Government reform of Higher Education - Business, Innovation and Skills Committee Contents


3  Funding: tuition fees and student finance

Introduction

42.  Under the current system of higher education funding, publicly-funded higher education providers in England receive income from two principal sources: tuition fees, which are backed by Government-funded loans; and a separate teaching grant from the Higher Education Council for England. As well as offering tuition fee loans, Government also currently offers means-tested maintenance loans and maintenance grants for students from the least wealthy backgrounds.

Teaching grant

43.   Receipt of teaching grant from the Higher Education Funding Council for England (HEFCE) is one of the defining characteristics of a "higher education institution" under the Further and Higher Education Act 2004, and is the principal distinction between traditional universities from 'alternative providers' (which we discuss later in this Report).

44.  The teaching grant is calculated by allocating courses or subjects to four broad cost 'bands': universities then receive a unit amount per student studying in each cost band:

Band A is worth around £17,800 per student and covers the most expensive-to-teach courses, like medicine and dentistry;

Band B is worth around £8,700 and is for lab-based science courses;

Band C is worth around £7,100 and covers subjects with a fieldwork element; and

Band D is for all other subjects and is worth around £6,000.[37]

45.   The annual block grant is calculated before exact figures for each year's admissions are known. Therefore, the number of students in each band is estimated and a margin of error allowed. This helps to smooth out annual variations in student admissions and provides institutions with greater certainty year to year about the amount of teaching grant they can expect.

46.  Institutions receive the teaching grant as a lump sum, which they are free to spend according to their own priorities, within broad guidelines set by the Higher Education Funding Council for England. It is common for institutions to 'cross subsidise' subjects which are more expensive to teach (such as science, technology, engineering and maths) with money from courses which cost less than the unit amount for their band (most often arts and humanities courses).

47.  In the 2010 Spending Review, the Government announced "a shift away from public spending [on higher education] towards greater contributions [in the form of tuition fees] from those that benefit most and who can afford to pay".[38] This translated as a cut of 40% in the higher education budget (including the teaching grant, but excluding research funding and provision of student loans) by 2014-15, which the Department for Business, Innovation and Skills described as being "in line with the Browne Report's recommendations".[39]

48.  In its letter of 20 December 2010 to the Higher Education Funding Council for England, the Government announced a cut of approximately 8% (in real terms) in the teaching grant for 2011-12, and indicated that it expected to increase spending on student loans by £4 billion by 2014-15 (more than doubling its expenditure on student loans in 2010-11).[40]

Tuition fees

49.  The Browne Review recommended that tuition fees should be un-capped, backed by public tuition fee loans so that no fee was ever payable up-front. The cost to Government would be mediated by a Government levy on fees above £6,000 per year. In addition, Lord Browne proposed a basic non means-tested maintenance loan of £3,750 per year, with up to a further £3,250 available via a means-tested grant for students from households with an income below £60,000 pa. This would have provided cost-of-living support from £3,750-£7,000 per year for all students, as well as covering their tuition fees.

50.  The Government rejected Lord Browne's proposals for uncapped tuition fees and in December 2010 passed new legislation to increase the cap on tuition fees from £3,290 per year to a 'basic maximum amount' of £6,000, and an absolute maximum of £9,000 which could be charged only in 'exceptional circumstances'. Students would be entitled to tuition fee loans of up to £9,000 per year, according to the fees charged by the institution they attend.[41] Part-time students studying at a level of least 25% intensity (i.e. it will take them four times as long as a full-time student to complete the course) would also be able to access pro-rata loans to cover their tuition fees.

