Examination of Witnesses (Questions 160-179)
MS LORRAINE
DEARDEN, MS
EMLA FITZSIMONS
AND MS
ALISSA GOODMAN
6 APRIL 2005
Q160 Chairman: So taking the maximum
loan is the best deal for a student?
Ms Goodman: Absolutely, yes, whether
you needed to spend it on student outlays or not. If you did not,
that is when, if you put it in an interest-bearing account, you
will always make a gain out of that.
Chairman: As many middle-class families
already did in terms of the previous loan system.
Q161 Jeff Ennis: On the Conservative
and Labour models, obviously students or graduates are going to
pay the bigger share of the money back, shall we say. What impact
do you see that having in terms of student mobility, particularly
in terms of students from working-class backgrounds? As someone
who left Grimethorpe in the 1970s to go to Bristol for four years,
I can foresee under either the Tory or the Labour model more students
doing higher education from home or from a close family background.
Have you done any research on that particular aspect in terms
of future student mobility trends?
Ms Dearden: You mean students
choosing to reduce their level of debt by choosing to stay at
home?
Q162 Jeff Ennis: Yes, within the close
family environment.
Ms Goodman: I do not think that
the reforms will change it more in favour of staying at home.
It is certainly cheaper to stay at home. You can borrow more if
you live away from home than if you live at home, but certainly
the costs that you incur are going to be less at home. I am not
sure that the balance is shifted in particular through the reforms,
but maybe.
Q163 Jeff Ennis: I guess it is something
you will be keeping an eye on.
Ms Goodman: One thing that we
have pointed out is that if you think about London compared to
elsewhere, for example, the maintenance loan amounts differ according
both to whether you live at home or away from home and inside
London or outside London, whereas the grants do not, so it may
be that by not having a bigger grant if you lived inside London,
that would discourage students from going to London relative to
elsewhere.
Q164 Chairman: Would you like to elaborate
on that?
Ms Fitzsimons: Yes, the maintenance
loan amounts vary according to whether you are inside London or
outside London quite substantially because it is much more costly
to live in London. I think it struck us as quite surprising that
the grant for the poorer students is the same right across the
board regardless of where you are attending university.
Q165 Jeff Ennis: So there could be an
impact there on students looking at London, for example?
Ms Dearden: Given that the grant
is meant to be for maintenance and clearly the cost of maintenance
is very high in London.
Q166 Jeff Ennis: Going back to the widening
participation agenda, looking at the three models, what impact
do you foresee the different regimes having in terms of actually
achieving the goal of widening participation and getting more
students from working-class backgrounds going to university? Then
perhaps you could possibly go on to the detail as to whether there
is any sort of information available in terms of what type of
university students from poorer backgrounds will go to.
Ms Goodman: My sense was, as I
said before, that it is very hard to know in advance and it depends
on how students will view upfront support as compared to debt
and then again in terms of debt, it depends on how people view
taking a relatively large amount of debt with a small interest
rate against taking a smaller amount of debt with a larger interest
rate, so if you thought that access was all just about money upfront,
then you could say unequivocally that the Labour system would
be better for students from the poorest backgrounds, but if you
thought that debt mattered, then it is much harder to judge in
advance. I personally cannot hazard a guess on that.
Ms Dearden: But compared to the
current system, yes, kids from poorer socioeconomic backgrounds
do not pay fees, but they do not get a grant for maintenance and
maintenance is by far the biggest cost, so the balance is that
I think it must help kids from poorer socioeconomic backgrounds.
Q167 Chairman: Have researchers other
than you pointed out that it is not debt-averse students, but
risk-averse students? That is different and some of the research
that this Committee has been given just points that out, that
it is not debt-averse, it is risk-averse. The evidence shows that
people are risk-averse and the new proposals are very low risk,
are they not?
Ms Dearden: Yes, and those who
do badly get subsidised more.
Q168 Chairman: We have looked at this
and the evidence we took showed that you can get a situation where
you say that those from lower socioeconomic backgrounds are terrified
of debt, but actually in terms of the research that I have seen,
I do not see that. It is almost that there is some bit of it which
is really rather patronising to people on lower incomes that they
do not understand, that there is some cloud hanging over them.
