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Karl Marx was right – abolishing student fees would be unfair

Scotland proves that free higher education discriminates against poorer families

4 November 2017

9:00 AM

4 November 2017

9:00 AM

In a letter of 1875, Karl Marx wrote that making higher education free would mean ‘defraying the cost of education of the upper classes from the general tax receipts’. He had a point. Free education wasn’t really ‘free’ at all. Conversely, fees would generate funding to subsidise tuition for the less well-off.

Student loans have become a hot political battleground. Jeremy Corbyn argues education should be ‘free’; Theresa May hits back with plans to raise the student debt repayment threshold and to freeze fee levels. But instead of meeting dissatisfaction with populist notions or piecemeal policies, politicians would do better to instil confidence in the system by making student-loan terms transparent and sticking to their promises.

Back-door changes to interest rates, the scrapping of maintenance grants and worries that repayment terms will change again and again have done little to convince students that a fee regime can really make higher education fairer and more accessible.

I graduated from St Andrews with a degree in philosophy and then studied for a master’s at Cambridge, leaving with £32,000 of debt. My younger brother, reading geography at Manchester, will graduate owing £50,000 to the taxpayer. Debt is a psychological weight that gnaws and grumbles in the background, anxiety aggravated by intimidating letters from the Student Loans Company. The facts are familiar: £9,250 in annual fees and a 6.1 per cent interest rate mean students rack up thousands in compound interest before they graduate. Borrowing money has always been morally charged; Germans have the same word for debt, ‘schuld’, as they do for ‘guilt’ or ‘fault’, and being saddled with so much before you’ve even started working is a bitter pill.

Yet the emotional and financial effects of debt get mixed up. Opposition promises to scrap tuition fees exemplify this confusion, courting student votes with a policy that could actually hamper access to higher education. For young people, the fee debate concerns the ultimate prize: making university free. But taking a closer look at the system shows that it’s not the baby that needs changing, but the bathwater.

What would happen if tuition fees were scrapped? Yes, a weight would lift from the shoulders of many students. But the effect on student numbers — particularly from disadvantaged backgrounds — is less clear. Scotland provides a roadmap for how this works in practice. Lucy Hunter Blackburn, a former Scottish civil servant who worked on higher education funding policy, describes free tuition as a feelgood middle-class policy. Far from being a beacon of higher education, Scotland offers a lesson in how scrapping fees can actually entrench inequality, favouring those from middle-class backgrounds who don’t need additional support. The impact of the policy confirms Marx’s thoughts about free tuition; the well-off in Scotland are four times more likely to enter university than their poorer counterparts, compared to 2.4 times in England.

‘What’s often missed in the debate about tuition fees in the UK is the fact that this isn’t student debt, but government debt. The government borrows the money and carries the risk,’ says Mark Leach, founder of the higher education thinktank Wonkhe. Fees split the funding burden between tax-payers and students, with the former stumping up a subsidy that covers the 29 per cent of loans that will never be repaid, and the latter paying out a sliding contribution according to their earnings. Thanks to this arrangement, universities get more funding (the Institute for Fiscal Studies estimates that fees now generate 25 per cent more funding per student relative to the levels in 2011) and the number of university places continues to increase.

As Leach tells it, however, there are ‘many ways to cut the cake’. In practice, the drip-feed contribution from graduates’ future salaries operates much like a tax. If the government implements its promise to raise the amount graduates can earn before they start repaying their loans from £21,000 to £25,000, the public subsidy will increase to an estimated 41 per cent — meaning taxpayers as a whole will cover close to half of the money borrowed to finance degrees. With these facts in mind, the main difference between the current system and its general-taxation predecessor is the way it frontloads a contribution on to students. Calling loan repayments a ‘graduate tax’ is an often-cited remedy — a semantic shift that could remove the stress associated with the unrepaid capital sum and the fear of rising interest rates.

But any tinkering with this flawed system is likely to be stressful. ‘What if they change the terms?’ is the question many students regularly ask. The hike in interest rates from 3.1 to 6.1 per cent earlier this year will have little practical impact on low-earning graduates who are unlikely to pay off their loans in full. But this alarming portent killed off confidence and made many panicked students fluent in the difference between the Retail Price Index (currently 3.9 per cent, and to which the rate applied to post-2011 loans is tied) and the Bank of England base rate, still just 0.25 per cent as I write.

For Australian economist Bruce Chapman, however, the UK’s income-contingent student loans are a placid ‘kitten’ compared to North America’s scary ‘crocodile’. Regardless of interest rates, British graduates entering low-paid professions will not be penalised with repayments, chased by debt collectors or assigned bad credit ratings — and their debt will be wiped out after 30 years.

In contrast, the harsh world of US student debt compels many graduates to take out private loans that can bring devastating personal consequences: just Google ‘marrying someone with student debt’ to see the pernicious effects.

We’re not there, but there’s still room for improvement. If tuition fees make students into quasi-consumers then they should be treated as such. That means the repayment terms of loans should be fixed as they would be with a private lending arrangement, where retroactive changes would be illegal.

Selling off student debt to private investors risks further eroding borrowers’ confidence — and investors will only be sure of a decent return if they are able to impose tougher terms as bad debt levels rise. Moreover, universities should be transparent about where the fees go. Revelations about the astronomical salary levels of vice-chancellors and of bloated management teams do not cast increased tuition fees in a positive light.

Most importantly, if the point of fees is to stabilise university funding and increase the number of places, the government should do more than pay lip-service to access issues. Ring-fencing a proportion of fees for maintenance grants would make the higher education system fairer — and win the support of students. The recent Diamond review in Wales provides one example of how this could work, replacing a £5,100 universal grant with a loan system, but on the basis that places for poorer students would be subsidised with a sliding-scale state contribution.

Subsidising places for the poor with tuition fees paid for by the better-off? Now that sounds like a rare policy both Karl Marx and Conservatives could agree upon.

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