Post-18 Education and Funding Review

Baroness Jenkin of Kennington Excerpts

Tuesday 2nd July 2019 Lords Chamber

[Baroness Jenkin of Kennington (Con)]

My Lords, I am grateful to my noble friend for his introductory remarks. I am also grateful to my noble friend Lord Willetts, who very helpfully this morning dropped off a copy of his rather weighty tome, A University Education, with a note saying, “I hope you find Chapter 3 useful, which is how to pay for it”. I am afraid that this will have to wait for holiday reading, and I look forward to that. He is very sorry not to be here today. I also declare my interest as chancellor of Writtle University College.

British universities have a worldwide reputation for excellence, and deservedly so. These institutions play a vital social and economic role in our country. Many are world- class, but many are not. The necessity of a review into post-18 education and funding is indicative of a broken system. There are serious issues to address regarding the price of tuition, who should bear responsibility for paying these costs and the long-term value of university courses for those who undertake them. The Augar panel has asked the right questions and its report contains the right analysis. For instance, it was right to expose the scandal of low-value courses and highlight the undersupply of graduates in strategically important sectors.

This increasing prevalence of low-value courses is particularly worrying. To illustrate the point, research from the think tank Onward has shown that 41% of students are enrolled on courses which delivered earnings of less than £25,000 after five years. However, it gets worse. Onward’s report, A Question of Degree, reveals that nearly one-fifth of male students are enrolled on courses that deliver lower graduate earnings than work or technical education. In other words, they would have been better off not going to university. Male students doing creative arts, communications, English, agriculture, psychology, philosophy or language degrees are more likely to earn less after three years at university than if they had spent three years in employment or doing a technical course. At some universities, male students doing these degrees can expect to earn less on average than the national living wage five years after their graduation.

For the average graduate, the fee loan scheme acts as a 9% permanent tax for the duration of the payments. This means that graduates who are higher-rate taxpayers can face a marginal tax rate of 51%. This is truly striking, given that the Government have abolished the 50p tax rate for the very highest earners. This is hardly a temporary tax. Due to the high interest rate of CPI plus 3%, unless graduates manage to quickly land a job paying a substantial salary, they are unlikely ever to pay off their student debt. In fact, 83% of students will not repay their loans in full. They will effectively be paying this additional 9% marginal rate for the next 30 years of their lives.

Let me illustrate this with two brief case studies. If we model the repayments of a high-flying graduate versus those of the average graduate, there are some points worth noting. For a high-earning graduate—someone in the top 5% of earners within five years of graduating—the total value of their debt would start shrinking around four years into repayments. After 15 years, it is fully paid off: that is, the debt and the interest. The total repayment equals roughly £88,000. For the average graduate, at no point would the total value of their debt decrease. Due to the high rate of interest, the debt will keep climbing some years after graduation and they would be unlikely to repay that loan for 15 to 20 years or even longer. At the end of this period, when the debt is written off, they would eventually have accumulated £164,000 of debt and paid a total of £75,000. I hope that I have got those figures right, but how on earth can this be right or make sense?

Incentives are currently structured so as to encourage some institutions to inflate their student population, with little regard to the quality of education. They do this by abusing unconditional offers, and the results of this can be striking. Those universities that issue unconditional offers sparingly—less than 1% of their total offers—deliver average graduate earnings £8,000 higher than those universities that issue the most unconditional offers, more than a third of their total offers. To give a particularly egregious example of this phenomenon, one university hands out 76% of its offers as unconditional offers, but it delivers earnings five years after graduation of only £17,000 for women and £20,000 for men. Universities that are abusing unconditional offers in this way, to pressure sell their degree courses, leave students worse off than vocational alternatives with a higher earnings return.

It was a bold and admirable vision to give more people, particularly from disadvantaged backgrounds, the opportunity to attend university. But as the examples that I have given show, growth in student numbers has not benefited all young people. Many of those young people understandably feel angry and aggrieved and, as a result, 44% of people think that too many students now go to university, compared with only 25% who think that too few students go to university.

This does not apply across the board. Many British universities are of course world-leading institutions. But a small number are ripping off students and giving university a bad name. We do this current generation of students no favours by cramming them on to courses that saddle them with decades of debt repayments, the full costs of which are complex and difficult for school leavers and their parents to comprehend, while simultaneously delivering little or no financial return on their investment and hard work.

This unfolding debacle is a disaster for intergenerational inequality. I was a member, along with the noble Lord, Lord Bichard, and the noble Baroness, Lady Blackstone, of the Intergenerational Fairness and Provision Committee, and we detailed in our recently published report that the millennial generation is likely to be the first to be worse off than their parents. We risk exacerbating this inequality if our broken and unsustainable higher education funding system is not fixed.

While the Augar review presents a detailed and welcome analysis of these problems, we are right to question the solutions. I am not convinced by the proposal for an across-the-board tuition fees cut from £9,250 to £7,500 which does not tackle the issue of low-value courses or make funding fairer. It would only help future students, rather than all those recent graduates and current students who would still spend the next few decades haunted by the spectre of persistent debt. It would create unfairness between these two groups—the damaging cohort effect—and would leave the intergenerational inequalities between recent graduates and their parents or grandparents unaddressed. An across-the-board cut in the headline cost would render some valuable courses unviable—courses with relatively high running costs such as those in STEM fields. But it would leave some courses in place, which would be poor value even at the lower rate.

Indeed, there is already support for prioritising funding for higher-value courses. Polling by the think tank Onward shows that a quarter of people are in favour of using taxpayer money to reduce fees for those students studying science, medicine, nursing, engineering, and maths; and young people aged under 35 were the most supportive of this idea.

Poor-value degrees and a broken repayment system are letting down students at the expense of the taxpayer. Of course, we need to look at reducing the cost of university, but in a way that is fair and helps current students as well as recent graduates. We must also look carefully at rooting out courses that are making school leavers a false promise, delivering low earnings and huge debts. But we must also end the unacceptable situation where young people finishing university face higher marginal tax rates than millionaires. We cannot go on like this. The next generation deserves better.