51.  Statements made by the Government following the publication of the Browne Review appeared to imply that a key purpose of the Review, if not its primary purpose, became to find savings in the higher education funding system to assist in deficit reduction. In the 12 October debate following publication of the Browne Report, the Secretary of State said:

Like many Members, I wanted to ensure that my children's and my grandchildren's generations enjoyed that free system of university education. In an ideal world, that is what we would do, but we are not in an ideal world. We are in a world in which we have inherited a massive financial mess.[42]

52.  He went on to say:

I have already explained the necessity, for economic reasons, of pressing ahead with these reforms. They have great advantages in themselves, but they also help us to address the massive deficit left by the previous Government.[43]

53.  The Secretary of State also asserted that once the economy returned to prosperity, the funding of higher education would be revisited:

When the Government's economic policies have produced the successful outcome that we all expect, we can return to the question of how universities can be supported in a more generous way, but at the moment we face a massive financial crisis.[44]

Postgraduate education

54.  Although the Browne Review addressed undergraduate study, it did not consider postgraduate study. When we asked him why his review omitted this important area of study, Lord Brown told us that his review was asked to work with Professor Adrian Smith's previous review on that issue. Professor Smith's review was published in March 2010 before the current Government's reform of higher education and therefore did not take account of the significant increase in undergraduate fees. Lord Browne said that while there was "plenty of discussion" on the postgraduate study within his team, it concluded that "the less done the better in this area, for the time being" as they "wanted to watch and wait before anything else happened".[45] As a result his review recommended that "we should now examine and watch carefully what is going to happen in the future as the undergraduate system is changing".[46]

55.  The White Paper states that HEFCE will now run a consultation exercise on support for postgraduate teaching but that it would have to be in the context that "the total funding available will reduce from 2012-13 onwards, in line with our reforms to funding for undergraduate teaching".[47] HEFCE will also conduct a review of participation in postgraduate study, to evaluate the impact of the changes to undergraduate funding and that the government would "revisit the issue of postgraduate funding as the new system beds in".[48]

56.  It is important that the increase in undergraduate tuition fees does not act as a deterrent to potential postgraduate study. We welcome the Government's decision to ask HEFCE to monitor and review this. We believe that interim reports from HEFCE may help reassure both students and institutions and we recommend that HEFCE considers this approach as part of its work.

Loan Repayments

57.  Students who have taken out loans under the new student support system are, of course, likely to graduate with significantly higher total debts than at present. However, the proposed increase in the repayment threshold (proposed to be set at £21,000) will mean that their monthly repayments are lower than they would be under the present system, and the term of the loan is to be increased from 25 to 30 years, meaning that almost all graduates except those with the smallest debts or the highest salaries will be in repayment for longer. The introduction of a 'real' rate of interest also means that many graduates will in future repay more in real terms than they borrowed.[49]

58.  It is important to recognise that borrowing via student loans is unlike any other commercial debt. Because repayments and interest rates are income contingent, they are fixed to the graduate's earnings, not the size of the outstanding balance and do not begin until the graduate is earning above the threshold. This also means that, after graduation, neither the Student Loan Company nor the Government can demand payments above this level, or insist at any point on repayment of the full outstanding balance. After 30 years, any outstanding balance will simply be written off with no penalty.

59.  It also appears to be the case that this debt will not affect a graduate's ability to secure a mortgage. The Department has made clear that "the Council of Mortgage Lenders has advised that a student loan is very unlikely to impact materially on an individual's ability to get a mortgage" and that "student loan information won't be shared with credit reference agencies by Student Finance England".[50] The Minister also explained that "this is one reason why our proposal to increase the repayment threshold from £15,000 to £21,000 reduces the amount borrowers need to repay each month, and therefore increases the amount of net monthly income available to them which could be helpful to them when applying for a mortgage".[51]

60.  Not all graduates will repay their loan within the 30-year term, the expectation is that around 30% to 50% of what is borrowed will not be repaid. For many graduates, then, repayments of their student loan will be indistinguishable from a 9% tax on their earnings above the repayment threshold, which stops after 30 years. This was a point made by a number of witnesses including Libby Aston, Director of the University Alliance group:

In terms of the debt adversity issue, the message that we really clearly need to get across is that this is not a credit card debt, it is not a mortgage-style debt, and […] it is not a pure graduate tax, but it is like paying tax. It is capped, it stops at some point, but it will feel like paying income tax, and Professor Barr very eloquently describes the fact that no parent or potential student loses sleep about the future tax contribution they are going to be making.[52]

61.  The Government should work with the Higher Education sector to develop a consistent message, pointing out the limits on repayment, rather than its current concentrations on slightly lower repayments regardless of the increased debt.

