HE funding in England: implications for students, universities and the government

Transcription

1 HE funding in England: implications for students, universities and the government Claire Crawford University of Warwick and Institute for Fiscal Studies

2 Young full-time HE participation in Great Britain has risen dramatically over the last 50 years Sources : Elias P. and Purcell K. (2004) The Earnings of Graduates in their Early Careers, Warwick Institute for Employment Research, Figure 1; : Department for Business Education and Skills (2014) Participation rates in higher education: academic years 2006/ /2013 (Provisional), 24 August, Tables 1, A and B.

3 Perhaps unsurprising that as student numbers have risen, funding per student has fallen Source. Wyness, G. (2010), Policy changes in UK higher education funding, Department of Quantitative Social Science Working Paper 10-05, UCL Institute of Education.

4 Challenge for governments: how much to subsidise HE and how best to deliver this subsidy Why should governments subsidise HE? Efficiency reasons: HE delivers positive externalities (e.g. more productive workforce) To overcome market failures, e.g. credit-constraints Equity reasons: Because HE delivers private returns and if there are differences in access by socioeconomic background, this will perpetuate social inequalities Does this mean 100% subsidy? Graduates on average earn more and therefore pay higher taxes But they are also benefitting from a service to which not everyone has access and from which they derive personal benefit What is the right balance between public and private contributions?

5 How is HE funded in England? Since the late 1990s, those who go to university have been asked to make increasing contributions to the cost of their education Upfront (but means-tested) fees of 1,000/year introduced in 1998 Fees rose to 3,000/year in 2006 and were subsequently increased in line with inflation; paid by all students but no longer upfront Maximum fees rose to 9,000/year in 2012 and cap has stayed there since At the same time teaching grants paid directly from government to universities have fallen; only clinical and lab-based years funded now

6 What about student support? England is relatively unusual in offering students financial support to help cover living costs as well as tuition fees Grants Those with family income of up to 25,000/year are entitled to the maximum grant which was expected to reach 3,489 in % of students receive this, with 16% receiving a partial grant Loans All students are entitled to borrow some money from the government Students with family income of around 43,000/year can borrow the most up to 5,912 per year for a student living away outside London Amounts are higher in London; lower for those living at home

7 England s HE funding system in summary Tuition fee loans maintenance loans, maintenance grants Government Teaching grants Loan repayments Tuition fees Students Graduates Scholarships and bursaries Universities

8 Institute for Fiscal Studies England s 2012 reforms

9 England s HE funding system: vs Fees Max 3,375 Deferred via fee loan No exemptions Maintenance grants Up to 2,906, plus bursaries Up to 3,250 Maintenance loans Up to 4,950 Up to 5,500 Max 9,000 Deferred via fee loan Partial fee waivers for poorest students Loan repayment 9% of earnings above 15,795 in 2012 (uprated with inflation) Interest rate = RPI + 0% Debt write off after 25 years 9% of earnings above 21,000 (in 2016) (uprated with earnings) Interest rate = RPI + 0% rising to RPI + 3% for income of 41,000+ Debt write off after 30 years

10 Implications for universities: more funding 60.0% Percentage increase in funding per student between 2011 and 2012 for 90 largest universities in England 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Institute for Fiscal Studies

11 Implications for students: higher debt 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Average real student debt at graduation under old ( ) and new ( ) systems (in 2014 prices) 11,807 29,838 12,947 14,198 Old system Maintenance debt Fee debt New system Source. Crawford, C. and Jin, W. (2014), Payback Time? Student Debt and Loan Repayments: What Will the 2012 Reforms Mean for Graduates?, Report No. R93, Institute for Fiscal Studies, London

12 Implications for graduates: lower annual repayments, but made for longer... 2,000 1,800 1,600 1,400 1,200 1, Average real annual repayments over the life cycle (in 2014 prices) Age Old system, mean repayment Old system, median graduate New system, mean repayment New system, median graduate Source. Crawford, C. and Jin, W. (2014), Payback Time? Student Debt and Loan Repayments: What Will the 2012 Reforms Mean for Graduates?, Report No. R93, Institute for Fiscal Studies, London

13 ... meaning higher total lifetime repayments for most (although not for the poorest) 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Net present value of total real repayments and as a share of real NPV lifetime earnings across distribution of graduate lifetime earnings (in discounted 2014 terms) All Decile of graduate lifetime earnings Old system New system Old system, %, right axis New system, % 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Source. Crawford, C. and Jin, W. (2014), Payback Time? Student Debt and Loan Repayments: What Will the 2012 Reforms Mean for Graduates?, Report No. R93, Institute for Fiscal Studies, London

