Supplementary memorandum from Universities
UK (SS 21)
The following is additional information for
the Select Committee following Universities UK's oral evidence
session on 22 May 2002.
1. SUMMARY OF
Universities UK presented a submission on the
review to Estelle Morris in February 2002.
In our submission, we put forward costed options
consistent with Universities UK's policy that those who benefit
from higher education should be expected to make some contribution
to the costs.
The options are based on the following principles:
Maintenance of the current system
of means-tested contribution to fees for full-time undergraduates.
Substantially increased maintenance
grant support in place of loans for students from the poorest
Simplified administration of student
support so that it is easier to understand.
Some increased maintenance contribution
from the most well-off students.
The options we have suggested are:
Providing guaranteed grant funding
to students from low-income families in direct substitution for
Same as option 1 but with an extension
of the means testing of amount of loan available for those from
families with incomes above the current maximum of about £37,000.
The amount available could be means-tested to zero or some minimum
Same as option 1 but as an alternative
would require those students with family incomes above the threshold
to be charged a real rate of interest once they graduate, substantially
reducing the public subsidy to these people.
More radically, the replacement of
current living cost loans with grants for all, not subject to
means testing, but coupled with a graduate contribution or graduate
tax. Question as to whether this would involve the ending of the
means-tested contribution to fees.
Reduces financial barriers to access
for poorest students by providing them more guaranteed support.
drive to widen participation among lower socio-economic groups.
Remove threat of substantial public
loan burden from poorest; reduce it significantly for those means-tested
out of fee contributions. Potential to reduce term-time working.
Reduce complexity of administering
As option 1 plus:
Provide modest offsetting savings
to cost of providing grants for students from the poorest backgrounds.
UK POSITION ON
BARR, LSE (SS09)
Nicholas Barr's paper outlines problems with
the current system of student financial support and puts forward
a series of proposals to improve the system and meet the demands
of widening access and improving quality.
Barr argues that the present system of student
support impedes access, mainly due to the following two reasons:
(a) there is a misunderstanding of income
contingent loans creating an unnecessary fear of debt;
(b) interest rate subsidies are directly
or indirectly responsible for the funding problems in the current
system ie loans are too small, and rationed due to limited resources.
His key proposals for redesigning the system
Removing interest rate subsidies
on student loanssuch a move will release resources that
can underwrite strategies for improving quality and access.
Making loan entitlement universalthis
will eliminate complex income tests and the need for parental
The creation of a wide ranging loan
system that should be adequate enough to cover living costs and
tuition feesthis will address student poverty and free
them from high cost borrowing such as credit cards and overdrafts.
Repayments will be income-contingent with targeted subsidies for
The introduction of "flexible
tuition fees"this will arrest quality decline and
assist in the redistribution of teaching budget towards institutions
with more remedial teaching. This would replace the present system
with mandatory fees set by DfES for full time undergraduate and
ITT courses and enable institutions to set their tuition fee levels
It is suggested that these moves should be combined
with active measures to promote access, which include:
Grants and scholarships for students
from poorer backgrounds.
Extra personal and academic support
when non-traditional students reach university.
Raising the aspirations of school
More resources earlier in the system,
including financial support for 16-19 year olds.
UNIVERSITIES UK POSITION
Below is an analysis of Nick Barr's proposals
set against Universities UK's principles on student funding, followed
by some general comments.
Retain the current means tested contribution to
Barr proposes introducing a wide-ranging loan
entitlement that will cover living costs and tuition fees, making
higher education, as he suggests, "free at the point of use".
He also proposes making loan entitlement universal and eliminating
income tests. It is, however, unclear as to whether these proposals
include the removal of means tested contribution to fees. This
is an area that it might be worth clarifying if possible.
Universities UK are against such a move and
believe that the current system of means-tested contributions
should remain for full-time undergraduates. The present system
is in fact progressive and helps towards encouraging those from
lower socio-economic backgrounds into HE. The problem with the
system as it stands is that there is widespread lack of understanding
that most of the students from these backgrounds will not have
to pay fees. (The Government's ongoing review of student support
has identified simplification of the present system as a key priority,
but we still have no indication of how this might be achieved.)
Dismantling the present tuition fee structure
and rolling charges and subsistence needs into a single element
against which student loans are offered has an impact on institutional
funding per se. It would result in universities losing a significant
and growing income stream as tuition fee income provides some
£400 million annually direct to HEIs. Institutions would
need this loss of income replaced upfront by government.
