Select Committee on Education and Skills Minutes of Evidence

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.


  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 families.

    —  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 loans.

    —  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 figure.

    —  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.



Option One

    —  Reduces financial barriers to access for poorest students by providing them more guaranteed support.

    —  Reinforces institutional/Government 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 the system.

Option 2A/2B

  As option 1 plus:

    —  Provide modest offsetting savings to cost of providing grants for students from the poorest backgrounds.


  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 include:

    —  Removing interest rate subsidies on student loans—such a move will release resources that can underwrite strategies for improving quality and access.

    —  Making loan entitlement universal—this will eliminate complex income tests and the need for parental contributions.

    —  The creation of a wide ranging loan system that should be adequate enough to cover living costs and tuition fees—this 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 low earners.

    —  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 independently.

  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 children.

    —  More resources earlier in the system, including financial support for 16-19 year olds.


  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 fees

  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 backgrounds.

  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 system—in 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 take on.

  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 HEIs.

Universities UK

May 2002

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