Students protest the rise in tuition fees. Labour is expected to pledge a reduction from £6k to £9k
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Student politics: The future of tuition fees and higher education debt

Dismissing Labour's tuition fees policy as mere populism is a mistake -  there is a serious debate to be had about tuition fees

There is a serious debate to be had about the sustainability of a student finance system that significantly increases public debts and shunts extensive repayment risks and loan subsidy costs into the future.

Higher education policy has been unusually controversial and contested in the last two decades. The old model of setting up a royal commission and then implementing its recommendations over a generation – the prime example of which was the Robbins report in the 1960s – has given way to the choppier, more fraught politics of recent tuition fee reforms. The Dearing review in the mid-1990s was the last attempt to get establishment agreement to an enduring package of policies, and it was hardly implemented at all in its original form. The expansion of higher education, and its centrality to the life chances of the broad mass of the middle class, has brought university policymaking into the mainstream of politics, with all the messiness that democratic politics entails.

So complaining that Labour has chosen a tuition fee policy that is designed to appeal to young voters is a bit beside the point. Cutting tuition fees may not be a good policy – if I had upwards of £2bn to spend on any policy, I would direct it into early-years education and childcare, not a reduction in tuition fees – but Labour can hardly be blamed for acting politically (though the handling of it is another matter entirely).

Yet simply regarding Labour’s policy as short-term populism would also be a mistake. There is a serious debate to be had about the sustainability of a student finance system that significantly increases public debts and shunts extensive repayment risks and loan subsidy costs into the future. The Coalition’s reforms have been very successful at increasing funding for universities, protecting fair access and upholding student numbers (with the significant exception of part-time students, whose numbers have fallen dramatically), while at the same time cutting public spending. But these goals have been achieved in part because the government treats loans to students as cash transactions that do not appear in departmental spending totals, while the bulk of the write-down in subsidised and unpaid loans (the so-called RAB charge) only starts to make a big dent in future years, when cohorts of graduates enter repayment status.

Therefore, if you want to cut tuition fees in the next few years without reducing universities’ resources, you need to increase public spending on teaching grants, shifting back from a cash loan to departmental spending (and raise taxes or cut spending elsewhere to do it). Yet, simultaneously, if you cut fees then you also reduce government borrowing and its debt liabilities, and increase the loan repayment rate, reducing the RAB charge. As the government’s debts, rather than the deficit, become more politically important in the second half of the next parliament, so too will these policy considerations. In other words, the sustainability of the existing student finance system will become a more pressing concern.

A quick way of reducing the RAB charge would be simply to lower the repayment threshold. But that will appear distributionally regressive, since it will take more repayments from lower-earning graduates, which is why no party can propose it. In fact, as modeling undertaken for IPPR’s Commission on the Future of Higher Education showed a couple of years ago, under the existing system, the bottom four deciles of male graduate earners never repay their full loans, and only the top two deciles of female graduates actually do so. In other words, the current system is deliberately generous to graduates.

The ‘free market redux’ response to these concerns – articulated by Allister Heath and others – is to argue for a fully privatised student loan system, shifting the responsibility for issuing loans onto the universities themselves, so that they have a ‘stake’ in the earnings of their graduates. This at least has the merit of honesty: higher education would be finally reduced to nothing more than a market transaction. But it is a fiscal and political non-starter. Only a handful of universities would be able to start covering loans to their students, and risk-pooling across the whole student cohort would be lost, so borrowing costs would rise most steeply for those least able to finance their studies. The political prospect of swathes of local universities going to the wall would be enough to kill the idea, even if the middle classes hadn’t seen it off already.

It also betrays a parochialism about contemporary higher education policy debates. In the United States – usually considered the best higher university system in the world – the long-term rise in college fees and the steady buildup of student loan debt has sparked major public concern. The average cost of tuition at a public four-year college has increased by more than 250 percent over the past three decades, while incomes for typical families have grown by only 16 per cent, according to College Board and Census data. Declining state funding has required students to shoulder a bigger proportion of college costs: tuition has almost doubled as a share of public college revenues over the past 25 years from 25 per cent to 47 per cent.

The consequence is that student debts, and loan default rates, have exploded. According to a recent paper by the Federal Reserve Bank of New York: ‘Until 2009, student loans had been the smallest form of household debt. During the Great Recession, Americans reduced their other debts but continued to borrow for education, making student debt the largest category of household debt outside of mortgages since 2010. Since 2004, student loan balances have more than tripled, at an average annualized growth rate of about 13 percent per year, to nearly $1.2tn, in 2014.’

Default rates are now rising, and the federal government is being urged to step in to protect students who have been stranded with debts from for-profit college providers who have gone bust. One of these – Corinthian Colleges – was once one of the world’s largest profit-making college providers. It has now all but disappeared and a group of its former students has gone on debt strike. Meanwhile, the New York Fed study showed that the rise in student debts has started to reduce household formation rates and home ownership among the young and early middle-aged.

(All this looks remarkably like what Wolfgang Streeck, the German political economist, calls the shift from welfare capitalism to the debt state. The failure of liberal market economies to generate sustained increases in living standards, coupled with constraints on public finances and the financialisation of the economy, leads to governments and families ‘buying time’, as the title of his recent book calls it.)

