Select Committee on Education and Skills Minutes of Evidence


Examination of Witnesses (Questions 200-219)

MS LORRAINE DEARDEN, MS EMLA FITZSIMONS AND MS ALISSA GOODMAN

6 APRIL 2005

  Q200 Chairman: So you are really coming down to transparency, information and the free market?

  Ms Dearden: No, we are definitely not saying a free market.

  Q201 Chairman: No?

  Ms Dearden: No. There are lots of arguments why a free market would not work in this area. I do not think I am saying that at all.

  Ms Goodman: This was in response to your specific question about whether extra subsidies ought to be channelled to specific professions rather than thinking about the market for higher education altogether.

  Ms Dearden: I just do not know enough about the issues.

  Q202 Chairman: Do not worry about it. We always like it when our expert witnesses say, "We have not done the research and we do not know about it."

  Ms Dearden: In the Australian model they charge different prices for different courses so they have actually said that those who gain the most from going to university, which lawyers do—

  Q203 Chairman: This is what I wanted to bring you to. The original concept of the Government was that there was going to be a market. We pointed out that everybody was going to charge the same and there was not going to be a market unless the cap was much higher. We made that case very, very strongly indeed.

  Ms Dearden: You were right.

  Q204 Chairman: We were right. It is very interesting, is it not, that on the one hand that market did not appear because the cap was too low if you wanted a market. On the other hand, we have something that surprised all of us. We have had this competitive market in bursaries. It is a very classic case for us of an unexpected consequence of the changes, certainly in terms of Government policy. Would you have predicted that and how is that going to work through? Have you any views on that?

  Ms Goodman: We did not predict that and we have not specifically looked in detail at what has happened to bursaries and what different universities are coming up with in terms of what they say they will do. I guess the main thought we have had about it is that we think it is important for the system of bursaries in place not to alter the universities' incentives to take particular students from particular family backgrounds nor to change the incentive for what fee they are going to charge. We were not sure that the system of compulsory bursaries as they are now up to £300 fulfils those criteria. Beyond that we have not looked explicitly at this.

  Q205 Chairman: You have not looked at Cambridge offering up to £5,000 in bursaries for students from poorer backgrounds?

  Ms Dearden: No. I guess one concern we have about these compulsory £300 bursaries is that it seems like it is introducing perhaps a slight distortion. It seems to us it means that universities who charge a full fee are going to have to set up a whole lot of administrative systems and it strikes us it would be easier to increase the grant by £300 for everybody and give the universities less money. You still have an opportunity for a market in bursaries for those who want it but it will not penalise universities who have a high proportion of poorer kids. It just seems a bit silly the way it has been done.

  Q206 Jonathan Shaw: Do you not think that by requiring £300, although it has an effect in terms of the administration that is required, it has a profound effect?

  Ms Dearden: You could do that.

  Q207 Jonathan Shaw: That is what you do not know, is it? You cannot say it would happen anyway. The fact is that this system has been put in. You can say bits of it are wrong and bits of it are bureaucratic but ultimately what it has meant is that it has stimulated, as the Chairman said, large bursaries. They were not there before but they are there now and so even if it is not quite the right regime nevertheless something has been done to bring universities to offer these sort of bursaries and that is a good thing, is it not?

  Ms Dearden: Yes. It just slightly worries me that some universities who maybe take 60% of their students who are effectively capped at £2,700 because they have to set up a bursary scheme. As Alissa said, it is something we have not really thought about so I do not think I have a particular view.

  Q208 Mr Greenway: There is just one question I want to ask you and I am going to go back to what we were talking about before. Did you do any work on trying to calculate the different potential take-up rates of these maintenance loans by the fact that both the Liberal Democrat and Labour maintenance loans are means tested? In fact, the means-tested loans are what exist now under the present system whereas, Alissa, the point you made earlier in answer to one of my earlier questions on the Conservative proposal is that there should be the availability of a loan up to £5,000 which is not means tested and will undoubtedly be more beneficial to those families where there are two or three siblings (which is often the case) at university at one and the same time. Have you done any research on what the impact of the loan not being means tested would have on take-up?

