Education Bill

Lord Stevenson of Balmacara Excerpts

Tuesday 1st November 2011 Lords Chamber

Moved by

[Lord Stevenson of Balmacara]

89ZZE: Clause 72, page 56, line 16 at end insert “or
( ) for the period until the first repayment is made, not in excess of the average cost of borrowing borne by the Government in the preceding financial year.”

[Lord Stevenson of Balmacara]

My Lords, Clause 72 amends the powers given to the Secretary of State in the Teaching and Higher Education Act 1998 to make regulations setting interest rates for student loans. As the legislation currently stands, Section 22 of the 1998 Act effectively provides that the interest rates set must be no higher than the rate required to maintain the value of the loan in real terms. If no repayments are made, the size of the loan increases in cash terms but remains fixed in value terms. Clause 72 gives the Secretary of State wide and substantial powers to set interest rates, but its intention is to move the policy of the Government away from where it currently is, and from where its independent adviser, the noble Lord, Lord Browne of Madingley, recommended it should stay. It will move us from the position of a zero rate of real interest to one in which the real interest rate would be 3 per cent above RPI.

We had a bit of a stushie in Committee about who said what and when about how many graduates are not expected to repay their loans in the future, which is an important issue as it has consequences for the taxpayer. According to the letter I received subsequently from the Minister, I did not misquote senior members of the Government on this issue. However, she went on to explain that the department,

“currently estimate that around 40% of full-time students could have some of their debt written off”.

She goes on, however, that this,

“remains an uncertain estimate and if OBR projections of inflation and earnings growth change this autumn, then the figure could change again. In December last year the IFS”—

a widely respected think tank—

“estimated that the proportion could be around 50 per cent and we accept that the true figure could range from 40 per cent to 50 per cent”.

So there we have it. Whether it is 40 per cent or 50 per cent or somewhere in between—my fear is that it will be on the higher side—it is a very large sum of money indeed to carry within the national accounts.

There are still issues on which we have not had an answer. The Browne report recommended that the interest rate should be set at the rate that the Government themselves can borrow money. What therefore is the justification for the figure of 3 per cent? Why RPI was selected, not CPI? Is the 3 per cent above the RPI rate of interest Sharia compliant? What assessment has the department made of the 10 per cent drop in student applications for 2012, and does it think that the drop is linked in any way to the high fees being charged?

I have discussed this issue with the Minister since my original amendment was discussed in Committee, and I am grateful to her for giving me time to go over my concerns. However, I feel very strongly that using RPI instead of CPI is wrong, and taking powers to impose rates of up to 3 percentage points above the RPI is penalising our young people and their families. It will exacerbate social divisions, and it may deter young Muslim applicants. It will generate a high level of individual debt, which will have to be repaid over a period of, say, 25 or 30 years, and is set in the form of a contingent tax liability. A positive real rate of interest will impact in particular on mature students. It is likely to have an adverse impact on female graduates and on men in the bottom decile of earnings. It is setting students off on a lifelong debt habit, and approximately half the loans are going to be written off. I still do not really understand how a policy can be supported when it is basically a tontine of very crude proportions: half those affected by it get their loan commuted to a grant, which then becomes a deadweight charge on the PSBR, simply because they earn too little to trigger any repayments and because they happen to live longer than 30 years after the due repayment date.

However, I recognise the pressures on the system and the need to recoup some of the costs. So I offer a late Halloween deal to the Minister: why not have one rate of interest for the period when young people are studying and a different one when they are earning enough to begin repaying what they have borrowed? The change in rate from constant value to a real rate of interest could be tied to the point at which they begin repaying. This is what is set out in my amendment. I hope this version of trick or treat is an attractive proposal for the Government, and I would be grateful if, in the event they cannot accept it tonight, they take it seriously and agree to have further discussions with me about it before Third Reading. I beg to move.

[Baroness Verma]

My Lords, the amendment moved by the noble Lord, Lord Stevenson, seeks to place a statutory requirement in the Bill whereby the interest rate at which borrowers are charged while they are studying and until their first repayment is no more than the government rate of borrowing for the preceding financial year. I thank the noble Lord for raising this issue, and I hope that he will find my response helpful. I will not put it in the context of trick or treat.

The current system provides borrowers who go on to earn the highest incomes with an interest subsidy while they are studying. This amendment is unnecessary because high-earning graduates are well placed to contribute to the cost of their higher education, and it also makes it unprogressive. The new arrangements that we are proposing mean that, in practice, the only people who are affected by the decision to charge a real interest rate while studying are those high-earning borrowers who pay back their loans in full. Those who do not fully pay back their loans will see that part of their borrowing written off. What is more, charging a real rate of interest is part of a progressive package of reforms, and any proposal to change this rate of interest should be considered in the round.