14 Most graduates are not expected to repay in full, meaning for many it s like a graduate tax 100% % of graduates with real debt write-offs across distribution of graduate lifetime earnings 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% All Decile of graduate lifetime earnings Old system New system Source. Crawford, C. and Jin, W. (2014), Payback Time? Student Debt and Loan Repayments: What Will the 2012 Reforms Mean for Graduates?, Report No. R93, Institute for Fiscal Studies, London

15 Implications for the government: better off? Discounted, 2014 prices % change Total funding per graduate 40,922 47,435 16% Sources of funding Taxpayers (% of total) 25,847 (63%) Of which loan subsidy (%) 9,094 (37.6%) Graduates (% of total) 15,075 Recipients of funding (37%) 24,592 (52%) 17,443 (43.3%) 22,843 (48%) 5% 92% 52% Universities 22,143 28,250 28% Students 18,779 19,185 2% Source. Crawford, C., Crawford, R. and Jin, W. (2014), Estimating the Public Cost of Student Loans, Report No. R94, Institute for Fiscal Studies, London

16 Implications for the government: better off? An aside on the accounting treatment of grants and loans Grants count towards borrowing (and departmental spending) Loans increase public debt, but only debt interest and any loan writeoffs made at the end of the repayment period affect borrowing These reforms increased upfront spending on HE, but reduced government borrowing and BIS s departmental spending Estimates of future loan write-offs (extent of government subsidy of loan system) accounted for using the RAB charge Receives high profile media attention, but is hugely uncertain... Institute for Fiscal Studies

17 Sensitivity of the RAB charge to earnings growth Long-run real earnings growth assumption Average loan subsidy Total loan subsidy for intake of 300,000 students 1% per year 51.6% 20,806 6,242m 0% per year 46.8% 18,859 5,658m 1% per year 43.7% 17,596 5,279m Baseline (1.1% per year) 43.3% 17,443 5,233m 2% per year 40.0% 16,121 4,836m 3% per year 36.7% 14,795 4,439m Institute for Fiscal Studies Source. Crawford, C., Crawford, R. and Jin, W. (2014), Estimating the Public Cost of Student Loans, Report No. R94, Institute for Fiscal Studies, London

18 Sensitivity of the RAB charge to discount rate Assumed government cost of borrowing (discount rate) Average loan subsidy Total loan subsidy for intake of 300,000 students Baseline (2.2%) 43.3% 17,443 5,233m 1.1% 30.5% 12,434 3,730m 3.5% 55.0% 21,839 6,552m Institute for Fiscal Studies Source. Crawford, C., Crawford, R. and Jin, W. (2014), Estimating the Public Cost of Student Loans, Report No. R94, Institute for Fiscal Studies, London

19 Institute for Fiscal Studies What happened to participation?

20 Little evidence that full-time participation has fallen, even amongst the poorest potential students 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Q1 (20% lowest participation areas) Q2 Q3 Q4 Q5 (20% highest participation areas) Source: UCAS End of Cycle Report 2014, Figure 74 (2006 onwards) and 2013 Report Figure 56 (2004-5, adjusted by ratio of 2006 figures in 2014 report to those in 2013 report)

21 But might the gap have fallen further in the absence of the reform? 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% % pupils getting 5 A*-C grades in GCSEs and equivalents FSM Non-FSM Difference (RH axis) 35% 30% 25% 20% 15% 10% 5% 0% figures based on SFR 04/2013: GCSE and Equivalent Attainment by Pupil Characteristics in England figures based on SFR 37/2010: GCSE and Equivalent Attainment by Pupil Characteristics in England figures based on authors calculations using Key Stage 4 and PLASC data.

22 Part-time participation has fallen substantially Source: Higher Education Student Enrolments and Qualifications Obtained at Higher Education Providers in the United Kingdom 2013/14, HESA SFR 210

23 Especially for courses other than first degrees Source: Trends in university recruitment 2014, Universities UK

24 Institute for Fiscal Studies What does the future hold?

25 More students at university? Until , universities faced limits on the no. of undergraduate students they could recruit... but now the cap has been lifted Government predicted up to 60,000 more students would enter How much this increases the cost of HE depends on how likely the new students are to repay their loans If the extra students are similar to the current graduate population... the bottom 25% of graduate lifetime earners... the bottom 50% of graduate lifetime earners... the bottom 75% of graduate lifetime earners Average loan subsidy per extra student Total loan subsidy for extra 60,000 students Total taxpayer contribution for extra 60,000 students 17,443 1,047m 1,476m 33,514 2,011m 2,455m 28,275 1,697m 2,126m 22,564 1,354m 1,780m Source. Crawford, C., Crawford, R. and Jin, W. (2014), Estimating the Public Cost of Student Loans, Report No. R94, Institute for Fiscal Studies, London