Annual Loan Statements

62.  One crucial difference between the student loans system and a tax is that graduates will receive an annual statement on the level of their loan. Dr Mike Clugston, speaking in a personal capacity, expressed particular concern about the salaries that graduates would need to earn on graduation in order for their repayments to keep up with the interest charged on their loans and so reduce the total balance.[53]

Notes:   Assumes RPI inflation of 2.75% each year

For simplicity it is assumed that the total loan is the same in cash terms each year and courses all last three years. In reality it is likely to be larger in year two and smaller in year three.

Breakeven income is where repayments are approximately interest charges and the cash value of the loan does not increase.

Source: House of Commons Library Student loan repayments (2011/6/108SG) 16 June 2011

63.  For comparison, average graduate starting salaries in 2010 were around £25,000—£29,000, although salaries would of course be expected to rise in cash terms by the time the first cohort of graduates under the new loans system begin their repayments in 2015-16.[54] According to High Fliers Research, "[starting] salaries increased by 7.4% in 2010 and 5.9% in 2009".[55]

64.  However, we note that:

Looking at year one breakeven levels can give you a somewhat misleading impression. It is reasonable to assume that most people's incomes will rise quite rapidly in the early part of their career. This means that breaking even is less important early on when compared to continued employment and rapid early earnings growth.[56]

65.  We acknowledge that some form of annual statement on the student loan is an essential piece of information for the graduate. However, we recommend that the Government and Student Loans Company give serious consideration to the form of the statement and supporting information to avoid causing undue concern to graduates about rising student loan balances.

Affordability of the loan system

66.  A large number of variables can affect the likelihood of loans being repaid, including the initial size of loans (larger loans are less likely to be repaid in full); the proportions of male and female graduates and their earning profiles (recent trends show more female than male students, but, once employed, male graduates tend to earn more than female graduates and so are more likely to repay in full); and the behaviour of the economy, including inflation, interest rates and earnings growth. As the Higher Education Policy Institute explains:

The repayment scheme [is] designed to keep repayments low and consequently a large proportion of the repayments are expected towards the end of the 30 year repayment period. This means that the RAB charge depends on long term forecasts of earnings. In a response by BIS to a request for information about the longer term accumulation of debt, we were told that forecasting student loan repayments 'several decades into the future is inherently difficult and relies upon a great number of assumptions'. Hence the RAB is uncertain.[57]

67.  The number of assumptions needed is clear from the Impact Assessment published alongside the White Paper, which explained that the "costs were estimated by assuming an average graduate contribution of £7,500, profiling future expected earnings profiles of graduates to forecast estimated repayments on loans and assuming take up rates for student support of 90% for fee loans and 80% for maintenance loans".[58]

68.  The Interim Impact Assessment published alongside the Regulations raising the fee limits was based on an estimated RAB charge of 28% of the loan book.[59] In the full Impact Assessment accompanying the White Paper, this estimate was increased to 32% "because of changes in the income threshold at which repayments start to be made by graduates (changing to annual from 2016 rather than being up-rated every 5 years)".[60] As it became clear that universities were setting tuition fees significantly above the £7,500 per year used in the Government calculations, analysis by the Higher Education Policy Institute, London Economics and the Institute for Fiscal Studies suggested that the Government's estimated RAB charge remained optimistically low.

69.  Bahram Bekhradnia of the Higher Education Policy Institute told us:

We did our analysis a few months ago and showed that this 30% RAB charge, which is the real cost to the Government, was almost certainly a very serious understatement of the cost, for reasons that we set out, and I think that is now fairly widely accepted. Apart from anything else, the 30% RAB charge was based on £6,500 or £7,000 or whatever the figure was then being the norm, with £9,000 only the exceptional fee. Just the increase of the average fee to much closer to £9,000 is going to drive up that RAB charge hugely.[61]

70.   In addition to the effect of higher than expected tuition fees, the Institute for Fiscal Studies also cautioned that:

The Government's analysis over-estimates annual earnings at the top of the distribution. Our profiles of lifetime earnings imply average annual earnings of £60,000 in the top decile over the period during which loans are repaid (and higher earnings thereafter as graduates' progress through their careers). As a result, the Government's analysis over-estimates the number of graduates at the top of the distribution who would earn enough to face the full 3% real interest rate while they are making repayments.[62]

71.  The Higher Education Policy Institute expressed particular concern about Government assumptions of likely earnings growth, and the ratio of male to female graduates.[63] HEPI calculated that a RAB charge of 47%, representing "entirely plausible" graduate earnings growth of 3.3% per year rather than the Government's estimate of 4.5%, would represent a 'break-even' point at which "the savings in public expenditure on tuition in moving to the new system are balanced by the costs".[64]

72.  In his evidence to us, the Minister defended the Government's calculations and the uncertainty around the RAB charge:

No one can be certain. This is a set of big changes. I am not claiming that we can be absolutely certain, but the estimate is that in 2012, 350,000 students will be eligible for loans, of whom 90% would take one out. That is a slight increase on the current number; no one is obliged to take out a loan. They would take out an average loan of £7,500, which is not the same as saying that the fee would be £7,500, because the loan need not be the same as the fee, though it often is. We stand by that as a broad ballpark estimate. It adds up to about £2.4 billion of loans. The RAB charge, which is the amount that you think you will not get back, at a rate of 30%, is about £720 million. We think that we are broadly there. But again, we will know for sure only when those students have arrived at university next autumn and have decided how much they want to borrow and on what terms. I cannot give a 100% guarantee, but we still think that that is a reasonable estimate.[65]

73.  Professor Nicholas Barr of the London School of Economics was not convinced. He argued that the Government's proposals "will not stand the test of time" and stressed that some teaching grant should be restored as soon as economic conditions permit.[66]

74.  It seems clear to us that the Government's decision to shift the balance of higher education funding from teaching grants to student loans was, in part, driven by its commitment to reduce the deficit as quickly as possible at the same time as aiming to create a new model for higher education. During the debate on the floor of the House on the Browne review on 12 October the Secretary of State explained that deficit reduction was a factor in its policy formation:

I have already explained the necessity, for economic reasons, of pressing ahead with these reforms. They have great advantages in themselves, but they also help us to address the massive deficit left by the previous Government.[67]

75.  He continued:

When the Government's economic policies have produced the successful outcome that we all expect, we can return to the question of how universities can be supported in a more generous way, but at the moment we face a massive financial crisis [68]

76.  Regardless of the arguments both for and against a higher level of student contribution, the financial sustainability of the new system is untested. As a result, an unprecedented level of uncertainty has been introduced into higher education finances with success dependent on a large number of variables over which the Government has little control.

77.  We acknowledge that the current proposals for student finance have been developed at a time of severe constraints in public finances. The White Paper states that the Government was "given the [Browne] report in an environment when public funding had to be reduced and we accepted the main thrust—that the beneficiaries of higher education would have to make a larger contribution towards its costs". It would appear that the Government has left the door open to reducing the burden on the student should economic circumstances improve. This approach should be made clear and we recommend the Government set out its long-term aspiration for Higher Education funding, in the context of improving public finances, in its response to this Report.

78.  The affordability of the new system is dependent on a wide range of variables which are outside of Government control. We welcome the Government's commitment to "monitor the overall affordability of the system", but we are not convinced that its current assessments can accurately deliver on that. Should the loan system prove more expensive than planned, the Government will need to act to reduce the costs of the system and to reduce the RAB charge. In its response the Government will need to demonstrate not only that its assessment of affordability is accurate, but that it has robust contingency measures in place to deliver an affordable system without cutting student numbers.