The people in my constituency from working-class homes are pretty
savvy about what is on offer.
Ms Dearden: I still think there
is a big information gap and people do not understand. I think
I am right in saying that for existing students, the repayment
threshold next week changes, so existing students can pay less
of their salary back, but I have got a graduate sitting next to
me, saying, "Oh no, I'm going to keep paying the same amount",
even though she is an economist, so I think there is a lot more
work to do in explaining to graduates.
Q169 Jonathan Shaw: In looking at the
debt and different socioeconomic groups, we hear the point that
the Chairman makes time and again of people from less-well-off
families being averse to debt. Do you consider who takes out the
highest interest rates for borrowing money from store cards and,
the most extreme, loan sharks, and that those who get the best
return, the best rates for borrowing money are the more wealthy
people, so rather than people being put off by higher interest
rates, et cetera, it is about information, is it not? I know when
I have done surveys in my high street on store card repayments,
people have not got a clue, many people have not got a clue.
Ms Goodman: I think that was Lorraine's
point about information.
Ms Dearden: I think that information
is the key.
Q170 Jonathan Shaw: Absolutely, information
is the key, but before people can even consider the information
and ask themselves, "Am I going to go to university?",
they have got to get the grades, they have got to get A-levels,
so in terms of carts and horses, the whole point is that young
people need to attain a level before they can consider a commercial
loan, paying it all through the taxes, or the sort of combination
of the Labour Party proposals, and that is where the information
needs to go, into schools.
Ms Dearden: I do not think that
kids from poorer socioeconomic backgrounds have any worse access
contingent on A-levels, but it is before that where they are coming
from poorer socioeconomic backgrounds.
Q171 Jonathan Shaw: But attainment in
the first instance in secondary school and then information about
how advantageous this type of loan regime is compared to your
store card or your loan shark, at the extreme.
Ms Dearden: That is why we also
put in the documents what the lifetime tax and national insurance
contributions would be, and I do not think people say, "I
am fearful of earning too much because I'm going to pay too much
tax", but the overall tax a person will pay over their lifetime,
we have shown that the loans they will face are by a factor of
between nine and 13 lower than their tax burdens.
Ms Goodman: Can I return to the
Chairman's point about risk, that it is actually under the Conservative
plans that students would face the most risk because of the removal
of the zero interest rate on maintenance loans, so although the
repayments would remain income-contingent, the longer you take
to repay your loan, the more you pay unless you reach this 25-year
cut-off, in which case it gets written off. It is probably very
difficult for people to calculate exactly what side of that boundary
they are going to be. In any case except for that 25-year cut-off
and it is the student who bears the risk for earnings and I guess
it is the students with unexpected differences in their earnings
from what they thought they would be when they made their higher
education decision and their loan decision, whereas under the
Liberal Democrat and Labour proposals, it is the taxpayer that
bears that risk through the zero real interest rate.
Jeff Ennis: Chairman, we have had a few
anecdotal statements recently and I think the main thing that
needs to come out of those anecdotal comments is the fact that
we need more research on debt-aversion and the impact that will
have on future student populations and I think there is no doubt
about that. In my experience, the main reason why poorer working-class
people in my area go to loan sharks and things like that is because
they cannot actually get secured loans, so they are paying higher
percentages because that is the only type of interest loan they
can have. It is not because they do not understand the difference,
but they have got limited options and that is why I am concerned.
Mr Greenway: But that is why the funding
to the student is more important, in my view.
Q172 Jeff Ennis: I think Jonathan is
absolutely right, that the problem is actually getting students
to make the transition from 16 to 18 because we know that 91%
of students who do A-levels go on to higher education, so we need
to farm that particular principle more than we are doing at the
present time. On that specific point, because this is interrelated
to the issue we are looking at today, I notice that you, Lorraine,
have been doing some research in terms of education maintenance
allowances and that is directly related to widening participation.
I know we are looking at higher education here, but it is actually
key, in my opinion, to widening participation.
