Education Bill

Lord Stevenson of Balmacara Excerpts

Tuesday 14th June 2011 Lords Chamber

[Lord Stevenson of Balmacara]

My Lords, like other noble Lords, I add my congratulations to the noble Lord, Lord Edmiston, on his maiden speech.

Tucked away at the back of the Bill are two clauses that deal with higher education—namely, the regulations that deal with interest on student loans and the fee regime for part-time students. Given that we are shortly due a White Paper on higher education, this seems rather odd. 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. At present, the 1998 Act provides for interest rates to be no higher than needed to maintain the value of the loan in real terms. The Bill repeals that provision and the new regulations will permit interest rates to rise to several percentage points above base. This will surely act as a major disincentive to students from disadvantaged backgrounds to enter higher education. It may also impact on diversity and equality issues.

It is clear that the Government have got the fee levels likely to be charged in higher education courses plain wrong. They had assumed an average fee of perhaps £7,500 but some 80 per cent of institutions that have already announced their fee levels have plumped for £9,000 per annum. The combination of the higher than predicted fees and the introduction of a penal rate of interest will cause a massive problem to our public finances as well as being a disincentive to students.

The cost to public funds is the face value of the loans in any one year less the present value of future repayments. I know that that is a bit technical and I might have to repeat it if noble Lords did not get it. It basically means that if fees are higher, the loans will be higher. If the interest rates are 3 per cent or more above base, the likelihood that graduates will repay the debt in full is reduced. The present value of future payments goes down. According to figures from the Houses of Commons Library, if the assumed fee loan averages £8,500, there will be an additional cost to public finances of about £870 million per annum. To keep public spending constant, you would have to apply a real interest rate of 4.1 per cent. If the loan is £9,000, as it is turning out to be, real interest rates would need to rise to 5.2 per cent.

Your Lordships will recall that the recent Browne report recommended a real interest rate of 2.2 per cent—a lot less than is now being contemplated by the Government—for those earning above the threshold and a safeguard to ensure that those making relatively small repayments did not see the balance of their loan increase. It is striking that no such protection is offered in the Bill. Allowing tuition fees to rise to £9,000 a year at the same time as cutting teaching budgets is bad enough but designing a system of loans and repayments that increases the cost to the Treasury while justifying it as an austerity measure is a scheme surely worthy of an episode of “Yes, Minister”.

Unfortunately, it gets worse. According to a report in the Guardian this week, almost a quarter of a million fewer overseas student visas are to be issued in the next five years as the result of changes to the student visa system. The Home Office estimates that this will cut overseas student numbers by 25 per cent, putting a clear message out to the world that foreign students are not welcome here and putting at jeopardy a quarter of the estimated £40 billion of student fee income which currently flows into our universities.

Clause 73 introduces capping of part-time fees payable by higher education students. I have two points on this. Traditionally, fees from the part-time sector were always set rather late in the year. This will have to change. Part-time students often already work and many have family commitments, so they surely need to know what the fee arrangements are going to be at an early point in order to decide whether they can afford to go ahead with their studies. Also, the prospect of loans being available in this sector—which we welcome—means that the Student Loans Company will need the new regulations to be provided early enough for it to process applications alongside full-time loans. With loans comes the problem of repayment. Many part-time students may face the prospect of repaying their loans before they finish their courses. At present, they have to start repaying after three years if their income is above the required level. This seems very unfair as no full-time student needs to start repaying until their course has finished.

Many of the points on higher education that I have made today will need to be discussed again when we see the imminent White Paper. These clauses are but one aspect of future policy. We seem to get this in chunks. We now know, because of statements made during the discussions on the Bill in another place, that the White Paper will,

“explore and give rise to the implementation of broader changes to the character and nature of higher education”.—[Official Report, Commons, 5/4/2011; col. 974.]

What does that mean? It is a trailer. It is interesting because it raises issues such as the length of courses, contact time, remit of institutions and the possibility of private providers entering into higher education. I hope that the Government will make available a serious amount of time to discuss the White Paper when it comes along. We certainly need it.