Early Repayment

79.  Alongside the White Paper, the Government published a separate consultation on "possible early repayment mechanisms" for student loans. The question of early repayment is crucial to the affordability of the loans system, since the system relies on some graduates repaying substantially more than they borrowed, in order to offset the loss made on those who do not repay in full, or at all. The Higher Education Policy Institute told us that the repayment consultation refers to former students who earn enough to be charged an interest rate higher than the cost of Government borrowing as contributing to the full cost of their tuition but the Institute argued that those graduates "would actually be contributing more than the full cost. The RAB charge for these former students is negative, without them the RAB charge [for the whole system] would be higher".[69]

80.  According to the consultation document, the Government is keen to ensure that "those on the highest incomes after graduation are not able unfairly to buy themselves out of this progressive system by paying off their loans early" although "mechanisms would need to ensure that graduates on modest incomes who strive to pay off their loans early through regular payments are not penalised".[70]

81.  The consultation offers three options:

  • early repayment charges for high payers, such as a 5% levy on repayments over £3,000 or a specified percentage of the outstanding balance;
  • overpayment charges for high earners; or
  • a hybrid mechanism linking charges to the amount overpaid in a given period as well as the individual's earnings.

82.  In the same consultation document, the Government also noted that:

Voluntary early repayment of student loans currently forms a significant part of the total volume of repayment. Many individuals choose to make early repayments despite student loans attracting no real rate of interest or, as in current circumstances, a negative real rate of interest. In 2008-9 (with interest set at RPI), of the total £939 million repayments received by Government, £329 million were voluntary early repayments.[71]

According to figures from the Student Loans Company, quoted in the consultation document, the median salary of those making early repayments was £18,400.[72]

83.  Penalties for early repayment have been criticised by Martin Lewis of MoneySavingExpert and the think tank CentreForum, both of which note that the wealthiest students (or their parents) will be able to avoid loans or early repayment charges entirely by paying their fees up front.[73] CentreForum also suggests that "debt aversion not affluence" was the biggest driver for early repayment.[74] The Minister was reluctant to be drawn when we raised these issues with him, but said that he would "welcome feedback, including from, if it has a view, this Committee".[75]

84.  We understand that overpayment by some graduates is essential to the affordability of the Government's proposed loan system, and we support a progressive system which means that the better off make a greater contribution than those on lower incomes. We welcome the consultation on this issue. We believe that a fair mechanism must be found to cater for those who wish to clear their debts more quickly but which also addresses the issue of those seeking to avoid a progressive contribution by paying their fees up front.

Cross-subsidy

85.  Another consequence of the reforms to student number controls and the transition from funding via the block grant to funding via tuition fees is to reduce institutions' ability to predict their likely income year to year, since their actual income from tuition fees will depend to a greater degree than at present on the A-level results and personal or family circumstances of each year's student intake and their eligibility for fee waivers and other reductions. Annual fluctuations could increase reliance on the current system of 'cross-subsidy', through which fees (and teaching grant) from courses which are cheaper to provide are used to subsidise more expensive courses.

86.   The increasing emphasis placed by the Government on improved information, advice and guidance for students includes the suggestion that:

As students become more discerning, we expect they will increasingly want to know how their graduate contributions are being spent. It would be good practice for institutions to provide the sort of material that local councils offer to their residents, demonstrating what their council tax is being invested in.[76]

87.  At present, local authorities are required to itemise all spending over £500. If well-informed students do take an increased interest in what they can expect for their £8,000—£9,000 per year, they may not be supportive of paying fees in excess of the cost of providing their course, or revenue from their course fees being used to cross-subsidise other students' courses (particularly since, as we have already seen, the Office for Fair Access already also expects a certain percentage of tuition fee income to be spent on measures to improve participation and access).

88.  There is a clear tension between accountability to students for how their fees are spent, and institutions' legitimate need to charge fees in excess of the cost of courses in order to replace the income cut from the block grant (and also cover the increased costs of widening participation work required because of the higher fees). We accept that graduate contributions towards the costs of their higher education should rise, but we recommend that the Government explore with the sector how to ensure that students seeking 'value for money' from their investment can see a clear relationship between the fees they pay and the cost of their course, while avoiding a fee structure which potentially discourages applications to higher cost courses in science, engineering, technology and medicine.

Support for maintenance and living costs

89.  The Government has also announced that almost all full-time students—with the exception of those studying full-time distance-learning courses—would be eligible for a "maintenance loan" each year to help with living expenses. Maintenance loans are to be 65% non means-tested: all students will be entitled to at least 65% of the maximum loan (down from 72% in 2011), but access to the final 35% will depend on the student's family's household income. As at present, certain students with disabilities or caring responsibilities will also be entitled to specific additional allowances.