26 More changes to the HE funding system Government made several announcements in the July budget From , maintenance grants for the poorest students will be scrapped and replaced with slightly higher maintenance loans Poorest students will now graduate with the largest debts And pay back more than they would have done under the old system But they will have slightly more cash in pocket whilst at university

27 Implications of switching from grants to loans What implications does this have for government finances? Upfront support rises by around 340m per cohort Debt rises but borrowing falls in the short-run Whether or not the government saves money in the long-run depends on how much of the new (larger) loans are repaid We estimate they will receive around 600m more in loan repayments, hence saving around 270m (3%) in the long-run Institute for Fiscal Studies

28 What else might be down the road? The government is also consulting on three other proposals: Freezing the threshold above which loan repayments start to be made for five years from 2016 Extracts higher repayments from low to middle income graduates Graduate contribution estimated to increase to 62% if implemented Allowing universities with high teaching quality to increase fees in line with inflation from 2017 onwards Higher fees likely to mean higher write-offs (though more resources for universities) Reducing the discount rate attached to student loan repayments in government accounts from RPI+2.2% to RPI+1.1% No change in actual repayments, but means future repayments valued more highly today Affects perception of the value for money of the system only Institute for Fiscal Studies

29 How similar is the system to a graduate tax? With many graduates likely to have some debt being written off, system is similar in many respects to a (hypothecated) graduate tax If moved to a system with a minimum repayment period instead, then would extract very high repayments from highest earners Potentially problematic if these individuals can opt out of system 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 NPV of repayments, default 2012 system versus 35-year pseudo graduate tax Poorest Richest Overall NPV repayments default (LH axis) NPV repayments graduate tax (LH axis) Institute for Fiscal Studies Source. Britton, J. and C. Crawford (2015), Estimating the Cost to Government of Providing Undergraduate and Postgraduate Education, Report No. R105, Institute for Fiscal Studies.

30 Summary Direct government subsidy for universities has been reduced, but a substantial indirect subsidy remains via student loan system Government contribution to HE (and therefore long-run cost to students/graduates) more uncertain and less transparent Depends on graduate earnings plus any changes to loan repayment terms The RAB charge has become an unhealthy focus for policy/media Government accused of getting its sums wrong when in reality changes to estimated cost of student loans resulted largely from changing graduate earnings forecasts following the recession Discourse implies RAB charge should be zero, but that would remove the majority of the government subsidy of undergraduate teaching Is that what the government wants? Unclear: no real discussion

31 Concluding thoughts Andreas Schleicher (OECD) regards the English system as the most scalable and sustainable approach to university finance Subsidises those with lowest private returns the most, i.e. arguably targets those who might otherwise not continue into HE If another government were to consider implementing a similar system, then the potential downsides would be: The system is complicated; makes sensible public discourse difficult Extent of government subsidy uncertain (and not very transparent) There is no incentive for universities to charge less than the fee cap: the government guarantees loans and takes all the risk of non-repayment May potentially damage (part-time) participation

32 Institute for Fiscal Studies Additional slides

33 Support per year before and after the reform 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Parental income Loans, baseline system Total support, baseline system Grants, baseline system Total support, new system Source: Britton, J., C. Crawford and L. Dearden (2015), Analysis of the higher education funding reforms announced in Summer Budget 2015, Institute for Fiscal Studies, London.

34 Average debt on graduation from a 3 year course 60,000 50,000 40,000 30,000 20,000 10, ,500 7,500 12,500 17,500 22,500 27,500 32,500 37,500 42,500 47,500 52,500 57,500 62,500 67,500 72,500 Baseline system New system Source: Britton, J., C. Crawford and L. Dearden (2015), Analysis of the higher education funding reforms announced in Summer Budget 2015, Institute for Fiscal Studies, London.

35 Average NPV repayments Expected average NPV repayments (2016 money) 30,000 25,000 20,000 15,000 10,000 5, Average Decile of family income Baseline system New system Source: Britton, J., C. Crawford and L. Dearden (2015), Analysis of the higher education funding reforms announced in Summer Budget 2015, Institute for Fiscal Studies, London.

36 Expected average NPV repayments by decile of graduate lifetime earnings (2016 money) 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Poorest Richest Overall Baseline system Revised (no grants) No grants + threshold freeze No grants + threshold freeze + uprated fees No grants + threshold freeze + uprated fees + discount rate of RPI+1.1% Institute for Fiscal Studies Source: Britton, J., C. Crawford and L. Dearden (2015), Analysis of the higher education funding reforms announced in Summer Budget 2015, Institute for Fiscal Studies, London.