Higher student fees costing government billions

The current university fees structure has been slammed as “unsustainable” by an independent study into higher education in the UK.

The rise in tuition fees to £9,000 a year means that student debt is now so high compared to average salaries, that almost three-quarters of graduates (73%) will not pay off their debt within 30 years, after which it is written off by the government.

The report, by the Higher Education Commission, warns that this is creating a funding “black-hole” worth billions of pounds, which the government is eventually forced to cough up for.

According to the Institute for Fiscal Studies, the average student debt will be £44,015 – a higher figure than even the average student in the US has to grapple with.

Students begin to pay off their debt once they begin to earn over £21,000, but the amount they pay back will only cover the interest payments, and not even reduce the loan figure itself, until they are earning in excess of £51,000 a year.

The interest rates are the highest in Western Europe.

As a result, most recipients of student loans will never pay back the full figure.

Universities are getting a bad deal too. The fixed fee cap of £9,000 means that, since the measures were implemented by the coalition government in 2010, inflation has impacted universities’ income in real terms.

According to the Independent, the £9,000 cap introduced in 2010 is now worth the equivalent of £8,250, meaning that universities are struggling with reduced budgets in real terms.

The Commission warned that the system was “the worst of both worlds” for government, students and the universities.

“We have created a system whereby everybody feels they are getting a bad deal,” the report says.

It adds: “This is not sustainable. The government is funding higher education by writing off student debt, as opposed to directly investing in teaching grants.

“Students feel like they are paying substantially more for their higher education, but are set to have a large proportion of their debt written off by the government.

“Universities are perceived to be ‘rolling in money’ in the eyes of students, as their income from tuition fees has tripled, yet the cuts to the teaching grant are not well understood by students and a fixed fee cap means an annual erosion of real terms income.”

In addition, the end of a cap on the numbers of students which universities are allowed to take on could have a detrimental impact on the sector. Those under financial pressure may take on more and more students. Meanwhile less popular universities may struggle to find enough students and end up taking on unsuitable candidates, for whom risk of failing to complete the course is a serious problem for those institutions.

The report warns: “Institutional failure would have a direct impact on the sustainability of the rest of the sector: if any institution were to fail there would be significant reputational damage to the whole sector.”

Conservative peer Lord Norton of Louth, who is also professor of Government at Hull University, and Dr Ruth Thompson, a former director general of Higher Education at the Department for Business, Innovation and Skills, jointly chaired the inquiry.

The Commission was created to better understand the issues in higher education. The latest report examined the sustainability of the financial arrangements for England’s universities, taking evidence from 60 expert witnesses.

Lord Norton said: “Striking the balance of contribution between students, universities and government is fraught with difficulty.

“What is clear is that the current balance is far from assured.”

A spokesman for the Department for Business, Innovation and Skills said the government would “look closely at the findings from the commission”, the BBC reports.

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Readers' comments (1)

  • Of course no one is asking the question should all these 'students' be at university in the first place? The idea that not having a degree makes you a failure, or less valuable is just rubbish and 'wasting 3 years on a pointless degree is just that, pointless!

    On the other hand government should be helping students obtain degrees in subjects that we need - Science, Technology, Engineering and Mathematics/Medicine (STEM) subjects. To those students we should be giving free tuition and support grants. With grants for non-STEM subjects to the top students (media studies doesn't count!).

    For others apprenticeships and work related qualifications is the way to go, with opportunities for lifelong learning.

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