90.  Full-time students from lower-income households would also be eligible to apply for a means-tested, non-repayable "maintenance grant".[77] If a student is eligible for a maintenance grant, the amount they could borrow as a maintenance loan would be reduced by 50p for every £1 of maintenance grant available to them. This is done on the assumption that the grant will reduce the student's need to borrow, and also steers students towards non-repayable support rather than borrowing.

91.  The Government therefore proposes the following maximum support packages for full-time students beginning their studies in 2012:

 

92.  Grants are entirely means-tested. Only new full-time students from households with an annual income of less than £25,000 will be able to claim the full grants shown above. Under current arrangements, students from households with an income of up to £50,020 are eligible for at least a partial maintenance grant. From 2012, this figure will drop to a maximum household income of £42,600. This change in maximum income thresholds means that the maintenance grants will be withdrawn altogether from 2012 for new students from families with an income between £42,600 and £50,020 pa. Most full-time students starting higher education in 2012, except the very poorest, will therefore receive less non-repayable support than they would have if they started their course in 2011.

93.  As shown in the table below, although most students will have access to more money in total than they do currently, these changes will represent a reduction in available support of around £200 per year for new students from households on a 'middle' income of around £50,000 per year, compared to students from a similar financial background who begin their studies in 2011. The Minister for Universities and Skills, David Willetts MP, described this anomaly as a "strange kink in the system", which the Department argued was "due to a complicated system inherited from Labour".[

79]

[80] 2012/13 figures from BIS website[81]

94.  Given the scale of the reforms being implemented, we recommend that the Government take this opportunity to resolve the illogical and unjustified 'kink' in the the student maintenance model which under present proposals will reduce the current level of support available for students from middle-income families.

Student living costs

95.  The Government's stated aim is to put "students at the heart of the system" and we fully support its proposals to extend student support to part-time students, introduce student charters and improve information and feedback for all students. No student will have to pay up-front for their tuition, and we welcome the increase in maintenance support for the majority of students. As Professor Arthur of the Russell Group said:

I […] see this as really quite a socially progressive system. It allows anybody to go to university at no cost, the Government will provide the money. It will go from BIS, to the student loan company, to the university, and a grant will as well for anyone earning less than £25,000, and a further loan on the same basis, so that you do not need to spend all the hours God sends working in Tesco to get through your studies. Anybody from any background can go to university, and they will not, as in the United States, a month after they graduate, start having graduate debt repayments whether they are employed or not employed.[82]

96.  However, notwithstanding the small rise in maintenance support, we still have concerns about the levels of support available and whether it really will be possible for students to attend university at no cost. Several witnesses including Lord Browne, Aaron Porter (then President of the National Union of Students) and Simon Hughes MP (the Government's Advocate for Access to Education) stressed the importance of ensuring students had sufficient money while at university to cover their living costs.[83]

97.  A National Union of Students survey in 2009 found that the average cost of a room in university accommodation in 2009-10 was £3,892.62 per year, rising to £4,560.02 for accommodation in the private sector.[84] This easily exceeds the basic non means-tested element of the Government's proposed maintenance loan (£3,575).[85] Even for students who are entitled to some element of means-tested support, the Government's proposed package alone is unlikely to adequately cover their living expenses.

98.  For example, the maximum support package which will be available to students from households on an average income of around £35,000 per year is just over £6,000. Assuming average accommodation costs of around £4,000 per year, this would leave such students with around £2,000 per year to cover the costs of books, transport, food and other living expenses. Both the British Medical Association and British Dental Association also identified a particular issue for students studying clinical courses who are often unable to take on part-time work outside their studies to supplement their incomes.[86]

99.  We recommend that the Government demonstrates its pledge to "put students at the heart of the system" by committing to improve the student maintenance model as soon as possible to ensure that the minimum non means-tested support available to every student covers at least the average annual cost of accommodation in university accommodation. This may require working with the sector to reduce those costs.

