Select Committee on Education and Skills Sixth Report


57. In any critique of current arrangements for student support it must be recognised that the system is still in its early stages, with the first cohort of entirely loan-funded students due to graduate in the summer of 2002. This inevitably limits the availability of research-based evidence to inform judgments and recommendations.

Increasing participation

58. Despite allegations of the disincentive effect of student loans, participation in higher education has continued to rise[59] and take-up of loans has increased from 64 per cent in 1997/98 to 78 per cent in 2000/01.[60] Participation in higher education by students from skilled manual, partly skilled, unskilled social classes (IIIm/IV/V as categorised by the Registrar­General) has also increased marginally over time, despite the diminishing size of these groups as a proportion of the total population.[61] During the same period, participation by classes I and II (professional/managerial and technical) has grown to the extent that there is much less scope for further increases from these social groups. Participation by skilled non-manual workers (IIIn) has also increased marginally as has the proportion of this group within the general population.

The balance between individual and state contributions

  59. The issue of the balance between individuals' contributions to their education and that made by the taxpayer are at the heart of the student support debate. We recognise the introduction of income-contingent loans as a positive development. It reflects the Government's view that the cost of higher education should be shared between individual beneficiaries, who as graduates are liable to repay the full amount of student loans, and the state, which subsidises loans and pays at least 75 per cent of the average cost of tuition.[62] Income-contingent repayments offer a significant advance on the earlier mortgage style loans, reflecting recipients' ability to pay and taking account of variations in earnings over time. During the course of our inquiry we have become convinced that while income-contingent loans may, in principle, be an effective means of sharing the cost of student support between individual beneficiaries and wider society, the scale of the current interest subsidy, combined with the blanket entitlement of all students to 75 per cent of the full loan, channels subsidy to those who do not need it as well as to those who do.

60. The implementation of student contributions towards tuition fees, in line with the Dearing recommendation, has had a paradoxical effect. It has been a significant focus of student protest, while being the element of the student support package that is in principle the most progressive, requiring poor families to make no contribution and wealthier families to pay the full amount.[63] In practice, 42 per cent of students are not required to make any contribution towards fees,[64] although financially independent students, 89 percent of whom do not pay fees, are a substantial presence in this figure. Specific figures for 18 to 21 year old entrants are not available[65] but are likely to be closer to those for students assessed on parental income, of whom 34 per cent pay nothing towards their fees.

61. The implementation of up-front tuition fees has created a significant burden for institutions in terms of administration and debt recovery. Professor Roderick Floud told us:

    "There is a problem... It can take several months to establish with the local authority whether they are prepared to accept responsibility for a particular student. That imposes a substantial cash­flow difficulty and burden on the universities concerned. The Government instructed us to institute instalment schemes for the payment of fees for those who do have to pay fees. That, in my view, leads to a rather silly situation in which we are obliged to offer instalments for really trivial sums of money. The administrative costs of setting up direct debits or other instalments in order to collect in perhaps £20 or £30 three times a year for a student paying a relatively small fee as a result of means­testing, is simply inefficient... The current system can be simplified administratively and should be. It does not help that we have to deal with the student, with the student loans company, and the local authority."[66]

62. We are satisfied that it is entirely appropriate for the individual beneficiaries of higher education to make a contribution towards its costs, and we are persuaded that tuition fees are an essential and progressive part of this process. We recommend that the Government should retain a system of contributions to the costs of tuition and that the Government should keep under continuous review not only whether the maximum means-tested contribution should be increased but also whether the thresholds for means-testing of contributions should be altered.

Public concern or public misunderstanding?

  63. The Prime Minister's comments regarding widespread public concern about student debt have been well reported.[67] Much of this concern may be the result of limited public understanding of the current scheme. On the basis of research undertaken on behalf of the Higher Education Funding Council for England it has been reported that:

    "The level of understanding of the arrangements for financial support for students in HE remains poor, at least as late as 2000, especially among those from the lowest socio-economic groups. In particular there is ignorance of the implications of the means-testing of contributions to fees and means-testing arrangements more generally".[68]

64. Professor Nicholas Barr commented on the failure of the Government's information campaign on student loans:

    "The Government brought in income-contingent loans in 1998, which is a huge, enormous tick, it was incredibly important, but the quality of the dissemination and explanation of what the Government have done beggars belief, in its awfulness; people simply do not understand".[69]

65. Inadequacies in information management and communication have exacerbated the weaknesses of the current arrangements for student support. While much may be done to develop and deliver a more equitable and progressive regime, we can expect little progress in terms of social inclusion unless the Government is able to communicate more effectively to students and families what the policy will mean to them in practical terms.[70]

66. Critically, the information for current and prospective students must convey the notion that while a good quality education may require financial sacrifices, it is an investment that is usually worth making.[71] Decisions on when or whether to enter higher education, and what is an appropriate course and institution, need to be based on the highest quality independent advice.

The costs of student living

  67. Much has been made of student lifestyles and the question as to whether the taxpayer should subsidise allegedly extravagant spending.[72] Such debates have succeeded in sensationalising the issue but have done little to improve understanding. Our concern is that student funding should be set at a level that reflects the real costs of student living and that the model used to arrive at this information takes into account the rate of inflation in the costs of, for example, academic texts and student living, as well as the general rate of inflation.[73]

68. We recommend that the maximum loan available should be set at a level that reflects the realistic costs of pursuing a full-time course of study.

