Student support and graduate contributions

95. A student support system for the future should, as far as possible:

  • be equitable, and encourage broadly based participation;
  • require those with the means to do so to make a fair contribution to the costs of their higher education;
  • support lifelong learning, so that choices between part-time and full-time study and for discontinuous study are financially neutral;
  • be easy to understand, administratively efficient and cost-effective.

96. Although levelling up of support for those groups of students, particularly part-time students, who are currently less well-supported is desirable, it would be very expensive and might risk substituting public support for the support currently provided by employers and others well-placed to do so. Reducing support for those who are currently better supported could involve hardship for individuals, especially if changes were introduced rapidly without time for them to prepare. We have taken a pragmatic approach to devising arrangements which support students and enable graduates in work to make a contribution.

97. Part-time undergraduates currently have to make a contribution to their tuition costs and they are not generally eligible for public support for their living costs. Although many are supported by their employers, there are disincentives to study for the unemployed and for those on low incomes.

Recommendation 76
We recommend to the Government that:

  • from 1998/99 it should enable institutions to waive tuition fees for part-time students in receipt of Jobseeker’s Allowance or certain family benefits;
  • as part of its forthcoming review of the social security system, it should review the interaction between entitlement to benefits and part-time study, with a view to ensuring that there are no financial disincentives to part-time study by the unemployed or those on low incomes;
  • it should extend eligibility for Access Fund payments to part-time students from 1998/99, and additional funding should be made available for this purpose.

98. Although the average graduate receives a good financial return from higher education, some will experience periods of unemployment, some will need to take career breaks, and others will have low paid jobs. If graduates are to be asked to make an increased contribution they need the reassurance that they will not be faced with unreasonable payment burdens. This can be achieved by introducing payment mechanisms which relate the annual level of payment to a graduate’s income: income contingent payments.

Recommendation 78
We recommend to the Government that it introduces, by 1998/99, income contingent terms for the payment of any contribution towards living costs or tuition costs sought from graduates in work.

99. There are a number of ways of operating an income contingent contribution scheme, including:

  • a graduate tax under which graduates are liable to pay an income tax supplement;
  • a deferred contribution scheme;
  • a loan scheme under which individuals could choose to pay the required contribution upfront or take out a loan which would be repayable after graduation.

100. A graduate tax is attractive because it has the potential to secure large additional resources for higher education, but it provides no means by which individuals can pay their contribution upfront, and thus does not deliver additional funding in the short term. For the graduate, it is open-ended, resulting in those who are particularly successful being expected to contribute large sums. For institutions, it would not guarantee that the income from the tax would benefit them because, to do so, would cut across the general principle that tax revenue is not earmarked for particular services.

101. A deferred contribution scheme would involve a student making a commitment, on enrolment, subsequently to contribute a certain percentage of his or her income with the total potential contribution being limited to the cost of the higher education programme taken or some defined percentage of that. The terms of the payments would be set, however, so that the average graduate would, in practice, pay only around 25 per cent of the cost. Only those who secured the highest incomes would pay back the full cost of their higher education programmes. Like a graduate tax this has the potential to deliver substantial extra resources, but the graduate contribution is not open-ended. Like the graduate tax it would not release resources in the short term. This disadvantage might be overcome by offering the option of paying at the time of study or of making a contribution later. These options are worth further exploration for the medium term, but we do not think that they could be introduced quickly.

102. We examined a range of options for supporting graduates to make contributions by providing loans during study to be repaid on an income contingent basis by the graduate once in work.

103. The widespread view in evidence was that an additional contribution from graduates should be sought by converting the existing support for student living costs from 50:50 grants and loans to 100 per cent loans. We looked carefully at this option. But we also examined three others which involve graduates making a contribution to their tuition costs because we felt that such contributions offer a number of advantages over the more widely canvassed alternative. We return to these advantages in paragraph 108. The four options are summarised in Table 3.

104. We reviewed each option against the impact it would have on: individuals and their families at the time of study; graduates; different social groups; and the funds generated for higher education.

105. Table 4 summarises the range of parental contribution required for a student who studies away from home outside London for three years. For simplicity, rounded figures of 10,000 for the maximum support for living costs over three years and 1,000 a year for a tuition contribution, where appropriate, are used. The table shows clearly that the distinctive feature of Option A is that it removes any obligation from higher income families to contribute to the costs of higher education for their children.

106. Table 5 shows, on the same basis, the maximum graduate commitment which would be incurred by a student who studied for three years. We do not believe any of these commitments would be unmanageable for graduates so long as income contingent payment mechanisms were in place.