They should substantially replace loans with maintenance
grants for the poorest families
Barr argues that the universal, wide-ranging
loan system that he is proposing is equivalent to bringing in
universal grants in combination with an income-related graduate
contribution. However, while the burden of additional debt is
presented as a form of targeted income tax, a continued perception
of this as debt could still represent a bar to access. As we have
pointed out, the emphasis on loans for maintenance with only very
limited discretionary grant support, is having an adverse impact
on the demand from young people from the lowest socio-economic
Barr acknowledges that to promote access there
is a need for grants and scholarships for students from poor backgrounds.
This is a move that we would support. But it would be useful to
clarify the scope and range of the grants and scholarships Barr
proposes, and how these would relate to the rest of his system.
Is this a "bolt on" addition, or a central part of the
whole system? This is not clear from his paper.
They should make the system of student support
easier to understand for individuals and their families
Barr suggests that the system as it stands is
too complex and that there is an inadequate dissemination of information,
both of which are impediments to access. We agree with this observation,
and have argued that the current system needs to be simplified
significantly, and improvements in communication made.
We have pointed out that there is a widespread
lack of understanding of the impact of means testing for fee contributions,
especially amongst those young people from the lowest socio-economic
backgrounds. We have also suggested that the same group have an
aversion to debt and a fear that they will not be able to pay
back loans, based in part on a lack of understanding of income-contingency.
Barr argues that his proposals for universal
loan entitlement, which will cover fees and living support, will
mean that there is no need for the complex means tested fees and
loans, as seen under the current system. This would make the whole
process simpler for students and their parents to understand.
To tackle the "fear of debt" issue,
it is proposed that there is a clear explanation of what a person's
loan repayments are under the new systemin effect, a form
of targeted income tax. It is targeted by being imposed only on
graduates, with payments related to income, and by being switched
off once the loan is repaid.
We welcome a system that is simpler and easier
to understand for students and their families, which Barr's proposals
aim to achieve. However, under these proposals a potential area
of complexity and uncertainty still remains, especially for those
students from lower socio-economic backgrounds. As part of his
strategy to widen access Barr suggests scholarships for students
from poor backgrounds, including the possibility of making the
first year entirely free for those students. We have proposed
that one of the main issues for concern about the current financial
support arrangements is a lack of understanding of the various
schemes introduced to promote access through alleviating financial
hardship, which have hindered rather than helped by adding uncertainty.
Barr's system appears to simplify the process for those who it
matters less, making little headway into how these discretionary
schemes can be simplified and promoted more effectively.
The introduction of targeted interest rate subsidies
on loans could also introduce complexity into loan repayment processes,
especially if a claw back facility for those who have benefited
from targeted interest subsidies and moved into a higher earning
bracket is introduced. It might cause confusion amongst graduates
about how much they are liable to pay. A lack of understanding
amongst those liable to pay the full interest rate may also create
a sense that they are being punished for succeeding in the employment
market. Whilst the key selling point of Barr's proposal is HE
"free at the point of use", students who are entering
university with the aim of improving employment prospects, might
see this as an additional future tax burden they do not wish to
Communicating income-contingency is another
key issue. Barr proposes presenting the loan repayments as an
addition to a graduates future income tax. But this is easier
said than done, and Barr does not make it clear how this will
be achieved in practice. As is pointed out in our submission to
the Government's review of student support, there is no tradition
of hypothecated tax in the UK, and the task of communicating the
principle to prospective students and the wider public would be
enormous. Many students, especially those from deprived backgrounds,
could still see this as future debt burden, and under Barr's proposals,
a significantly larger one than under the present system. In this
sense the problems with the present system remain.
They should reduce the administrative burden of
the current system
For many of the reasons outlined above this
system has the potential to be administratively burdensome. We
have pushed for the Student Loans Company to streamline their
processes, and have welcomed efforts to lighten the administrative
load on HEIs. Any new system that complicates this further, requiring
additional resources, could represent a step backwards.
Since we have little information about how the
Government's review of student support proposes to simplify the
current system, it is difficult to comment on how Barr's proposals
might fit into them. However, making the present system more streamlined
and accessible to students without changing the financial operations
underpinning them, for example by bringing hardship loans and
grants together as hardship funding without changing the different
roles governing the two separate funding pots, would simply make
the resulting system even more administratively burdensome to