Select Committee on Education and Skills Minutes of Evidence

Examination of Witnesses (Questions 181 - 199)




  181. Owain, can I welcome you. We were, I think, in the same room with a further education concern foremost in our minds yesterday, as some other Members here were. Lindsey, I did not see you there, but you are an old friend of this Committee, in the sense that you have given evidence before.

  (Ms Fidler) I have. I was in the background yesterday. I was there.

  182. Right. We must press on. This is an area of great interest to the Committee. I do not know if you want to make an opening statement, Owain or Lindsey, but really you have been accused, pretty firmly, by our last set of witnesses, of being a deeply conservative organisation that wants to allow this vast amount of money to continue to flow to wealthy, middle-class families who can well afford to contribute to their children's education. Do you want to make an opening statement, or is that controversial enough for you, to start with?
  (Mr James) I think we would be responding to that comment anyway. The main logical argument that we seem to have been attacked on this morning is around commercial interest rates, the subsidised version of interest rates, and we do not believe that it benefits primarily the middle-class or the professionals, and we would argue that just by examining what the subsidy does. By definition, the subsidy helps those people who are not able to pay back the student loan straightaway, so, by definition, those people who do not go on to get well-paid jobs; therefore, it is the complete opposite of saying that the student loan system targets the professionals. The subsidy is there to protect those people who do not pay it back straightaway. And, to highlight that, if we look at what would happen with the abolition of the subsidised interest rates, those people who would be adversely affected would not be those people who were going on to get good jobs, graduates of LSE going into the City, they would pay back their loans straightaway. The people who would be affected by a switch to commercial interest rates on student loans would be those people who did not take well-paid jobs, whether that was because they were working in the public sector, whether because, for example, they were starting a family. Those people who deferred payment of the student loans, because they had not hit the right thresholds, would actually suffer with the switch to commercial interest rates. So, by definition, a system of subsidised interest rates is actually a progressive one, because it looks after those people who have not benefited from the system yet, and a system of commercial interest rates we believe would be regressive, because you would end up with somebody who, say, they took five, eight years out because they were starting a family, or because they took a lower-paid job, would actually end up paying more than somebody who went straight into the City and got a job and paid off their loan straightaway, because of the commercial interest rates.

  183. You are a graduate of a very good, exclusive university, Warwick, yet here we have evidence from Wendy Piatt, from the IPPR, her research, the research from Claire Callender, that has been presented widely, and the research from the London School of Economics, from Professor Barr and his colleague Iain Crawford; all the research seems to say that the system that the Government introduced in 1998 flows to the wrong people. Are you saying that there is absolutely nothing wrong with the present system?
  (Mr James) Not at all, I think there is a lot wrong with the current system, and a lot of the people you have just quoted actually support the position that we are putting forward as a solution. I was merely trying to counter some of the points on commercial interest rates, which I believe have been portrayed as a solution to get poorer students into university, and we believe it is 100 per cent false. The solution that is needed to get a better balance, in terms of expenditure by the Government, is a return of maintenance support for students from low-income families. That is a position that is directly supported by a wide range of different independent reports, it is supported obviously by the Welsh and Scottish Parliaments, it is supported by the Cubie inquiry, it is supported by the evidence that Claire Callender did for the DfES, it is supported by the National Association of Head Teachers and the Sutton Trust, and their calls for the fact that the abolition of the grant has been the problem, not the continuation of a subsidised loan scheme. And, lastly, if we look at even the Universities UK recent report, on Widening Participation, they say that the decision to abolish the grant was diametrically opposed to the Government's objectives of widening participation. Therefore, the solution, as most of the commentators seem to believe, outside of the NUS, to solving the access problem that is currently occurring, would be to return maintenance grants for students from the poorest backgrounds. None of those people are arguing that we should see an abolition of the subsidy on student loan rates, because they know precisely the impact, those people who would pay for that money would be those people who do not get good jobs, who do not benefit from their education, which would mean that an abolition of subsidised interest rates would go completely against the Government's principle, that those who benefit from their education should contribute.
  (Ms Fidler) There is a further problem with commercial interest rates, or higher interest rates—

Valerie Davey

  184. Can we just establish, I do not think anyone is talking about commercial interest rates, we are talking about Government level?
  (Ms Fidler) Yes; Government level interest rates. There is a problem with highering the interest rate from the current RPI for specific groups as well, such as Islamic learners. At the moment, there are debates around whether Islamic learners should, in fact, be able to take out the student loan, as it is, because it attracts an interest rate, where, obviously, the Government's position on that is, it is not a real interest rate, it is simply the rate of inflation. Any highering of that will be in contravention of Riba, which means both that you cannot take out money which attracts a commercial interest rate, or a higher interest rate than the inflationary rate. So it would actually present a problem for specific learners in the system if the interest rate was highered. So it is not just an economic argument, it is obviously a social argument.


