Treating Students Fairly: The Economics of Post-School Education Contents

Key recommendations

This report sets out a package of reform to post-school education. Our key recommendations are:

Other post-school options need more funding

Funding for post-school education is too heavily skewed towards degrees. At present, each undergraduate attracts £9,250 a year for the university, underpinned by the availability of student loans. Funding for other options is less generous and confusing. There should be a better distribution of public funding across all forms and institutions in higher and further education. To assist with this, there should be a single regulator for all higher education (Level 4 and above) and a single regulator for other post-school education (Level 3 and below). This new regulator for Level 3 and below should have equivalent status to the Office for Students, and have sufficient resources and credibility to champion further education (see Chapter 4).

Reversing the decline of part-time and flexible learning

The decline in part-time learning in higher education is a result of restrictions around accessing loans, for students who already have a degree, the raising of tuition fees in 2012 and the lack of maintenance support for part-time students (which will be available from 2018/19). Similar funding restrictions have also led to a decline in part-time study in further education. To halt the decline of part-time and flexible learning, we recommend the introduction of a credit-based system whereby people can learn in a more modular way and at their own pace (see Chapter 5).

Apprenticeships

The Government’s target of three million apprenticeships has prioritised quantity over quality, and should be scrapped. The lack of clear accountability for the delivery and quality of apprenticeships is unacceptable. Despite the introduction of the apprenticeship levy, the UK is still a long way away from the effective apprenticeship system needed. The levy has encouraged the rebadging of training activity, most notably MBAs, that should not be funded or described as an apprenticeship. It is also concerning that over half of training providers for apprenticeships were recently rated inadequate or required improvement in a recent Ofsted inspection. The Government must renew its vision for apprenticeships, concentrating on the skills and choices that employers and individuals really need. An apprenticeship should be a method by which a young person, or new entrant to an industry, develops skills whilst working.

The Institute for Apprenticeships should be abolished. The quality and outcomes of Level 2 and 3 apprenticeships should be the responsibility of the new further education regulator; the quality and outcomes of Level 4 and above apprenticeships should be the responsibility of the Office for Students (see Chapter 6).

The national accounts mask the true cost of higher education

Debate over post-school education funding is hampered by the treatment of student loans in the public accounts. The accounting masks the public subsidy going into higher education by delaying its appearance in the deficit: the Government expects that around half of the value of student loans being issued currently will never be paid back, but these write-offs will not appear in the deficit for over thirty years. A recognition of the write-offs in public spending at the time the loans are made would allow for a better discussion of where public money in post-school education should be directed.

The Office for Budget Responsibility estimated in January 2017 that the student loan book would be worth 11 per cent of GDP in the late-2030s, an increase from around 5 per cent of GDP in 2017/18. They predicted this would fall back to around 9 per cent of GDP by 2066/67. The Department for Education have forecast that the total student loan book will be worth £1.2 trillion in nominal terms (£473 billion in 2018/19 values) by 2049/50 (see Chapter 10).

Reforms to student loans and a widening of maintenance support

The national accounting appears to be responsible for the high level of interest charged on student loans: the accrued interest on student loans is counted as income, despite the fact the vast majority of this interest is expected to be written-off (the income from accrued interest on student loans will be worth £7.5 billion by 2021/22). The Government claims the high interest rate makes the system progressive but it is middle-earning graduates who end up paying the most back in real terms. We call for the interest rate to be reduced to the level of the 10 year gilt rate (currently around 1.5 per cent) from the current rate of RPI plus 3 per cent.

Maintenance support for students is also inconsistent across the different forms of higher education. The switch to maintenance loans from maintenance grants in 2016 will mean poorer students graduate with the largest debt. The same maintenance support should be available for all higher education students. The means-tested system of loans and grants that existed before 2016 must be re-instated, and total support increased to reflect the true cost of living. The change would lead to £1.7 billion more public spending today. However, in the long-run grants increase public spending only by £400 million. This is because under the current system, the vast majority of students do not pay off their student loans fully over the 30 year term, so much of the outlay in loans will be written off (see Chapters 8 and 9).





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