107. Table 6 shows how the various options redistribute public subsidies among families of different incomes.

108. We would be particularly reluctant to see any reduction in public subsidies being concentrated on students from the poorest families and even more reluctant to see the funding released by this, and more, being used to increase the subsidies for others.

109. Table 7 shows what net contribution each of the options makes to public finances on both the present cash accounting basis for public finances and the planned resource accounting basis. Negative numbers represent an additional outflow of public funds.

110. The main conclusion from this table is that none of the options provides the additional resources needed in the long term by higher education. Option A is particularly limited in this respect. We have concluded that any option which delivered the resources needed would produce unacceptable burdens on graduates and on families of modest means, or would lead to unacceptably high levels of graduate debt.

111. There are arguments for all four options but we have concluded that, on balance, Option B offers the best balance between seeking a continuing contribution from higher income families and from graduates in work. As the figures show, seeking an increased contribution from graduates towards living costs as in Option A:

  • takes away subsidies from the poorest families and redirects them to others;
  • increase public expenditure in the short term;
  • releases modest resources for higher education in the long term.

We strongly favour options which involve a contribution to tuition costs for three further reasons:

  • students are likely to be more demanding of institutions if they are contributing;
  • it would help to level the playing field between full- and part-time study and would put full-time higher education students on a more similar basis to adult further education students;
  • if graduates are contributing to the costs of their tuition there will be a clearer expectation that the funding released should be spent on higher education.

112. We suggest that the contribution should be a flat rate one and not varied by subject of study so that access to expensive or prestigious programmes is by academic merit not financial means. The contribution should, by analogy with the contribution expected from adult further education students, be of the order of 25 per cent of average tuition costs each year. Government bursary or scholarship arrangements may be needed for subjects such as medicine and teacher education where courses are longer than three years but generally the contribution required should be proportional to the number of years of study. In order to protect against precipitate increases in the level of expected contribution, there should be a thorough review before any such change could be made by the Government.

Recommendation 79
On a balance of considerations, we recommend to the Government that it introduces arrangements for graduates in work to make a flat rate contribution of around 25 per cent of the average cost of higher education tuition, through an income contingent mechanism, and that it ensures that the proportion of tuition costs to be met by the contribution cannot be increased without an independent review and an affirmative resolution of both Houses of Parliament. The contributions made by graduates in work in this way should be reserved for meeting the needs of higher education.

113. We suggest that the Government considers either offering a discount for upfront payment or introducing a modest real rate of interest on loans to encourage those who can afford it to make a contribution at the time of study

114. Because none of the options we explored delivers the additional resources needed in the short term and the Government has indicated that additional public funding will not be forthcoming, we looked at the possibility of seeking greater contributions from the only other immediately available source, students’ parents. Our main report discusses two variants, of Options B and C, which have an increased means test. Both would release substantial extra sums. The decision on their social acceptability is essentially a political one.

115. A fundamental problem with the Government providing loans for students is their treatment in the national accounts. Under conventional Government Accounting a loan is treated exactly like a grant in the year in which it is made. The planned introduction of a new form of accounting, resource accounting, will make clearer the fact that grants and loans are not equivalent. There will still, however, be a problem in that loans will continue to count against the Public Sector Borrowing Requirement in the year that are advanced. This is not the approach adopted in all other countries.

Recommendation 80
We recommend to the Government that it looks urgently at alternative and internationally accepted approaches to national accounting which do not treat the repayable part of loans in the same way as grants to students.

116. The previous Government explored various ways to secure private finance for student loans. We are not satisfied that any such approach offers value for money.

Enabling individuals to make their contributions

117. Any future mechanism to support individuals in making their contribution should be easy to understand, simple to administer, efficient and cost-effective. As the Inland Revenue already has in place arrangements for assessing income and securing payments from almost all the working population we believe that it would be best-placed to collect income contingent payments on behalf of our proposed Student Support Agency (see below).

Recommendation 82
We recommend to the Government that the Inland Revenue should be used as the principal route for the collection of income contingent contributions from graduates in work, on behalf of the Student Loans Company.

118. Currently there are a number of different organisations involved in student support, including 160 local education authorities, a central awards organisation in Scotland, Education and Library Boards in Northern Ireland, and the Student Loans Company. This is not clear or simple for students or for institutions. We believe that the there should be a single Student Support Agency which might be built up from the existing Student Loans Company.