  185. Lindsey, to be fair, are we arguing that, because there is a small minority in that category, we cannot make it Government policy changes that would actually take care of that, at the same time?
  (Ms Fidler) I am not sure Islamic learners are a small minority of HE students.

  186. A small minority of the overall population, surely?
  (Ms Fidler) But with the Government target of widening participation, it is not an issue that can be ignored, if you want to—
  (Mr James) But there is also one segment of the evidence, and I think Lindsey was quoting that example, but if we look just again at the impact that increasing the interest rates would have, the people who would pay for that increase would be those people who deferred payment of their students loans, therefore, by definition, would be those people who had not benefited as much from their education. So, by removing that subsidy, or moving it on to the Government interest rate of borrowing, you would, in fact, increase the charges for those people who take lower-paid jobs. Just looking at whatever model you actually want to, it would actually put the burden back on, because we know that students from the lower socio-economic classes are likely to get lower-paid jobs after graduation, it is actually those students themselves who would end up paying the higher contributions. And so we believe it would be regressive across the system, as well as extremely difficult for certain groups of students.

Mr Chaytor

  187. At the moment, the inflation rate is 2½ per cent, less than that, so the rate of interest on them is 2½ per cent. The Bank of England base rate is 4 per cent. So the difference between what we have now and what Professor Barr and Mr Crawford are arguing is 1½ per cent. Now your argument is that this 1½ per cent would be loaded on graduates in the lower salary brackets, and therefore it would be unfair, but, surely, it will not; is not the point that, because of the income-contingent loan, the proportion that they pay back is dependent on what they earn, and the difference is in the period over which they pay it back? Your argument is that graduates who do not go into jobs with very high salaries, ever, or in their twenties, will be penalised by this additional 1½ per cent; now leaving aside the fact that 1½ per cent is quite a modest increase, but they are not going to be penalised by that, because their repayments remain the same, as their repayments are related to their income? All that changes is, the period over which they would repay would be increased by the differential between the current rate, the inflation rate, and the base rate?
  (Mr James) That is correct, the period would be longer.

  188. But the first point you made was (in the case—inaudible—) ?
  (Mr James) What we are stating is, the period that you pay back would be longer but it would be longer for those people who take less well-paid jobs, who would benefit less; therefore, it would not be the professionals who are gaining at the moment, it would actually be those people who do have low-income jobs who would actually be expected to pay for longer.

  189. The period would be the same for everyone, surely?
  (Mr James) Because, if you pay it back, for example, within three years, because you take a well-paid job, versus paying it back over ten years, the extra interest rate over ten years would amount to a larger sum, therefore more money, and a longer repayment period would be required for those people from poor backgrounds.

  190. Alright; but your comparison is only with those on lower salaries, as against those on higher salaries who choose to pay it back in a shorter period of time, is it not?
  (Mr James) If you earn a higher salary, because it is a percentage of your salary that you pay back, you pay back the debt quicker, according to the system. So if you took a job, for example, in the City, you may find that you pay the entire debt within two or three years; if, however, you take a job as a teacher or a lecturer in an FE college, for example, you would pay that debt over a much longer period of time, and therefore the increased interest rate on that debt would build up over that period of time, and the total amount paid back would be higher for those people on lower salaries.

  191. But how can you reconcile your call for more targeted maintenance grants and your support for the existing system, which does provide this hugely generous subsidy to those arguably from better-off families or those who go into very comfortable occupations?
  (Mr James) I think the way we see it is an analysis of the total Government expenditure on student support. Over the last few years, we have seen a huge decrease in Government expenditure on student support; we estimate that figure to be well over a billion pounds, following Parliamentary Answers given over recent years, because the level of the grant used to be worth just over a billion pounds a year, and the revenue increase from student tuition fees is around £450 million. Therefore, over the last few years, we have seen a huge decrease in the student support budget. We believe it is that area of cut-back that should be used to return an element of grants for poorer students, not looking to abolish interest rates or to move towards a situation of the Government level interest rates on student loans, because that would hit those very students just after graduation. By reversing some of those huge cuts in student support that have occurred over recent years, we believe the Government could fund a return of grants for students from poor backgrounds. It is not the most radical slogan NUS has ever put forward, but if you actually returned the student support expenditure to somewhere near the level of student support expenditure by John Major in 1997, you could actually fund the return of grants back for poor students; and that is the sort of situation that we are putting forward. We are not talking about sums of money that have never before been spent on students, we are talking about a reversal of some of those cuts; and we believe that is a better solution than looking to shift towards a higher rate of interest on student loans.

  192. So, if the Secretary of State had a billion pounds to spend, you would rather that billion pounds be spent on supporting the living costs of university students, rather than invested in further education or primary or secondary schools?
  (Mr James) Our policy and our spending submission this year is based entirely on targeting money effectively, and we believe that the new money should be targeted at those students from the poorest backgrounds; that runs right throughout the evidence we are putting forward. However, what we are calling for is for the Government to reverse some of the huge cuts that have been made in recent years to the student support budget, rather than saying, "Here's another area we can attack and take the funding from there." And the reason that we are against taking the funding from student loans is because we do believe the subsidy that is currently employed, the 35 per cent that is employed on student loans, actually benefits those people who do not get good jobs after graduation, and we believe that support should remain in place, and it should be found from elsewhere. And I do not believe we are alone in putting forward that case for grants to be returned without the abolition of the loans system. Organisations such as Universities UK, which support a call for a return of targeted grant support for students, do not suggest that it should be found elsewhere in the system.