Financial support for students studying at "alternative providers"

100.  Institutions which do not currently receive grant funding from HEFCE ("alternative providers", in the language of the White Paper) are not currently subject to the regulations which impose basic and higher limits on tuition fees. At present, certain courses provided by these institutions may be 'designated' for student support purposes by the Secretary of State for Business, Innovation and Skills, to enable students studying these particular courses to access tuition fee and maintenance loans. From 2012, the maximum tuition fee loans available to students attending these designated courses will be increased from £3,290 to £6,000 per year (full-time) or £4,500 per year (part-time). According to Students at the heart of the system, "this is in line with the amount that institutions in receipt of HEFCE grant can charge their students without putting in place an Access Agreement".[87]

101.  However, in 2012-13 it is only the value of the tuition fee loan for these courses which is to be capped: the course fees themselves may exceed £6,000 per year. This means that, in 2012-13, unlike institutions which do receive HEFCE grant funding, these alternative providers will be able charge tuition fees in excess of £6,000 per year without having to put in place any access agreement and their students will have to fund the difference between the fee and the available loan as an up-front payment. Nor will these institutions have to comply with the requirements applying to other publicly-funded institutions regarding provision of information or quality assurance.

102.  This is an interim situation, and the Government intends to legislate during 2012-13 to create a single regulatory framework for all higher education institutions, regardless of their source of funding.[88] When we asked the Minister why it was that the public money available to alternative providers was to be increased in 2012, despite the absence of other significant regulatory controls, he said:

In an ideal world, we would have the whole regulatory regime in place for 2012, but that is simply not practical given the parliamentary timetable. […] Of course, we inherited a system from the previous Government where a student can have access to student loans at an independent provider, without having to comply with the full regulatory requirements. That is what currently happens. We will have to wait until 2012-13, parliamentary business permitting, before we can have a single regulatory regime. We are getting on with it as best we can.[89]

103.  In supplementary evidence to the Committee, the Department explained that "Such [alternative] providers are not currently part of the OFFA regime and it would have been unfair to those providers that are, had their students been free to take out a tuition fee loan of over £6,000".[90]

104.  We agree that it would not have been fair to permit alternative providers to charge tuition fees of more than £6,000, backed by publicly funded student support, without having an access agreement in place. However, it does not seem fair that alternative providers should uniquely be able to access student support at all for courses with tuition fees in excess of £6,000 without an access agreement in place, even if the amount of student support itself is capped at £6,000 per year. If alternative providers can offer viable courses in 2011 with access to publicly funded student support of only £3,290 per student per year, we do not see the need to nearly double the public money on offer to them in the absence of any greater safeguards over its use.

105.  This arrangement partially protects the Government's total financial exposure to uncapped fees, but does nothing to protect the student's. We would prefer that the amount of public funding available to alternative providers not be increased until the new single regulatory framework is in place. As a minimum, we recommend that the Government urgently reconsiders its decision to increase the amount of student support available in 2012 for designated courses provided by alternative providers charging tuition fees of more than £6,000, unless it also requires that some form of access agreement and the Key Information Sets for those courses be made available.



37   Minister for Universities and Science, speech to the British Academy 1 March 2011 Back

38  HM Treasury Spending Review 2010 (October 2010) Cm 7942, paragraph 1.47 Back

39  Department for Business, Innovation and Skills press release, 20 October 2010 Back

40  www.bis.gov.uk Back

41  Separate arrangements will apply, at least in 2012/13, for students attending certain 'designated courses' at higher education institutions which do not currently receive a public teaching grant, known as "alternative providers". Back

42  HC Deb, 12 October 2010, col 160 Back

43  HC Deb, 12 October 2010, col 161 Back

44  HC Deb, 12 October 2010, col 165 Back

45  Q 43 Back

46  Q 42 Back

47  Cm 8122, p21 Back

48  Cm 8122, p21 Back

49  Department for Business, Innovation and Skills Frequently asked questions about student finance from 2012 http://www.bis.gov.uk/policies/higher-education/students/student-finance Back

50  Department for Business, Innovation and Skills Frequently asked questions about student finance from 2012 http://www.bis.gov.uk/policies/higher-education/students/student-finance Back

