This week, major overhauls to the English student loans system have been the subject of discussion in Westminster.
Currently, students are loaned money by the Treasury to cover their university fees and living costs. Once they have graduated (and their salary is greater than £21,000 per year), they begin to pay back their debt from their income. After 30 years, any remaining debt is written off. Under this system, the government loses around 45p of every pound that it lends out.
In an attempt to fix this, it has been proposed that higher education institutions could buy debt from students on graduation, the idea of this being that universities take on some of the risk that students may not pay back their whole debt after university. By giving universities responsibility for student loans, some believe that universities will be incentivised to focus on jobs and the employability of their graduates.
The proposals are supported by former universities minster David Willets and reportedly “half a dozen top universities” and one “vast” institutional investor. Mr Willets recently told Newsnight, “Why not give universities that wish it the opportunity of holding the loans belonging to their own graduates? […] So suddenly there’s a direct connection between the university and the graduate”.
However, there are a number of concerns with the plan. It has been pointed out that changes could lead to grade inflation as universities seek to make their graduates more appealing to employers. Some also worry that the plan could lead to even higher fees for students. The government capped fees at £9,000 a year in England in order to protect the Treasury, as higher fees means bigger loans and therefore more losses. If universities were to take on some risk, the government could allow them to charge more. Lastly, it is also uncertain whether many universities would be able to finance loans in the long-term. Chris Cook, BBC Newsnight’s policy editor, says, “Even a strong university such as Leeds would go from having debt equivalent of about 38 percent of its current annual income to well over 100 percent within three years”.
So what is to be done? There is no doubt that despite the changes introduced in 2012, student loans continue to be an issue for the Treasury. Figures published earlier this year show that the government estimates that around 45 percent of loans taken out under the latest system will never be repaid. This is worryingly close to the 48.6 percent threshold at which experts have warned that the government will begin to lose more money than it gains, effectively cancelling out any benefit of raising tuition fees in the first place.
However, I’m not sure that the proposed changes are the answer. Aside from the concerns outlined above, my biggest issue with the plans is the potential for discrimination in admissions. If universities are to benefit from students who can pay back a greater amount of debt, it follows that they would be deterred from admitting women and students from poorer families, who have less earning potential. The £9,000 a year fee is already a huge barrier to many potential students; we do not need another.
Secondly, I am resolutely not in favour of changes which could cause universities to neglect degrees with a lower earning potential. University should first and foremost be about intellectual growth and second about employability. If a university’s stability depends upon its ability to recuperate student debts, I fear that degrees which lead to lower-paying careers (such as those in the arts) will suffer immeasurably.
Ultimately, our government needs to do better than this. Do we really want a system where only those who are deemed to be less economic ‘risk’ can get into university and receive a quality education? The loans system is failing too many people and I’d like a system where repayment is realistic and students get value for their money regardless of their degree choice.