The coalition government is attempting to find a middle ground in regards to plans to increase fees for higher earning graduates. It has been confirmed that a variable interest rate on student loans is a potential solution. Expected to be recommended in a higher education funding review due this week is allowing universities to charge higher tuition fees, as well as increasing the interest rate on student loans. Lord Browne is predicted to recommend abolishing the limit on fees, presently set at £3,290, and replacing it with a market led pricing system.
Unbounded fees have caused anxiety for Liberal Democrat MPs, as they have pledged both prior and after the election to be against any fee hikes. The Liberal Democrats ordered their MPs not to speak to the press on the topic of fees until after they have been advised by Vince Cable, the business secretary. In an address to his party’s MPs over the weekend, Cable rejected a “pure graduate tax” stating it was unjust for those in higher paying jobs to pay back a many times greater cost for their degree. Transport secretary Philip Hammond claimed that a variable interest rate could allow high earning graduates to subsidize the rest.
Hammond argues that there is a “world of difference” between a graduate tax and a variable interest rate on student loans. He states that a graduate tax is not practical and that higher education should be funded by those that benefit from it. The National Union of Students believe it is an "insult to the intelligence" to claim such an increase in fees would be "progressive". Martin Shapland, Chair of Liberal Youth, stated “Liberal Youth will not accept any rise in tuition fees. We urge our ministers and MPS to do the same." The NUS has proposed campaigning against Liberal Democrat MPs that fail to follow through on their pledges regarding tuition fees.
Aaron Porter, President of the NUS, and Shadow education secretary Andy Burnham believe that higher tuition fees would make it harder for less affluent families to apply for the most desired universities. Ed Miliband has reiterated his support for a graduate tax to replace tuition fees. Labour MPs might collaborate with Liberal Democrats to counter the rise in tuition fees, leading to the potential defeat of the Conservatives on the issue as some Tories object to a graduate tax and would prefer for richer students to contribute more with higher interest rates on loans.
Members of the Russell Group of universities, including Oxford and Cambridge, would welcome a market-based pricing scheme, but other universities would find it challenging to cover course costs if there is a reduction in government funding.
According to a recent poll, the graduate tax proposal has received majority support from voters. The survey by ICM for The Sunday Telegraph shows that 61% of people are in favor of a graduate tax, whereas only 29% would prefer higher tuition fees instead. Despite this, the universities minister, David Willetts, expressed his opposition to a pure graduate tax. He argued that it is crucial to maintain a connection between a student and their university so that they can see the link between the money they pay and their education. Willetts added that a full-blown graduate tax would weaken this link.
One solution to the coalition’s difficulties has been proposed in a research paper by thinktank Policy Exchange. The paper, written by Nick Barr, a professor of public economics at the LSE, suggests a graduate contribution based on higher earners making extra repayments for up to a year. The research proposes that the extra repayment is limited to a maximum of 120% of the original loan in present value terms. The loans for fees and living expenses can be separated, and a higher repayment threshold can be set for the fees loans. This would mean that graduates earning less than £30,000 would not be required to repay the cost of tuition. Professor Barr states that low earners would not be affected by the higher interest rate, protecting those with low monthly earnings. People with low lifetime earnings would also qualify for forgiveness after 25 years, and the extra years of repayment would occur when a person’s earnings were typically much higher than earlier in their career.
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