51  HC Deb, 16 May 2011, col 108W Back

52  Q 139, quoting Professor Barr of the London School of Economics (who also gave oral evidence to our inquiry) in A graduate tax is for life not just for a few years (The Guardian, Education p.10, 24 March 2009) Back

53  Ev w31 Back

54  Association of Graduate Recruiters, AGR Graduate Recruitment Survey 2010 Winter Review (February 2010) and High Fliers Research The Graduate Market in 2011(January 2011) Back

55  High Fliers Research The Graduate Market in 2011(January 2011) page 5 Back

56  House of Commons Library Student loan repayments (2011/6/108SG) 16 June 2011 Back

57  Higher Education Policy Institute "Higher Education: Students at the heart of the system"-an Analysis of the Higher Education White Paper (August 2011) Back

58  Department for Business, Innovation and Skills, Impact Assessment: Higher Education: Students at the heart of the system (June 2011) page 32 Back

59  Department for Business, Innovation and Skills, Interim Impact Assessment: Urgent reforms to higher education funding and finance (November 2010). Back

60  Department for Business, Innovation and Skills, Impact Assessment: Higher Education: Students at the heart of the system (June 2011) page 54 Back

61  Q 430 Back

62  Institute for Fiscal Studies, Government proposals for higher education would squeeze high earners less and cost the taxpayer more, (November 2010) (http://www.ifs.org.uk/publications/5354 Back

63  Higher Education Policy Institute The Government's proposals for higher education funding and student finance: an analysis (14 December 2010) Back

64 Higher Education Policy Institute The Government's proposals for higher education funding and student finance: an analysis (14 December 2010) Annex 2 paragraph 27 Back

65 Q 668 Back

66 Ev 174 Back

67 HC Deb, 12 October 2010, col 161 Back

68   HC Deb, 12 October 2010, col 165 Back

69 Higher Education Policy Institute Higher Education: Students at the heart of the system -an Analysis of the Higher Education White Paper (August 2011) paragraph 26 Back

70 Higher Education: Consultation on potential early repayment mechanisms for student loans (BIS, June 2011) page 3 Back

71  Department for Business, Innovation and Skills Higher Education: Consultation on potential early repayment mechanisms for student loans (June 2011) page 4 Back

72 Department for Business, Innovation and Skills Higher Education: Consultation on potential early repayment mechanisms for student loans (June 2011) page 4 Back

73  Martin Lewis The Seven Deadly Sins of Early Repayment Penalties (22 March 2011) and CentreForum Early repayment of student loans: should government impose early repayment penalties? (September 2011) Back

74  CentreForum Early repayment of student loans: should government impose early repayment penalties? (September 2011) Back

75  Q 680 Back

76  Cm 8122, paragraph 2.12  Back

77  Part-time students will not have access to maintenance loans or grants, though they may of course have greater flexibility to "earn and learn" by working alongside their studies. Tuition fee loans to part-time students become due for repayment from the third April after the student commenced their studies, whether or not the student has completed the course. This means that repayments may begin while the student is still studying - if he or she is also earning over £21,000 per year. Back

78  The headline figure is the maximum maintenance loan available. The figure in brackets shows the non means-tested element, which is available to all students regardless of household income.  Back

79  Middle-class students fall victim to the great grant and fees squeeze (14 April) Daily Mail page 24 Back

80  www.studentfinance.direct.gov.uk/portal/page?_pageid=153,4680136&_dad=portal&_schema=PORTAL Back

81  www.bis.gov.uk/policies/higher-education/students/student-finance  Back

82  Q 131 Back

83  Qq14, 183, 615 Back

84  National Union of Students Accommodation costs survey 2009-10 page 10 Back

85  Ev 217 Back

86  Ev w11 and w13 Back

87  Cm 8122, paragraph 4.10 Back

88  Department for Business, Innovation and Skills, A New Fit-For-Purpose Regulatory Framework for the Higher Education Sector: Technical consultation (August 2011) Back

89  Q 724 Back

90   Ev 293 Back


 
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Prepared 10 November 2011