Recommendation 83
We recommend to the Government that it establishes, as soon as possible, a unified Student Support Agency with responsibility for:

  • assessing the eligibility of individuals for various kinds of public support;
  • administering graduate contributions on an income contingent basis;
  • means testing and paying grants for students’ living costs;
  • making per capita tuition payments to institutions according to the number of students they enrol.
119. Such a unified Student Support Agency would cover many of the functions which are sometimes suggested for a system of individual learning accounts (ILAs) or a Learning Bank. However much more work is required to define the exact nature of such accounts. They could provide a mechanism for giving incentives to individuals and their families to save for higher education (although the case for going beyond current financial instruments is not a strong one); and to give incentives to employers to contribute to their employees’ development through higher level study. We expect that, over time, individuals, with the development of lifelong learning, will expand their use of existing tax efficient savings mechanisms for education. ILAs as part of a wider strategy on education and training should provide added incentives for employers to contribute within the context of the expansion of continuing professional development.

Government and higher education institutions

120. We see great value in maintaining the long-standing practice of the Government remaining at arms’ length from individual institutions and therefore in retaining intermediary Funding Bodies. This practice should be extended to Northern Ireland. But we also see advantage in progressively channelling an increasing proportion of funding for tuition through students and, thereby, encouraging institutions to be more responsive to student requirements.

121. This will require students to be able to make an informed choice based on information about the offerings of higher education, its likely costs, and possible future employment opportunities. Students need better information and we recommend that their representatives with the representative bodies of schools, colleges and higher education institutions should together identify what information is needed and how it can be provided, making appropriate use of information technology.

122. To develop a coherent approach to the development of the whole of post-18 education we recommend that the funding arrangements in Wales, in which funding councils for higher and further education are served by a common executive, are adopted in Scotland and Northern Ireland. In England the scale of activity is such that we see a continuing need for two separate funding councils with their own executives, but we welcome the moves already in hand to secure some greater co-ordination of action at a regional level

123. Higher education is now a such major element in the national economy that a UK-wide review is needed on a regular basis.

Recommendation 88
We recommend to the Government that, in five years’ time and subsequently every ten years, it constitutes a UK-wide independent advisory committee with the task of assessing the state of higher education, advising the Government on its financing, and on ways in which, in future years, it can best respond to national needs; on any action that may be needed to safeguard the character and autonomy of institutions; and in particular any changes required in the level of student support and contributions from graduates in employment.

Higher education in Scotland, Wales and Northern Ireland

124. Although our terms of reference relate to the whole of the UK, we are conscious of the distinctive needs and traditions of higher education in the different parts of the country. Higher education in Northern Ireland and Wales is broadly similar to that in England. However, higher education provision in Scotland has a number of particularly distinct features. For this reason we established a Scottish Committee to advise us – its report is published with our main report.

125. One particular feature that we have noted about higher education in Scotland is the breadth of undergraduate degree programmes in comparison with the rest of the UK. Scotland has a high participation rate of nearly 45 per cent, with much of the difference between it and the rest of the UK attributable to sub-degree level work. We use the experience of Scotland in relation to both of these issues to inform our report more widely.

126. Higher education in Wales is similar to that in England, although a distinctive feature is the large amount of residential full-time provision because of the dependence of institutions on students coming to study from outside the vicinity of the institution. Having worked to enhance the quality of its research provision, we heard that Wales intends to increase the volume of research in order to attract inward investment and to support economic regeneration.

127. There are only two universities and two colleges of higher education in Northern Ireland. A serious issue for the Province is that 40 per cent of young people have to leave to take up higher education opportunities. A considerable number of these do not do so from choice, but because of the limitation on the number of places and the relatively high standard of entry to the local universities. This issue has prompted us to include an appendix addressing particular issues facing Northern Ireland, and proposing a number of options for increasing the provision of places in a cost effective way.

Next steps

128. Our report sets out a major programme of change for higher education over the next twenty years. Our vision for the future is clear. Although our outlook has been to the long term, our detailed recommendations necessarily focus on the first steps towards that vision. We hope that the legacy of our work will be a higher education system which is well-placed to develop and respond as new challenges and circumstances arise, including those which we cannot foresee from the perspective of 1997. Our recommendations add up to a coherent package for the future of higher education. We do not intend that those to whom they are addressed should choose to implement only some of them. The new compact requires commitment from all sides.

129. We have addressed our recommendations to those who should, in our view, be responsible for taking them forward. Where it is possible to set a specific timescale for the necessary action, we have done so. Some of our recommendations require organisations to undertake substantial developmental work before they can be implemented, and some are of less immediate urgency than others. We are conscious of the need not to overload organisations with too many tasks at once: it is often better to focus energy and attention on the most important and urgent work, but that does not mean that our recommendations for the medium and longer term can be ignored. Recommendations which we have described as for implementation ‘over the medium term’ are those which should generally be implemented within the next three to five years, although work in preparation for that may well need to start immediately. Those recommendations which we suggest should be implemented ‘over the long term’ are those which require even more substantial preparatory work or the prior implementation of other recommendations before they can be put into effect. Most of them are unlikely to be implemented in less than five years.

