This is the week university starts for many students. It is the biggest annual movement of young people across Britain. And unusually it is often a migration North as our universities are spread across the country. For many young people in the South East it is their first and perhaps only opportunity to live in York, Newcastle, Lancaster or Manchester.
I hope they will have a good time. It puts them on a route to higher earnings and a better life. It has replaced military service as the main route to adulthood.
But it is not a priority for public spending. Higher education always loses out to schools. And now ministers are rightly focussed on 16-18 year olds, many of whom are at FE colleges. And this spending round brings new pressures for savings on higher education.
Graduates earn more than non-graduates (£28,000 compared with £21,500 just during their twenties). So it is right to expect graduates to pay back so that their higher education is not funded by taxpayers earning less than they do. When German Social Democrats were proposing public funding for university education, it was Karl Marx who said: "[If] higher education institutions are also 'free', that only means in fact defraying the cost of education of the bourgeoisie from the general tax receipts."
Karl Marx was right.
Indeed the number of students from low income backgrounds has grown in the decade since we introduced £9,000 fees . If higher education is financed out of public spending then Governments control spending by rationing places. That is what they do in Scotland. Our system is basically a repayable higher education voucher, repayable as your income goes over a threshold.
Educationalists hate it when I say students are consumers. Students are not just consumers but this funding model empowers them – they can say that they bring the money to fund their education and are entitled to their money's worth.
But the system I helped set up is no longer working as it should. We expected only a quarter of the loans would be written off by the taxpayers when it was first designed. Now more than half will be written off. That is too high.
The key reason is the repayment threshold has been increased to over £27,000. We should bring it back to £21,000 which is where we set it in the Coalition. Under Labour it was £15,000. For every £1,000 of their earnings above the threshold a graduate pays back 9 per cent which is £7.50 a month. During my time as an MP I never had a graduate complaining about their repayments.
That means students will know they are probably going to have to pay back for the cost of their education and a good thing too. That realism should inform their decision whether or not to apply for university. Informed choice is much better than going back to Whitehall controls on student numbers.
The interest rate on debt could also be cut. It is probably the most hated feature of the system. But it is just part of the real problem which is the terrible combination of the low repayments because of the high threshold and then the high interest rate so that for too many graduates their debt is rising every year. That is depressing for graduates and their parents and politically toxic. Polling shows that graduates and their parents would rather get on with paying their loans back, even though they are nothing like commercial debt. Just lowering the threshold helps and if the interest rate can be cut as well that would be a bonus.
Young people gain from a well-funded university education with universities competing for students who have good information to help them choose their education. Any other method of funding – graduate tax, general taxation – will see funds seemingly earmarked for universities disappear on the pensions triple lock, social care or other seemingly more pressing priorities. Even with a lowering of the threshold, the system would still be fair and progressive compared with funding from the generality of taxpayers.
This scheme works for the long term interests of the younger generation. It is right to ensure its viability by expecting graduates to pay back when they can afford to.
David Willetts was Minister for Universities and Science 2010-2014. His pamphlet Boosting Higher Education While Cutting Public Spending is published by HEPI tomorrow.
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