  Ms Goodman: We have not done any specific research on that. In order to assess the effects of student debt on later graduates we had to come up with a view of how much students would borrow under each of the three systems, but the way that we did that was we wanted to put all of the parties on an equal footing as graduates borrowing to achieve the same standard of living as students. That is where our so-called take-up rates come from. They are simply to put the graduate comparisons on an equal footing across the systems. But in terms of research of what will happen depending on family size and background, we have not done that. I agree it would be very interesting to do.

  Q209 Mr Greenway: It seems to me that in the practical implementation of each of these different models, there is likely to have to be a decision taken by those students whose parental income is such that they are not getting the means-tested loans for maintenance about whether or not they decide to take the loan because your figures are predicated on people taking these maximum loans, and there is clearly a trade-off between on the one hand having the zero real interest rate applied to the loan to cover tuition fees and having a commercial interest rate applied to maintenance loans. In reality it may well prove that these maintenance loans are not taken out under the Conservative system.

  Ms Goodman: We pointed out that for the zero real interest rate it would pay everyone to take out the full loan. For the commercial one I guess it depends on what your alternative sources of finance are. If your alternative source of finance was more expensive—

  Q210 Mr Greenway: —Jeff's point.

  Ms Goodman: —then you would probably choose to take the cheaper source. If your alternative source of finance was to get it free, for example from your parents, and your parents were willing to do that for you—

  Q211 Mr Greenway: —Or if they have to do that now because they do not get the maintenance loan because of the means test.

  Ms Goodman: I am talking about under the Conservative system now where the means test would be removed. There if you could get it for free then it would be better. If you had to get it more expensively then the commercial rate under the Conservatives' scheme would be better.

  Q212 Mr Greenway: To take the commercial rate loan rather than having to borrow at higher rates and run up credit card debts, which is why I agree with Jeff that in different parts of Yorkshire this is the respective experience of our constituents—that students have ended up with significant credit card debt at quite expensive rates of interest.

  Ms Goodman: I guess under all three systems you would expect the amount of people who have to do that to go down.

  Q213 Mr Greenway: Yes, you would hope so.

  Ms Fitzsimons: It is worth remembering that if you take out a loan under the Conservative system the repayments are fixed at 9% of income above the threshold, whereas if you go to a bank or use a credit card or more expensive forms, the interest rate might be lower but you pay it back.

  Ms Dearden: If you have low labour market earnings or do not work for a significant proportion you are not going to pay off your loan under any system so you pay the same amount under all three systems. The people who do worst under the Conservative system are those who take 24 years to pay off their loan. They pay the maximum. It is the middle group.

  Q214 Jonathan Shaw: Teachers, people like that?

  Ms Dearden: It is the middle group because the high earners pay it off quickly.

  Q215 Chairman: So the high earners pay it off quickly, the low earners never pay it off and the middle earners—

  Ms Dearden: —are the people who pay it for 24 years and pay it off.

  Q216 Jonathan Shaw: Someone who is more likely to be a man in teaching or social work or something like that?

  Ms Dearden: We could work it out. We have probably got an example of where it takes 24 years.

  Q217 Mr Greenway: What kind of income is that?

  Ms Dearden: That is an interest rate of 6.5% so 4% real.

  Q218 Mr Greenway: But what income level?

  Ms Dearden: I would have to look at an example.

  Q219 Mr Greenway: It would be interesting to know that.

  Ms Dearden: We would have to look at an individual because this is just the average so the whole distribution is truncated. We could tell you the range of salaries from our data but we have not worked it out here.

  Ms Goodman: That is why it would be a very difficult calculation for somebody deciding whether or not to take out debt under the Conservative system where in that spectrum they were going to fall in terms of whether they would be a low earner or middle earner and whether they would have a large amount written off or not. In terms of the graduate bearing the risk, you can see from what Lorraine said that would be more so under the Conservative system because it depends on your exact earnings path how much you pay.


 
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