This has prompted President Obama to come forward with new public subsidies for college costs, and extra help for graduates at risk of loan default. (Student loans cannot be wiped out by bankruptcy in the US, and default can have major implications for access to credit.) He has also proposed much wider dissemination of lower-cost MOOC and other digitally enabled courses, to begin to drive down college costs. This agenda is almost entirely absent from UK public discourse.

Unless you are a dyed-in-the-wool Hayekian, these developments in the US should give pause for thought. We need to find ways of making the existing student loan system more sustainable, not privatising it, and of protecting flows of resources into universities, while simultaneously finding ways of opening up lower-cost provision to expand access. The needs of part-time students – passed over in most of the commentary – should be a priority. And we shouldn’t expect politics to take a back seat while we figure it all out.

Nick Pearce is head of the IPPR, where this piece originally appeared.

Nick Pearce is Professor of Public Policy & Director of the Institute for Policy Research, University of Bath.

Photo: Getty
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The “lunatic” incident showed us the real Owen Smith: and it ain't pretty

Forget the slur - what really matters is what it says about his empty promises, says David Wearing. 

Owen Smith has embarrassed himself again. Having previously called for Labour to “smash” Theresa May “back on her heels”, advocated negotiations with ISIS, and described himself as “normal” with “a wife and three children” while competing with a gay woman to stand for the Labour leadership, you might expect him to have learnt the value of expressing himself more carefully. But no. Not a bit of it.

At a rally on Tuesday evening, Smith described Jeremy Corbyn as a “lunatic” with no “coherent narrative about what’s wrong with Britain”. It’s an interesting choice of words from someone who needs to win over tens of thousands of Corbyn’s supporters if he is to avoid a crushing defeat in this summer’s Labour leadership election. Indeed, we may look back on this as the final nail in the coffin of Smith’s campaign.

Let’s be honest. Most of us at some stage have used casual language like this (“lunatic”, “insane”), to describe those whose rationality we don’t share or understand. I’ll admit to having done so myself. But it is wrong. It perpetuates a stigma around mental illness and damages peoples’ chances of getting the care and support they need from society. We should all cut it out, especially those of us who aspire to high public office.

Beyond this, however, Smith has driven a coach and horses through the central premise of his own campaign. Throughout the summer he has presented himself as substantively agreeing with Corbyn on almost all domestic and economic issues, and only seeking to pursue that agenda more effectively and professionally. He has set out a range of policies - including a £200bn “British New Deal”, workplace rights and more redistributive taxation - that constitute an overt appeal to the social democratic, progressive values of the hundreds of thousands who joined the party to support Corbyn and secure a clean break with the neoliberalism of New Labour.

But it is simply not credible to simultaneously say “I agree with Jeremy” and that Jeremy is a “lunatic”. No one uses the word "lunatic" to describe someone whose politics they basically share. No one says “your diagnosis of the country’s ills is incoherent, and that’s the substantive agenda I want to take forward”. Smith’s remarks indicate that, deep down, he shares the incredulity expressed by so many of his colleagues that anyone would want to abandon the Thatcher-Blair-Cameron “centre ground” of deregulation, privatisation, corporate-empowerment and widening inequality. After all, Corbyn’s narrative only appears incoherent to those who regard the post-1979 status quo as self-evidently the best of all possible worlds - give or take a few policy tweaks - rather than the very essence of “what’s wrong with Britain”.

This incident will confirm the suspicion of many Labour members that, if he did win the leadership, Smith would dilute or ditch most of the policies he has used to try and win their votes. Those fears are well founded. Take as one illustrative example the issue of immigration, where Smith has shown one face to the party while suggesting that he would show quite another to the country, as party leader.

At leadership hustings, Smith presents an enlightened, pro-immigration, anti-xenophobic stance, but in a Newsnight interview last month we saw something rather different.  When asked if there were “too many immigrants” in the UK, he replied that “it depends where you are”, giving official comfort to the post-Brexit “pack your bags” brigade. He asserted that EU migration “definitely caused downward pressure on wages” despite academic studies having repeatedly shown that this is false, and that EU migration is of clear overall benefit to the economy.

Then, calling for an “honest” discussion on immigration, Smith noted that his wife is a school teacher and that schools in their local area are under pressure from “significant numbers into South Wales of people fleeing the Middle East”. In fact, a grand total of 78 people have been resettled in the whole of Wales under the Syrian Vulnerable Persons Resettlement Scheme. In the local authority encompassing Smith’s constituency of Pontypridd, the total number is zero.

This suggests, not someone who shares members’ values, but one who probably regards the leader’s pro-immigration stance as “lunatic”, and would prefer a return to the days when Labour erected the notorious Yarl’s Wood detention camp, rejected the vast majority of asylum applications from Saddam Hussein’s Iraq, and when Tom Watson put out an election leaflet reading “Labour is on your side, the Lib Dems are on the side of failed asylum seekers”.

Smith’s problem is that his mask keeps slipping. And every time it does, the choice before Labour members comes into sharper focus. On the one hand, they have a man who lacks many of the managerial and communication skills for party leadership, but who shares their values and who they can trust to fight for their agenda until a credible successor can be found. Against him stands a man they may not be able to trust, who may not share their values, and whose claims of professional competence grow more threadbare by the day. It’s a poor choice to be faced with, but Smith is at least making it easier for them.