Calculations UK loan system flawed
In a recent report the British Higher Education Policy Institute (HEPI) concludes that the cost of the UK’s higher education policies is not based on realistic expectations. Paying back student loans will prove much harder than supposed by the Government.
The former university funding system was largely based on Government teaching grants to universities. The increase of tuition fees made it possible for the Government to reduce the teaching grant, without making universities worse off, but HEPI states that the calculations “depend on highly uncertain and optimistic assumptions.”
Student number cut
As a result many students now fear that the loan repayment package will have to change, leaving future generation workers with even larger burdens to carry, or that student numbers will be cut. The increase in tuition fees is already blamed for a reduction in applications of 30.000 this year.
In its report, HEPI challenges a number of assumptions the Government has made, for example, that:
- Net fees are higher
“The average net fee charged by universities will be £7500, whereas the information collected by The Office for Fair Access shows that the reality is that net fees are closer to £8300. So clearly, any calculation based on an assumption of fees of £7500 will seriously understate the cost;”
- Average salaries will be lower
“The average graduate salary in real terms 30 years after graduating will be £75,000 per year, down from the earlier assumption of a real terms male salary of £100,000 – but still an extremely optimistic assumption given the nature of the world economy and the UK’s in particular. That is based on an assumption that the future will be like the past, which is an optimistic and probably unwise assumption;”
- Salaries increase unequally
“The rate of salary increases will be evenly spread among all graduates – despite the fact that over the past 30 years highest earning graduates have increased their salaries very substantially whereas those earning the median or less have had very much more modest increases if any at all. If low earners increase their incomes by less than higher earners, as has happened in the past, then this seriously impacts on the repayments that the Government will receive.”
Government claims eroded
Commenting on these conclusions, HEPI’s Director Bahram Bekhradnia, said: “We have modelled the sensitivity of the Government’s calculations to changes in these assumptions. It is apparent that if more realistic assumptions are made then the savings that the Government claims will be largely eroded, and indeed there may be no savings at all.”
“Moreover, since we did our initial review, others – notably the Intergenerational Foundation – have pointed out that the inflationary effects of the proposals (student loans form part of the basket that is used to calculate inflation) will lead to a rise in those benefits whose value is adjusted according to inflation, and so to increased government spending.”
Other parts of HE budget cut
Bekhradnia: “If we are right, and the new policies cost very much more than has been budgeted – and may actually cost more than the arrangements that they have replaced – then there could be serious consequences – for the higher education sector, but more widely as well. Either future taxpayers will need to pay more, or other parts of the higher education budget will need to be cut, or student numbers will need to be held down even further than presently planned, or former students will have to repay more.”
“In its response to previous criticism of its calculations, the Government has responded that estimating what will happen so far into the future is an uncertain business. That is true, but indeed that is one of the main criticisms of the Government’s actions. Quite apart from the likely underestimate of the costs is the fact that the Government is implementing a policy about whose cost, on its own admission, it can have no clear idea and which is potentially building up large liabilities for future generations to redeem.”
