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 the director of the Institute for Public Policy Research.

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I believe only Yvette Cooper has the breadth of support to beat Jeremy Corbyn

All the recent polling suggests Andy Burnham is losing more votes than anyone else to Jeremy Corbyn, says Diana Johnson MP.

Tom Blenkinsop MP on the New Statesman website today says he is giving his second preference to Andy Burnham as he thinks that Andy has the best chance of beating Jeremy.

This is on the basis that if Yvette goes out first all her second preferences will swing behind Andy, whereas if Andy goes out first then his second preferences, due to the broad alliance he has created behind his campaign, will all or largely switch to the other male candidate, Jeremy.

Let's take a deep breath and try and think through what will be the effect of preferential voting in the Labour leadership.

First of all, it is very difficult to know how second preferences will switch. From my telephone canvassing there is some rather interesting voting going on, but I don't accept that Tom’s analysis is correct. I have certainly picked up growing support for Yvette in recent weeks.

In fact you can argue the reverse of Tom’s analysis is true – Andy has moved further away from the centre and, as a result, his pitch to those like Tom who are supporting Liz first is now narrower. As a result, Yvette is more likely to pick up those second preferences.

Stats from the Yvette For Labour team show Yvette picking up the majority of second preferences from all candidates – from the Progress wing supporting Liz to the softer left fans of Jeremy – and Andy's supporters too. Their figures show many undecideds opting for Yvette as their first preference, as well as others choosing to switch their first preference to Yvette from one of the other candidates. It's for this reason I still believe only Yvette has the breadth of support to beat Jeremy and then to go on to win in 2020.

It's interesting that Andy has not been willing to make it clear that second preferences should go to Yvette or Liz. Yvette has been very clear that she would encourage second preferences to be for Andy or Liz.

Having watched Andy on Sky's Murnaghan show this morning, he categorically states that Labour will not get beyond first base with the electorate at a general election if we are not economically credible and that fundamentally Jeremy's economic plans do not add up. So, I am unsure why Andy is so unwilling to be clear on second preferences.

All the recent polling suggests Andy is losing more votes than anyone else to Jeremy. He trails fourth in London – where a huge proportion of our electorate is based.

So I would urge Tom to reflect more widely on who is best placed to provide the strongest opposition to the Tories, appeal to the widest group of voters and reach out to the communities we need to win back. I believe that this has to be Yvette.

The Newsnight focus group a few days ago showed that Yvette is best placed to win back those former Labour voters we will need in 2020.

Labour will pay a massive price if we ignore this.

Diana Johnson is the Labour MP for Hull North.