130. The recommendations are addressed to a wide range of bodies who have varying responsibilities in relation to higher education. Table 8 shows the allocation.

131. We give below some guidance on the immediate priorities for action.

132. There is an immediate short term problem with the funding of higher education. If this is not addressed by the Government, there is a real danger that some institutions will be severely damaged and that others will take unilateral action, for example through the introduction of supplementary fees, which will make it impossible for our long-term vision to be realised.

133. If the Government accepts our proposals on funding, it will need to introduce primary legislation because it does not currently have the power to make loans to support of students’ tuition costs or to give effect to our proposals for income-contingent collection of loan repayments. This must be a priority if additional resources are to flow to higher education in 1998-99. We are encouraged that the Government has already indicated its intention of introducing early legislation.

134. The same degree of urgency will need to be applied to the complex process of implementation. If implementation on this timescale cannot be achieved, alternative means of providing additional resources in the short term will have to be found, but the options are not attractive. We have already said that short-term moves to remove student loans from the public sector are unlikely to represent good value for money. The only other immediate source of resources, apart from the taxpayer, is parents of students.

135. Our proposals on funding do not stand in isolation. They are part of a new compact between all the stakeholders of higher education. The Government must therefore commit itself just as firmly and with the same urgency to the other elements of that compact, if all who are involved in higher education are to be encouraged play their part. This means that the early legislation we propose must provide for a procedure to govern any review of the contribution to be made by graduates. The Government must also ensure that new arrangements are well-publicised and explained clearly to prospective students and their families.

136. Universities and colleges have pressed hard for a solution to the funding crisis which they perceive. We have made proposals which should place them on a firmer financial footing. But institutions need to take urgent action too. They owe it to students and to the taxpayer to make sure that they make the best possible use of the available resources. They must secure appropriate management and cost information systems to support this as quickly as possible. They will need the help of the Funding Bodies and their representative bodies to ensure that all know what the best can do. Work on developing appropriate benchmarks is urgent. Institutions must ensure that their governance arrangements enable them to carry forward the development we propose.

Quality and standards
137. In return for additional contributions from graduates, institutions must make much clearer what they offering to students. They must work continually to improve the quality of teaching and they must approach the mutual assurance of standards with real commitment. Anything less would be to sell their students short. The immediate requirement from institutions is that, acting collectively, they give the Quality Assurance Agency all the support and facilities it needs to be fully effective and that they establish the Institute for Learning and Teaching in Higher Education, and give it the necessary support and facilities too.

138. Our recommendations place great expectations on the new Quality Assurance Agency. The bodies which established the Agency need urgently to review and amend its remit if it is to assume the role we propose for it. It needs the support of the whole sector in its tasks and it will need to embark very rapidly on a large programme of work. New systems for the assurance of quality and standards must be in place and seen to be effective within a short space of time. If they are not, the Government will be justified in intervening to protect the interests of students.

139. The priorities in research are to begin to rectify the deficiencies of the infrastructure and to establish new arrangements which encourage strategic decisions by institutions to concentrate on their strengths. The Government will need to take immediate steps to secure private sector contributions for the rolling loan fund for infrastructure: we have already identified some organisations who are willing in principle to contribute. The Funding Bodies need to set the rules for the next Research Assessment Exercise quickly so that institutions can begin now to plan their preparation for it.

Staff in higher education
140. Staff in higher education have achieved much in recent years and our report expects that they will continue to be dedicated, professional and adaptable. They must be given appropriate support in this. Our recommendations for more systematic staff development and training, and especially for accreditation of teaching staff need to be pursued as a matter of urgency by individual institutions and by the sector collectively. The overall review of pay and conditions of service which we recommend should also be set up as soon as possible, in order to try to avoid a repetition of the unsatisfactory pay negotiations seen this year.

Higher education’s local and regional role
141. We assume that the Government will be taking early steps to introduce new regional structures. As it does so, it needs to take account of our recommendation that higher education should be represented on the new bodies and it must ensure that higher education can play its full part in economic regeneration.

142. We know, from all the contacts we have had in our work, that the value and importance of higher education is widely recognised. We also know that those within higher education are committed to its wellbeing and are willing to embrace change. If all that good will, energy and professionalism can be focused on the developments proposed in this report, we are convinced that UK higher education will match the best in the world over the next 20 years.