Tuition-fee savings ‘highly uncertain’

Government reforms to HE finance currently estimated to save little, and long-run impact on public finances is uncertain

The Institute for Fiscal Studies (IFS) report says ministers will not know for decades whether their 2012 higher education funding shake-up will save money.

The study says the public cost of higher fees and loans is ‘highly uncertain’ and depends on how much future graduates will earn.

The report looks at the group of English, full-time undergraduates who started university in 2012 – the first year of the new fees system. It calculates 57p of every £1 the government loans to students will be recouped.

On top of that, the government is paying £24,500 per student per year in teaching grants to universities and maintenance grants to students.

The IFS calculates taxpayer contributions to university tuition are now only 5% lower than they would have been under the pre-2012 system, when universities were given much bigger teaching grants from central government.

A rise in tuition fees of £500 a year would increase the taxpayer contribution under the new system of loans to that of the old one, it says. And it estimates removing the cap on student numbers and adding an extra 60,000 students each year would cost the government an extra £1.7bn.

Wenchao Jin, a Research Economist at IFS and one of the authors of the report, said: “The public cost of the student loan system is highly uncertain. It depends on graduates’ earnings and repayment behaviour many years into the future, which we – and the government – can only estimate. 

“Our baseline estimates now suggest that the total government contribution per student has fallen slightly as a result of the government’s reforms, but that even a small real increase in fees would wipe out these gains. Whether these reforms have reduced the taxpayer subsidy will remain unknown for many years to come.” 

Rowena Crawford, a Senior Research Economist at IFS and another author of the report, said: “The government’s changes to the higher education finance system have not reduced the total taxpayer contribution per student substantially. The net effect on the public finances is primarily an increase in uncertainty, with the certain cost of teaching grants replaced by the uncertain costs of providing student loans. If future graduate repayments come in lower than expected, then a future government will have to accept higher-than-expected levels of public sector debt, or offset this by increasing taxes or cutting spending either on higher education or elsewhere.”

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