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13 September 2018updated 24 Jul 2021 3:16pm

The real cost of tuition fees may soon be visible – could it lead to them being scrapped?

A new report reveals the scale of government subsidy for higher education and an “accounting trick” is masking the real costs.

By Sam Forsdick

Student loans are meant to shift the cost of higher education from the state to individuals, but it has become increasingly clear that they are failing to do so.

Up to 45 per cent of the value of student loans will never be paid back according to an OECD report on education released this month, which means that the government can expect to make a loss of £6.75bn on the £15bn paid to students this year.

And yet those who argue in favour of a system that is leaving many students with huge debts they’ll never be able to pay back have been benefiting from an accounting quirk that means that cost will not appear on any national budget report for another 30 years.

“The government at the moment has benefitted from an accounting trick,” Andrew McGettigan, author of The Great University Gamble: Money, Markets and the Future of Higher Education tells the New Statesman. “It can issue £15bn of loans this year and it doesn’t have to declare it as expenditure. It only has to declare expenditure when it writes off these loans in 30 years’ time.”

The vast majority of students, some of which are facing student loan repayments upwards of £54,000, will not earn enough to make the full repayments. Bearing in mind that the average graduate salary is £21,000, (£4,000 less than the amount payments begin at) it is no surprise that only 17 per cent of students are expected to repay their loans in full.

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With the current outstanding balance owed by students topping £100bn, it raises the question why have students have been lumped with such ridiculous loans when the government will be covering the cost of so many of them anyway?

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TV’s money saving expert, Martin Lewis, says: “The reason the Tories like the loan system is that the write-off would occur at the 30 year point, so effectively they’re loading the cost onto future chancellors without having to deal with it themselves.”

Amatey Doku, vice president of the NUS describes it as “fiscal illusions created by a system that makes loans a form of magic money for the Treasury” and calls for a “complete overhaul” of the funding system.

The Office of National Statistics is looking into changing the process so the costs will come at a much earlier point and resolve what McGettigan says is a “crazy way of treating it in the accounts”.

Although the quirks of accounting might not seem relevant to students, if the ONS goes through with these changes the current system of funding higher education will suddenly look a lot more expensive and could result in radical change.

McGettigan says: “It has policy implications, if you change the way you account for student loans other policies become politically feasible. For example, it becomes much more feasible to abolish tuition fees because the comparative benefits of tuition fee loans over grants to universities will no longer look quite so different. If you change the conventions, policies that were previously off the table because they looked too expensive are suddenly back on the table.”

Under their 2017 manifesto, Labour promised to abolish university tuition fees and reintroduce maintenance grants. Shadow education minister Gordon Marsden reiterated the promise following the OECD report. “The next Labour government will scrap tuition fees, ending the scandal of students graduating with tens of thousands of pounds of debt and ensuring that a university education is accessible for all those who want one.”

The policy is understandably welcomed by students but was ridiculed by some for being too costly. However the comparative costs may look a little more reasonable if the difference between student loans and student loan payments is counted against the public finances in the same way.

A simple tweak in the way student loans are accounted for could change the debate around tuition fees decisively.