Examination of Witnesses (Questions 137-139)
MS LORRAINE
DEARDEN, MS
EMLA FITZSIMONS
AND MS
ALISSA GOODMAN
6 APRIL 2005
Q137 Chairman: Can I welcome you and
thank you very much for responding to our invitation. This will
be the last sitting of the Committee in Parliament and this will
be, I think, a session that the Committee has been looking forward
to basically because there has been a great deal of confusion
over the impacts of student finance and student funding both on
the universities, on students and on the taxpayer. When we came
across your report, we thought it shed a great deal of light on
the situation and seemed to, some of it, correspond with the predictions
that we had made two years ago in our report on repayable fees.
Which of you would like to open up and just say a few words to
introduce your report?
Ms Goodman: Thank you very much
for inviting us to come and talk about the report. As you say,
what we did in our report was look at the three different parties'
proposals for higher education funding from the point of view
of taxpayers, universities and students and graduates and we tried
to throw some light on the effects that different sorts of policies
would have on each of those players in the system. First of all,
we looked on aggregate at who the gainers would be under each
of the different parties' plans and then who would pay for those
gains because of course nothing ever comes for free; if one player
gains, then somebody else has to pay for it. We, therefore, set
out the fact that universities are set to gain both if the Government's
proposals are fully enacted or if either the LibDem or Conservative
proposals are put in place and we saw that student funding would
rise by around 30% in real terms under all three parties. We saw
that students would actually gain under all three sets of proposals
as well both because of new grants and in some cases bigger loans
for maintenance, so who pays for the gains differs between the
parties and this was quite illuminating. We thought that under
both the Conservative system where all tuition fees would be scrapped
and no top-up fees would be introduced and under Labour's where
of course tuition fees would be increased by the amount of the
top-up fee, the cost would be split between taxpayers and graduates,
so we put some numbers behind that. Under the LibDems' proposals,
taxpayers would foot the whole bill. We pointed out that if universities
needed further increases in funding per student in the future,
so more than the initial plans allow for, or if you wanted to
hold funding per student constant, but student numbers were to
increase, then the costs would be shared between taxpayers and
graduates under the Government's plans, but would be paid for
entirely by taxpayers under the Conservatives and the Liberal
Democrats. Those were the kind of gainers and payers on aggregate.
We set out what the different proposals would mean for student
living standards and for student debt under all three sets of
proposals and we pointed out that the amounts would provide a
better standard of living for students compared to their counterparts
today, but that they would still fall short under all three parties
with the NUS cost of living estimate, so there would still be
a shortfall. We worked out if, under the Government's proposals,
students borrowed fully for their fees, what sort of debt levels
we would imagine that students from different family backgrounds
would end up graduating with and we have those set out in our
report. Then we went on to estimate what those different graduating
debt levels would mean for graduates across their lifetime earnings
and in order to do that, we applied some quite new and innovative
techniques to estimate future graduate earnings profiles and we
are very pleased with the progress we made there. It is something
where in the past we and others have tended to use just example
graduates kind of made up or based loosely on wage data, but we
came up with a much more robust set of future earnings profiles.
We were able across the whole distribution of lifetime earnings
both to compare graduates and non-graduates for a start and to
try and shed some light on how much lifetime earnings are higher
for graduates compared to non-graduates and also we pointed out
that there is a wide distribution for earnings both for graduates
and non-graduates over their lifetime, and it is by no means the
case that all graduates earn more than all non-graduates, so we
set out some new things about the earnings distribution. Then
we went on to look at what the different earnings distribution
would mean as to how long people ended up repaying their debts
if they went to university and what the effective taxpayer subsidy
would be from the subsidised loans under Labour and of course
the Liberal Democrat proposals, but not under the Conservatives'
as they would scrap all loan subsidies. Therefore, we have some
ranges for different taxpayer subsidies depending on whether people
have low, medium or high lifetime earnings, what parental backgrounds
they come from and how much time they take out of the labour market,
and there is quite a wide range of different taxpayer subsidies
implied and we can talk maybe more about that, if you like. We
also spent some time thinking about the private market for maintenance
loans which the Conservatives' proposals would entail and we thought
about the possible, what we would call, "adverse selection
problems" which might be involved in a private market for
student loans. We wondered whether banks would be able to offer
a viable interest rate under that scheme just because we thought
it would be a real risk that the type of students who might take
out the maximum loan in the private market would be those who
would be the least likely to pay it back and ones that the banks
would have to end up writing off, or a considerable proportion
of, after 25 years. I hope that provides you with a summary of
what we have said.
Q138 Chairman: Yes, fascinating. One
of the interesting things, certainly which interested this Committee,
was that when you are deciding in the Institute on where you are
going to go next, what piece of research you are going to focus
on, how do you come to choose a piece of research like this? What
is the process where you say, "Ah, we think we really ought
to look at this"? What are the criteria which guide your
choice?
Ms Dearden: I guess we have been
writing on this issue now for about two or three years and the
three of us did a report actually a year ago and we felt frustrated
by the fact that all the parties were coming out with policies
and on their example graduate, their policy was much better than
the others'. We knew the limitation of our research in that we
did not know how it applied across the whole distribution and
it seemed like the interesting stories were not for the median
person, but probably for those in the tail. Then Greg, who is
not here, came up with this idea about how we might model this
lifetime earnings distribution because he has got a background
in finance and he had this clever idea and we sort of investigated
it and then we applied to the Nuffield Foundation for funding
to do it and convinced them that it would be an important bit
of research before the election.
Q139 Chairman: Certainly it shines a
light on this because when we were looking at this before and
as the process has gone on, people out there, many of them, do
not understand the proposals at all and the impact on them and
we were disturbed when the vice chancellors that we had before
us four or five weeks ago suggested that there was a very large
surge in student applications for this September because people
were worried and perturbed about possible higher costs if they
delayed it until September 2006 and the vice chancellors seemed
to be suggesting that students by and large would be better off
by deferring until 2006 rather than better off by going in in
2005. Were they right in that?
Ms Goodman: I think that, as students,
they would do better this year because they can benefit from the
new grant at £1,500 and they do not yet have to pay later
in life the top-up fee if they went to a university that chose
to charge it.
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