- Recent reforms to higher education funding in England have reduced long-run costs to the government while increasing university funding by around 25%, though largest increases were in lower-cost subjects. - The reforms have meant that high-earning graduates pay back more over their lifetimes while the poorest students actually accumulate the highest levels of debt. - While income-contingent loans are designed to avoid problems with traditional loans, the system has become very complicated and is misunderstood by many. Some policy decisions also appear driven more by accounting rules than long-term costs and benefits.

1. Still fees-ible? The future and funding
of higher education in England
Bruce Chapman, Professor of Economics,Australian National University
Lorraine Dearden, Research Fellow, Institute for Fiscal Studies
Andrew Adonis, Chairman, National Infrastructure Commission
Bill Rammell,Vice-Chancellor of the University of Bedfordshire
David Willetts, Executive Chair, Resolution Foundation
Chair
Heather Stewart, Joint Political Editor,The Guardian
@resfoundation #feesdebate
Wifi: 2QAG_guest p: W3lc0m3!!
1

2. The Baby and the Bathwater: a view
from Down Under
Bruce Chapman
College of Business and Economics
Australian National University, and
Centre for Global Higher Education
Still fees-ible? The future and funding of higher education in England

3. Outline
• Motivation and theory
• The importance of ICL in an international context
• Some tentative reflections on the English debate
• The plea from a convict colony

4. 1 Motivation and Theory
(i) The case for a tuition charge (see Marx, K.)
(ii) The need for a student loan system
(iii) Time-based versus ICL
(iv) With ICL there is consumption smoothing and
default protection
(v) To stress: the UK has this right

5. “ If … higher education institutions are also “free”,
that only means in fact defraying the cost of
education of the bourgeoisie from the general tax
receipts..”
Karl Marx, Critique of the Gotha Program, 1875

6. 2 The importance of ICL in an
international context
(i) “Free” higher education in Western Europe is generally
regressive and unfair
(ii) Time-based loans systems have major problems for
debtors: consumption hardship and default in all these
countries
(iii) Repayment burdens in non-ICL countries can be
horrendous: examples from the US and Colombia
(iv) The UK ICL is great insurance

8. TBRL

9. ICL

10. 3 Some tentative reflections on the English
debate
• It’s so complicated!
• Tuition charges are extremely high in an international context
• The interest rate regime is hard to understand and likely poor policy
with compounding interest rates
• But the essence is good economics

11. 4 The plea from a convict colony
(i) Recognise the equity case for a tuition charge: “Free” is
highly regressive
(ii) Value the English ICL template: it is correct and fair
(iii)Working on design issues within the template is the way
forward
(iv) Babies matter, bathwater can be easily changed

12. Still fees-ible? The future and funding
of higher education in England
Bruce Chapman, Professor of Economics,Australian National University
Lorraine Dearden, Research Fellow, Institute for Fiscal Studies
Andrew Adonis, Chairman, National Infrastructure Commission
Bill Rammell,Vice-Chancellor of the University of Bedfordshire
David Willetts, Executive Chair, Resolution Foundation
Chair
Heather Stewart, Joint Political Editor,The Guardian
@resfoundation #feesdebate
Wifi: 2QAG_guest p: W3lc0m3!!
12

13. Lorraine Dearden
UK Higher Education Finance

14. Key Findings
Recent reforms have resulted in:
• reduced long run costs to government
• saved the government money at a cost to high earning
graduates
• have increased university funding by around 25%, but the
largest increases have been in low-cost subjects
• Student ‘debt’ being highest for those from poorest
backgrounds

15. Government cost of providing Higher Education
£0
£2
£4
£6
£8
£10
£12
£14
£16
£18
£20
Upfront cost Long-run cost Contribution to deficit
Costpercohort
(Billions,2017prices)
2011 system 2012 system 2017 system
Source: Table 2.3 of “Higher Education Funding in England: Past, Present and Options for the Future”
Recent reforms have not reduced the upfront government outlay, but they have
reduced the long-run cost due to increased graduate contributions.
The largest impact was on reducing the deficit as student loans are not included in
deficit spending

16. Reforms have significantly increased the repayments on high
earnings graduates with a smaller impact on lower earners
£0
£20,000
£40,000
£60,000
£80,000
£100,000
Averageexpectedlifetime
repayments
(2017prices,notdiscounted)
Decile of graduate earnings
Sources: Figure 3.3 of “Higher Education Funding in England: Past, Present and Options for the Future”
2011 system
2017 system

17. Reforms since 2011 have increased in funding by around 25%, but
there were larger increases for low cost subjects
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Band A Band B Band C Band D
Impactofreformssince2011
onuniversityfundingper
student
Subject cost group
Source: Table 4.1 of “Higher Education Funding in England: Past, Present and Options for the Future”
The growth in tuition fee income increased funding for all subjects, but low cost
subjects (with no laboratory element) which are less dependant on teaching grants
benefited the most

18. £0
£10,000
£20,000
£30,000
£40,000
£50,000
£60,000
£70,000
Poorest 2 3 4 5 6 7 8 9 Richest Average
Decile of parental income
2011 system 2012 system 2017 system
Source: Table 3.1 of “Higher Education Funding in England: Past, Present and Options for the Future”
Reforms have mean poorest students have largest debts

19. General Comments
1. Income contingent loans are not like normal loans and a lot of the
negative headlines based on misunderstanding as system too complicated
• Higher interest rates do not increase repayments (cf normal loans) but increase duration for
highest earners and reduce taxpayer costs
‒ Are high compared to market rates – problem for finances if high earning graduates pay
back early (government loses money)
• Compound interest applied during HE not understood – bad press
• Poorest students having highest debt not good economics and likely to affect participation
• Universities can charge maximum fees as neither they, nor the student, bear the cost if
student fails/does poorly in labour market – not cartel but rational behaviour

20. 2. Some decisions regarding HE funding appear to be driven by
government accounting rules rather than long terms costs and benefits
• Abolishing maintenance grants and reducing teaching grants saves money in the long-
run but reduces deficit spending significantly more and likely to impact on participation
• The decision to sell the student loan should be based on the long-run value for money
not government accounting rules.
3. During 1990s when ‘free’ HE and participation was increasing
• There was a significant decline in HE funding per student
• HEIs in Scotland and Ireland grappling with this problem at the moment
• For best SES outcomes HE needs to be free at point of access but not ‘free’
4. Policy impact on post-18 education decisions is not neutral as the same
student finance is not available for FE courses/other education routes
• Highly likely bad choices being made by students because of this

21. Still fees-ible? The future and funding
of higher education in England
Bruce Chapman, Professor of Economics,Australian National University
Lorraine Dearden, Research Fellow, Institute for Fiscal Studies
Andrew Adonis, Chairman, National Infrastructure Commission
Bill Rammell,Vice-Chancellor of the University of Bedfordshire
David Willetts, Executive Chair, Resolution Foundation
Chair
Heather Stewart, Joint Political Editor,The Guardian
@resfoundation #feesdebate
Wifi: 2QAG_guest p: W3lc0m3!!
21