Why students should pay more

It may be thought a sad comment on the muddled and ill-informed state of contemporary political debate that new Labour's most redistributive and social democratic policy is the one that has attracted most odium from the left. But ministers have only themselves to blame: they bungled the presentation and some of the detail. Soon after taking office in 1997, they began to dismantle the system by which middle-class young people got a taxpayers' subsidy of £10,000 upwards so that they could make themselves richer. Students, the government announced, would no longer get a university degree - which leads to lifetime earnings estimated at 10-20 per cent higher than they would otherwise get - absolutely free of charge. Instead, they would pay fees of £1,000 a year, equivalent to about a quarter of the true costs of their courses. The negative headlines have pursued them ever since. Poor students, we are told, have been deterred from entry. Students face the burden of debt for a lifetime. Those true socialists in Scotland have blazed a trail by abolishing fees.

It is all nonsense. Poor students do not have to pay fees: a means test, in fact, exempts half of all students in higher education, and another 15 per cent do not have to pay the full amount. Repayments on loans - available at subsidised rates of interest for both fees and living costs - depend entirely on the graduate's earnings: no income, no payment and, therefore, no problem (to dispose of the most usual grouses) if he or she wants to enter religious orders or help the developing world. The Scots have not abolished fees at all; they have merely arranged for them to be paid in a different way (after graduation) and given them a nicer name (endowments), and they actually have fewer exemptions for the poor. True social democrats should applaud the policy of the London government: fees fall most heavily on the affluent, notably those who, after spending anything between £4,000 and £15,000 a year on an independent school that will more or less guarantee their child a place at university, then have the cheek to complain about paying £1,000 a year.

Many of the details are wrong: for example, the income threshold at which loan repayments start (£10,000 a year) is far too low, and the provisions for deprived students to receive non-repayable grants for living costs are inadequate. But the main criticism of the policy - and one now being made by a committee of MPs - is that it does not go far enough. If anybody suggested that the state should give Old Etonians (including Prince William) gifts worth £10,000 when they reach their 18th birthdays, it would be treated as a joke. But that, in effect, is the minimum they get in subsidies when they start university. Students should be charged higher fees (if they come from homes that can afford them) and their loans should incur interest at something closer to commercial rates.

If the aim of the subsidies is to keep the door open to the working classes - rather than, as one suspects, to keep middle-class swing voters happy - then they are remarkably inefficient. Once they have got A-levels, students from poor homes are nearly as likely as their middle-class classmates to go to university. The poor drop out at 16, not 18 (the affluent are four times more likely to carry on and get two A-levels); yet, for the years immediately after compulsory education, they have automatic access to neither grants nor loans. Experiments with education maintenance allowances for members of this age group show that the money has a significant effect - on the chances both that they will start a course and that they will complete it. The allowances should now be made available nationwide. That should be the spending priority, as should more investment in the further education colleges that provide (among other things) the plumbers, electricians and computer technicians of the future (see John Kampfner, page 8). The media and the politicians fuss about new Labour's failure to meet its target for 50 per cent of young people to enrol in higher education. The failure to meet a target of 700,000 extra students in the further education colleges - enrolments have actually gone down - is hardly noticed. Moreover, most college students over 19 have always been charged fees, but without the grants or subsidised loans to help them out.

The tricky problem for ministers is whether they should agree to allow some universities to charge higher fees. University claims of penury, and of a declining quality of teaching and learning, should always be treated with suspicion: as a recent report from the Institute for Public Policy Research points out, drop-out rates have hardly increased, and student numbers have doubled over the past decade or so. But this is not to deny that low pay and over-large classes may increasingly deter able graduates from taking up university posts (though the mind-numbing paperwork that government bodies impose may be more important than either), and that, without extra funding, the leading universities' ability to compete internationally may be damaged. So the case for allowing the likes of Oxford, Cambridge, Bristol and London to charge students extra is powerful. After all, degrees from elite universities are worth even more in enhanced earnings than those from lowlier institutions. Will higher charges reduce state school and working-class entrants to Oxbridge even further? No. If students from poor homes were exempted, they might actually increase in number, as some from richer homes were deterred by the cost. In this and other respects, the left should press new Labour to forge ahead: higher fees, higher interest rates on loans, more means-tested exemptions for the poor. It goes against many old Labour instincts; but sometimes, it's good to be new.

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