Ms Dearden: Yes, I think it is
and it has had an impact, particularly on boys from poorer socioeconomic
backgrounds and actually girls, which is quite interesting, from
low socioeconomic backgrounds. It is a bit strange that the two
systems are segmented. You have reintroduced a grant system now
and you have in effect got a grant system and a system which is
sort of operating independently. If you look at, say, the Australian
system, it is a completely integrated grant system from the age
of 16 and above.
Q173 Chairman: This Committee did recommend
that the EMA system should be a smooth transition straight through
from 16 and into university.
Ms Dearden: In terms of setting
it up, it seems that administratively it would be much easier.
Q174 Chairman: Did your research on EMAs,
education maintenance allowances, cover the period when it was
a pilot?
Ms Dearden: Yes, our evaluation
is solely based on the pilots in the nine local education authorities,
but we are actually talking with the DfES at the moment about
doing a national evaluation for that.
Q175 Jeff Ennis: I have just one supplementary
because of the positive response I have had back in terms of EMAs.
If EMAs are going to be successful on a national model, do you
see there being an increased demand on universities to provide
more vocational-type university qualifications?
Ms Dearden: I do not know. We
have in our pilot viewed people making the transition to university,
but I cannot tell you off the top of my head what they have done
over this sort of combination of sort of course choices. It has
been Sue Middleton who has actually done the analysis and I cannot
tell you off the top of my head. We could compare it, and I am
sure that she has done that, compared it to the control group
to see if there is a different composition of higher educational
courses, but I am not sure that they have actually specifically
looked at that question, but potentially with our data from the
pilot in the control areas and our pilot survey, you could look
at whether it has changed the structure, the composition of what
people do in higher education between the control areas and the
pilot areas, but I cannot tell you now.
Q176 Chairman: Your research chimed with
our constant theme of evidence-based policy and we rather liked
the fact that the nine pilots had added value in terms of the
research that has been done and we commended the roll-out because
it was based on the pilots which were seen to be extremely successful.
Ms Dearden: Exactly.
Q177 Chairman: Can I just switch the
questioning now. One of the central aspects of the change in university
funding was the student contribution. We applauded it in our original
report two years ago because it gave an independent source of
income to universities. In terms of the research you have done
on the three party policies approach, how much of that new source
of income is left intact? In other words, are universities going
to be better off in terms of how much money they have got to pay
staff, to run facilities and so on as a consequence of this? We
have talked to many university vice chancellors and others who
said, "We really welcome the fact that we have an independent
source of income that is our own to do what we want with".
Ms Goodman: Can you clarify what
you mean by "independent"? Do you mean not from the
taxpayer?
Q178 Chairman: Not under the control
of the Government, the Department, or HEFCE.
Ms Goodman: Tuition fees are under
the control of the Government because it sets the cap.
Chairman: It sets the cap, yes.
Q179 Jonathan Shaw: We mean the money
coming back into the institution.
Ms Goodman: So if you thought
that the cap was not a binding one, then top-up fees would mean
more independent income for universities, so we pointed out that
according to the policy statements from each of the parties so
far at least, universities would all gain by about the same amount
once all students were under the top-up fee regime, so that by
about 2009 the universities would gain the same amount under all
three parties' proposals, though the increases would be all from
the taxpayer under the LibDems and the Conservatives, but would
in part be of course from graduates, so if you thought of that
as an independent source of income, then that would make the difference.
Of course the level of the cap means that the Government to some
extent determines how much graduates pay, so that might question
the very strict definition of what an independent source of income
was. It is also the case that part of the way in which the Conservatives
propose to increase the money to universities comes from the gifting
of the student loan book, the outstanding value of the student
loan book, and they want to give it to a not-for-profit organisation
that is then obliged to give it to universities. I do not know
if you are familiar with that, but the idea is that they have
a kind of scheduled programme of payments that would go to universities,
some of which would rely on matched raised funding from the universities
themselves, so the idea is that they could get some of the student
loan book asset if they could raise pound for pound external sources
of funding themselves. Therefore, instead of the Government continuing
to hold this public asset and giving out a public spending stream
each year, they are handing over to the universities once and
for all and to some extent you might think that that then meant
that it was a more independent source of income for the universities
from the moment that they hand it over.
| 
