vouchers’ defenders invent other problems. “But who would decide where the money is spent”, they wonder, as if there are literally no other ways of deciding how to spend money than through individual transactions.
“But they wouldn’t start paying this tax for years”, they crow, pointing out the upfront investment required whilst ignoring the debt mountain that’s piling up and is causing public support for mass HE to atrophy, even among those who ought to be cheerleaders – those who’ve been to university.
A plan for higher education
The point missed by many of its critics is that there are all sorts of ways of implementing a graduate tax. There are types that protect the contributions raised from graduates into a co-operative trust that can’t be meddled with by ministers. There are types that can invest in diversity of provision, or widening access, or geographical cold spots. There are ways to drive efficiency and increase quality and reduce cross subsidy. Planning, god forbid, could return.
But most importantly, a graduate tax has a totally different psychology to that of debt. In my later life I’m making a contribution back towards current higher education – feeding forward, rather than struggling to get the weight of debt off my back.
Crucially, a graduate tax could spur interest and involvement from successful graduates in the continuing success of higher education, rather than the current burning resentment prompted by the psychology of debt.
As I say, the real reason that student loans are student loans is that for a long time, they were a way of keeping the subsidies involved in the investment in human capital out of the accounts. But the fiscal illusion is long gone. It’s time for graduate tax to go back on the table.