The returns to higher education

  69. HEFCE has noted that "the costs and potential benefits are two among several factors affecting the decisions by those from the lowest social classes about whether to enter higher education".[74] The benefits for those who gain qualifications through higher education are many and varied, ranging from well documented financial returns, including the so called 'graduate premium' on earnings[75] and a lower risk of unemployment to more general social and personal benefits, including better health and personal satisfaction.[76] There may be risks - such as a build-up of indebtedness and the creation of unrealistic expectations - which students should be encouraged to evaluate on the basis of sound information and high quality advice.

70. The Performance and Innovation Unit, reporting on the Government's use of loans, notes that the returns from post-compulsory education are not evenly distributed across social classes and that students from poorer backgrounds experience much greater variation in the financial return on higher education than students from more privileged backgrounds.[77] Recent research from the Council for Industry and Higher Education (CIHE) confirmed that "the returns associated with degree level qualification vary substantially according to the type of institution attended, the subject studied and the social class of the individual".[78] Further scrutiny of the evidence revealed that even after controlling for the type of institution "social background continued to have a statistically significant effect on the returns achieved by degree holders"[79] and that this pattern persists despite greater numbers of students from disadvantaged backgrounds coming into higher education.[80]

71. This information helps to put low participation rates in context, revealing them to be a rational response to a less favourable risk/reward calculation than exists for more privileged groups.[81] Mr Richard Brown, Chief Executive of CIHE, wrote to us:

    "The fact that there are lower financial returns to those from lower social groups would also argue for changes in the system of financial support for such individuals. If they are more averse to building up debt, yet have larger debts on leaving higher education and then do not get the most highly paid jobs, irrespective of the institution they attend, then the financial odds and risks are stacked against them".[82]

72. This picture represents a difficult but vital challenge for Government and higher education. That the potential of individuals from disadvantaged social backgrounds remains undeveloped is unacceptable in both social and economic terms.

73. Intermittent leaks over a number of months have offered tantalising glimpses of a fascinating private debate at the heart of Government on the review of student support. We expect that the current review of student support will thoroughly explore every possible model for support and offer an in-depth analysis of their advantages and disadvantages.

59   HESA Statistical First Release SFR 56 (2002) and earlier editions Back

60   Statistics of student support for higher education in England and Wales, academic year 2000/01, National Statistics, SFR 08/2002, 30 April 2002  Back

61   National Statistics Labour Force Survey Summer (June-August) Quarters 1992-2000 Back

62   Full-time graduates are liable to pay a tuition fee set at around a quarter of the average cost of tuition; but the Government pays up to the total actual cost of tuition, depending on the operation of the means test, amounting to some 90 per cent of the overall cost of tuition Back

63   See also Q 6. The full amount is paid by dependent students whose residual family income is above £ 30,503 a year Back

64   Statistics of student support for higher education in England and Wales, academic year 2000/01, National Statistics SFR 08/2002, 30 April 2002. See paragraph 16 above Back

65   Q 262 and footnote on Ev 83 Back

66   Q 318 Back

67   For example, "Blair hints at change in student fees", BBC News online, Tuesday 2 October 2001 Back

68   Supply and demand in higher education, HEFCE, October 2001, Annex A paragraph 189 Back

69   Q 149 Back

70   Mr Iain Crawford outlines strategies for addressing the information issue in Ev 44 to 45 Back

71   Q 383 Back

72   Q 283 Back

73   Ev 62 paragraph 3.1 Back

74   Supply and demand in higher education, HEFCE, October 2001, Annex A paragraph 189 Back

75   Recent work by Walker and Zhu (in Financial Returns to Undergraduates, Dr Gavan Conlon and Dr Arnaud Chevalier, CIHE, May 2002, pages 6 and 7) suggests an earnings premium for men of between 46 per cent and 50.9 per cent and for women, between 41.6 per cent and 48.2 percent when compared to those with no formally recognised qualifications. Compared to those with GCE A'levels men receive an average additional 5 per cent per annum return and women a 6 per cent annual return based on 1993-2000 Labour Force Surveys. On the other hand, it would be wrong to exaggerate the financial returns: 20 per cent of people who have a degree secure no financial benefit when compared with even the median weekly earnings of someone with 2 or more A­Levels - HC Deb 25 June 2002 vol 387 col 822W  Back

76   The Wider Benefits of Higher Education, Report by the Institute of Education, University of London, published HEFCE 01/46 August 2001 Back

77   Performance and Innovation Unit, Lending Support: Modernising the Government's Use of Loans, March 2002, page 60 Back

78   Financial Returns to Undergraduates, Dr Gavan Conlon and Dr Arnaud Chevalier, CIHE, May 2002, page 1 Back

79   Financial Returns to Undergraduates, Dr Gavan Conlon and Dr Arnaud Chevalier, CIHE, May 2002, page 2 Back

80   Financial Returns to Undergraduates, Dr Gavan Conlon and Dr Arnaud Chevalier, CIHE, May 2002, page 23 Back

81   Widening Participation in Higher Education, Note from the Council for Industry and Higher Education (CIHE) submitted as evidence to the Committee of Public Accounts, January 2002 Back

82   Letter dated 16 May 2002 (not printed) Back

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 11 July 2002