May blinks on loans and fees

Last Sunday saw Conservative leakers floating several options regarding the reform of English HE financing; today sees Theresa May confirm what has been clear for months: that planned rises to the maximum tuition fee have been shelved beyond £9250pa for the time being. More promising for borrowers is the pledge to increase to increase the repayment threshold from £21 000 to £25 000pa (and apparently to index the threshold to average earnings thereafter). This benefits the majority of borrowers in the near term – immediately saving a maximum of £30 per month for those earning over the new threshold . In the long run, this should benefit almost all, though very high earners may have a complicated decision to make about voluntary additional repayments (the trade-off between avoiding RPI +3pp interest and losing the ‘insurance’ features of ICR loans).

Unfreezing the repayment threshold undoes some  of the damage inflicted by Osborne in 2015. But it is much harder to restore public goodwill towards the fee-loan regime. All this chopping and changing serves to remind people that income contingent loans are also policy contingent and that an individual – May – can apparently make major alterations to the scheme for what ultiamtely are reasons of political contingency.

Can we still go through the pretence now of telling university applicants what they are likely to repay? We’ve barely got through 2 years of loan repayments and the scheme has been changed twice; loans last roughly 35 years.

Critically, what leaves you on the hook to future policy changes is the graduating debt. It becomes very hard to ignore the debt (plus interest the accruing) and focus on the lower mandatory monthly repayments today. This uncertainty for borrowers needs to be reduced and that imperative shouldn’t be overlooked when cheering the real benefits to post-2012 borrowers this announcement brings.

And, of course, that last point only focuses the political optics: how does this compare to Labour’s offer? May has targeted existing and new borrowers; Labour’s election pledge is now on offer to future students.

Creditworthiness

There is also to be a fundamental review. One which will apparently tie course funding to graduate outcomes. I’ve been writing about the shift to a system based on creditworthiness of institutions and borrowers for a few years now (a pithy outline can be found as a chapter in the new book, The Death of Public Knowledge). We used to fund HE on the basis of cost of deliver; we are edging towards one explicitly built on likely ability to repay loans (and at the same time contribute to central coffers through higher income tax).

What that might mean for a review isn’t straightforward, since the government has been attempting to reconcile two incompatible features: competition of price and quality funded by an ICR loan scheme that mimics a graduate tax. The loan scheme means that the headline fee is not a price.

Imposing differential course funding admits that the original market reforms were misguided. This could be done in two ways – by setting out a schedule of maximum tuition fees (e.g. against benchmarked targets for earnings outcomes rather than old-style Hefce banding) or by limiting the amount that the SLC is prepared to lend to different courses.

I would expect attention to be paid to the latter: it won’t make HE funding less complex, but would sidestep issues around institutional autonomy and would allow institutions to seek alternative financing arrangements for their students (or move to a model seen in the US where high sticker prices are only paid by some, who fund fee waivers for others).

(If you had stakes in TEF, I’d be making a SELL recommendation).