  193. That is very different, I have to say, Owain, the Universities UK position is not the same as the position of the NUS?
  (Mr James) It varies, but on this issue it is very similar, because we are both in favour of—

  194. But for poor students, only the return to the maintenance grant for the poorest students, that is the Universities UK position?
  (Mr James) Universities UK are not calling for the position put forward by Nick Barr this morning, of a higher rate of interest on student loans, that is not the position at all.

  Chairman: No; we are trying to differentiate what your position is compared with the Universities UK.

Mr Turner

  195. You do not seem to be saying anything for FE students, you seem to regard higher education students as more important than FE students, from what I have heard so far?
  (Mr James) That is not the case, though I can understand your perception, from what I have said so far. In our submission to the Comprehensive Spending Review, and indeed in our lobby that we attended with the Chair of the Select Committee yesterday, we have argued vociferously for the extension, for example, of education maintenance allowances across the UK. We believe the pilot schemes that have been running for the last three years have been shown to work, the evidence quoted, I think, as far back as March 2001, from the Department, actually shows that they have worked and they have had a positive impact on retention, and therefore we believe they should be rolled out across the country. However, we also feel that it can be funded, the extra amount of money that is required, within the expenditure that we used to see on student support, could fund an extension of education maintenance allowances; so we believe it is something that should happen but is something that is also affordable for the Government to take forward. And we have called for, for example, in our Comprehensive Spending Review submission, an extension of education maintenance allowances, as well as a call for a return of targeted grants in higher education.

  196. Can I put to you two abuses, as they have been described to me, of the current higher education loan system. One is, and this applies particularly to the students from wealthier families, that they have a subsidised loan which enables them to spend money that they otherwise would not spend, or indeed sometimes their parents to spend money that they otherwise would not spend, at the expense of the taxpayer, who, in many cases, is worse off than the families from which those students are drawn?
  (Mr James) I think that is a position that we certainly would not defend, but we do believe it has been exaggerated. There are a few examples of people taking out a student loan and spending that money on things that are not necessary to their education; however, the percentage effectiveness rates, because you have got to measure all that targeted Government money, we believe is very high, we believe that people abusing the system is very, very small. And, in a similar way, I guess, with the benefits system, you do not necessarily stop paying benefits to a large group of people because a very small minority abuse that system; we believe that the student loan system should not be stopped just because a small, and a very small, minority take that money out and use it for other purposes. We do not think that they should be doing that, we do not support people who do that, but we have got to see it in its current proportion, which is a very small number of people.

  197. And, secondly, that of people whose parents may be divorced and who have a choice, effectively, of living with the parent without any money, rather than the parent who quite often has a lot of money?
  (Mr James) I think, again, that comes down to effectiveness of means-testing, or analysing, how that money is targeted; and I think if people are seen to switch which parent they analyse the figures on there could be individual discrepancies, but that is not a reason wholesale to abolish the targeting system.

  198. What is your solution then?
  (Mr James) I suggest that we would, we have made submissions before, and are happy to do so again, about how we can improve the effectiveness of the targeting system, of the means-testing system, and I believe there are ways in which it could be improved upon and refined, particularly in relation to divorced parents.

  199. Could I just broaden it out a bit, because the whole thesis about subsidising students who have to continue with their loans for some period is that they are going into low-paid jobs, or, I agree, starting families and therefore cannot be employed. Do you think students are taking those decisions consciously, at the beginning of, or when they apply for their course, or are they actually finding that, as a result of a course which they perhaps signed up to at the age of 17, at the age of 23 they are deeply disappointed at the kind of job opportunities that are open to them?
  (Mr James) I similarly believe that a large number of people who do not get necessarily the jobs that people would have expected them to get, or they would have expected to get, after graduation, are not doing so by free choice; some people clearly choose to work in the public sector, some people choose to become teachers, or lecture in FE colleges, when perhaps they could get much better-paid jobs elsewhere. So, in effect, I guess they are making a choice but one that benefits society. But I also believe there is a significant number of those people who take lower-paid jobs after graduation who do not have an option about which job to take, and it is particularly those people who need protection from the moves to increase interest rates on the student loans. Because it is bad enough for a large group of those students to be borrowing, and it is an average now, £10,000, though clearly for a number of people it is far higher than that, but if they are faced with the prospect of paying higher rates of interest on that loan then it is going to drive up and force more and more people away from taking jobs, for example, in the public sector and to just getting the best financial payments they can to pay off the debt that is racking up at a high interest rate.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 19 June 2002