The changes that the noble Lord is suggesting would have a significant cost and impact on the sustainability of the new student finance package. Our analysis shows that charging students the government rate for borrowing—currently, RPI plus 2.2 percentage points—means that we would have to find a further £100 million per year. If we were to reduce this further, as has been suggested, to an interest rate of RPI only, while studying, or if we were to extend this rate until the student makes their first repayment, it would mean the costs would be even greater. The Government are committed to the progressive nature of the repayment system and want to ensure that those who earn most and can afford it contribute most towards the cost of their education. I am sure that the noble Lord does not disagree with that.

The noble Lord spoke about women being affected disproportionately. We estimate that around 35 per cent of female graduates will repay less than those on the current system. This is in large part because since women are more likely to be lower earners, they are more likely than men to benefit from the features of the progressive repayment system, including the protection afforded by the higher repayment threshold.

We do not want to have a negative impact on disadvantaged groups, and that is why the Government are committed to ensuring that our universities remain open to everyone with the ability to succeed in higher education. Our equality impact analysis indicates that our student funding reforms will not have a negative impact on protected groups. With our new repayment terms, we estimate that around a quarter of graduates— those on the lowest incomes—will pay less than they do on the current system.

The noble Lord asked about Sharia-compliant loans. We are actively investigating the possibility of introducing an alternative finance system and are working with organisations such as the Federation of Student Islamic Societies and the National Union of Students. We are clear that we want a single student loan system that can meet the needs of the majority of students, where possible. We will seriously consider proposals to change the administration or presentation of the system in ways that can address the doubts that members of some faiths might have about accessing student finance. However, any proposals would need to ensure that the overall financial outcomes for government are the same and that all student loan borrowers are treated the same in accordance with existing legislation. It is important to get this right, and I know the noble Lord agrees with me that it may take a little longer, but the outcome must be absolutely right.

The noble Lord raised the RPI/CPI question. No single measure of inflation is appropriate for all purposes. It is important to view the package of reforms in the round. We need a student finance system that is progressive, sustainable and affordable for the taxpayer, and that is what we have delivered. A measure of inflation that brought in lower contributions from the highest earning graduates would require us to be less generous with the progressive elements of the system that protect our low earners.

The Government’s student finance package is progressive and sustainable. It rebalances investment in higher education so that there is less public subsidy and a greater contribution from those who benefit the most. This can only be right. Our proposals create a system that provides more generous support for students from lower-income households and protects low-earning graduates. We believe that this is a fair deal. For those reasons, I cannot accept this proposal but I am very happy to continue meeting the noble Lord to discuss his concerns further.

[Lord Stevenson of Balmacara]

My Lords, I thank the Minister very much for that and in particular for her closing remarks about continuing the discussions. I think it would be worth having a further round of that. I gather there is a date now in the diary and perhaps we can pick it up at that point.

I would like to make three small points, and one at the end. First, it was good to hear that the difference in the cost to the public sector of going from 2.2 per cent to 3 per cent was only £100 million a year. I say “only” in a casual, flippant way—of course it is a lot of money, I understand that, but it is not a lot if one has to balance the impact and the damage done because of the increase. I think that is worth bearing in mind. I am grateful to have that information and I will think about it.

Secondly, the Minister said that the proposed changes will not have an adverse impact on admissions, but I think I am right in saying that the reduction in admissions reported last week was highest among mature students and women. That is a worrying sign. It may not be reflected when the full admissions figures come in, but even at this early stage of admissions, which is primarily for medicine, veterinary science and Oxbridge, those reductions are worrying and we need to bear them in mind.

Thirdly, on the point of whether or not the loans as currently proposed are Sharia compliant, I am grateful to the Minister for saying what she did on that. This is something that we perhaps could do by correspondence because we share a common wish that this works out well and that there is not an artificial or even a real division between the systems of loan that are appropriate across the whole country.

Finally, although it is fantastic that both full-time and part-time students who go on to higher education will be able to do so free at the point at which they enter the system, there is a price to pay for that. Underneath all the rhetoric, the truth is that this is a progressive system only because out of it will come a very large number of people—perhaps 50 per cent of the cohort—who do not earn enough to go on to a statutory repayment basis. It is a sort of race to the bottom and a crude way of depressing wages, and that cannot be right. There must be a better way of getting this across. If the progressive nature of this is really a way of separating out those who are benefiting from higher education and get more than the average wage in the country from those who do not, the phrase that is being used—those who earn more should contribute the most—begins to sound more like a graduate tax than anything else. Having said that, I hear what has been said tonight and I beg leave to withdraw the amendment.

