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 constituentsthat
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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