Amendment 89ZZE withdrawn.

--- Later in debate ---

[Lord Stevenson of Balmacara]

My Lords, I shall also speak to Amendment 89ZA in the names of the noble Baronesses, Lady Brinton and Lady Sharp of Guildford, and myself. We are of course delighted that the Government have accepted that the statutory payment due date for all those studying part-time will be the April which falls four years after the start of their course. A potential injustice has been avoided and the change represents a step towards breaking down the barriers to part-time study.

Once this Bill becomes law, the situation seems to be that part-time fees are set to go up from about £1,000 per annum, which is the latest DES figure, to £6,750. Part-time students will not be eligible for maintenance loans or grants as they are at present but such students will have to borrow to pay the much higher fees that are going to be charged. I worry about this radical change to the current position and whether the existing range of part-time students, who are mainly mature, female and people who say that they missed out the first time around, will continue to enrol on part-time courses.

I have some questions to leave with the Minister. Why are the Government regulating part-time fees when the existing system seems to be working? If a university is setting a fee which it thinks the market will bear and the Government are prepared to extend its voucher system to part-time students, why put in an inducement to raise that fee, which will be hard to resist, to £6,750? Why not try it for a year or two and, if necessary, regulate at that point if it is not working?

As has already been said, not all university part-time course structures fit neatly across four years and not all students wish to study at the same level of intensity each year. It must be to the student’s advantage to study at the pace that best suits their lifestyle and commitments. Universities have reacted to that by becoming more flexible in terms of evening and weekend study, and study outside the traditional academic year.

Given that, I have some sympathy with the case that has been made by million+ that it would be much more helpful for students if universities were able to charge part-time fees on a pro rata basis linked to the credits undertaken and the full-time fees set by the university for the course in question.

HEFCE currently provides £368 million to institutions to support them with the additional costs of attracting and retaining students from the most deprived areas and those in receipt of disabled student allowances. The early years allocation from this fund has led it to attract 20 per cent of its newest students from the 25 per cent most disadvantaged communities in the country, 12,000 current students with registered disabilities and 18,000 students who access higher education through targeted access, taster and opening programmes. When the Minister replies, perhaps she will reassure us that the earmarked funding of this nature will continue. I look forward to hearing the answer to these questions.

[Baroness Verma]

My Lords, first, I thank my noble friend and the noble Lord for their warm welcome to the Government’s response. The amendment in the names of my noble friends Lady Brinton and Lady Sharp, and the noble Lord, Lord Stevenson, seeks to extend the repayment due date. I also thank them for championing this point and apologise for the delay in arranging a meeting with my right honourable friend the Minister for Universities and Science and myself. As noble Lords know, I take pride in delivering on my commitments and I am sorry that there has been this delay.

My right honourable friend has listened carefully to the debate in this House. He has considered all the arguments and has asked his officials to have those further discussions. While we are not able to accept the amendment as it was laid, I am pleased to confirm that through secondary legislation we will set the repayment due date for part-time students as the April which falls four years after the start of their course or the April after a student leaves their course if that is sooner. A letter has been laid in the House Library to this effect, and I am pleased to note that this change has been resoundingly welcomed by the sector.

My noble friend Lady Brinton asked about widening participation. To ensure a fair deal for poorer students, we have announced a new £150 million national scholarship programme to support students from disadvantaged backgrounds. I will write to my noble friend on HEFCE’s widening participation funding. I also hope that she and the noble Lord will take the opportunity later this week to discuss this and all other issues raised by noble Lords today with my right honourable friend.

My noble friend and the noble Lord asked about regulation. My noble friend proposes a more rigid system of regulation than that put forward by the Government. We do not believe that there is evidence that such a system is needed. Our proposals establish a common framework within which higher education institutions have flexibility to set their own pricing. They need to be sensitive to the level of pricing that potential students will bear. Part-time students may simply not accept charging over and above the relevant proportion for their full-time equivalent. Our proposals protect students by ensuring that their loan will cover the full amount charged and by securing investment in widening participation and fair access. We will of course carefully monitor the new system and, if we need to, we will review and revisit it.

The noble Lord, Lord Stevenson, asked about the regulatory burden. This cap will enable higher education providers to set their own charges as they do now but up to a maximum amount specified in regulations. We do not believe that this will cause an unnecessary regulatory or administrative burden. Our proposals establish a common framework.

I look forward to further discussions with the noble Lord, Lord Stevenson, and my noble friends Lady Brinton and Lady Sharp. This week, my right honourable friend will speak to them and I hope that we will have some fruitful discussions. Therefore, I hope that my noble friend will withdraw her amendment.