David Willetts: Is there a better way to pay for higher education?

David Willetts was Minister for Universities and Science 2010-2014 and is a member of the House of Lords.

Many areas of British public policy are subject to wild oscillations and turbulence. Funding higher education is much more stable. For the past twenty years all three political parties, faced with difficult decisions about how to pay for it, have opted for broadly the same model. But as we are seeing again now that does not mean the system is accepted let alone actually welcomed.

Is there a better way?

Graduates do earn more on average than non-graduates. So it is reasonable to expect them to pay back for the cost of their higher education. The repayments, at the rate of 9 per cent, depend on your income and only start above a threshold which for many graduates now stands at £28,470. The Institute for Fiscal Studies has some useful illustrations of what that means.

“Someone earning £35,000 a year pays back £49 per month, 1.6 per cent of their gross earnings. This rises to £161 a month (3.9 per cent) for someone earning £50,000 and £311 a month (5.3 per cent) for someone earning £70,000.”

My focus as minister for universities was to try to hold down the monthly payments which is why we increased the repayment threshold to £21,000 from the level we inherited from Labour. But we were also expecting people to pay back more in total during their working lives.

The burden of graduate “debt” is now a highly charged political issue.

The volume of the debt is a genuine source of concern to many graduates, even though it is not like a commercial loan or a mortgage. (Indeed because it is not a commercial debt with an obligation to pay back whatever your circumstances mortgage lenders look not at the debt but at the repayment as part of fixed out-goings.)

However the debt has turned out much higher than we planned fifteen years ago because of the subsequent decision in 2016 to convert all maintenance grants into loans, adding to the debt. There were also concerns that people needed help on masters courses so loans were extended to them. There was then the burst of high inflation which put up the debt as well especially for graduates earning over about £52,000 for whom there is an interest rate of RPI plus 3 per cent.

The interest rate has always been the issue which arises most unhappiness.

The last big review of higher education funding by Philip Augar proposed there should be a cap of 120 per cent on the total amount of debt. That should now be implemented. There are other attractive proposals as well. Uprating the amount due by CPI not RPI. After setting the higher repayment threshold the Coalition also said it should increase with earnings and that pledge has not always been honoured – indeed it is the latest freeze to the threshold which has inflamed such controversy.

Meanwhile where is the Conservative Party in all this?

The Conservative Party is not obliged to have a position on every part of Government policy. One of the luxuries of opposition is to have some capacity to choose the ground on which to fight. But there is a clear undercurrent of hostility to universities and a belief that too many go. Somehow the growth of higher education is attributed to Tony Blair’s 50 per cent target. But I’ve never met a student who says they went to university because he required them to go and Conservative Governments quite rightly did not set such targets.

The growth of higher education – here and around the world – is the result of choices of young people.

But these student choices need to be well-informed. That is why I fought long and hard to get much better more granular data on labour market outcomes course by course.

Some courses do appear to offer poor economic returns though that involves taking data for some years after graduation and turning it into a forecast of lifetime earnings. And there are other returns to higher education – such as better health including more resilience on mental health – which are not all caught by pay. Nevertheless there needs to be tough intervention from the Office for Students when universities appear to be performing badly. However if the state takes the draconian state of closing down specific courses, we cannot assume that these students will automatically sign on for apprenticeships, even if they are available. They may instead wish to study something else somewhere else.

Conservatives used to be more comfortable with people going to university, seeing it as a route to a decent job. Young people can’t take that for granted now, if they every could. But nor is it hopeless. Between the ages of 23 and 31 earnings grow by 72 per cent for graduates more than double the 31 per cent for non-graduates. For graduates who were on free school meals at school their average earnings growth in those crucial starter years in the jobs market is 75 per cent whereas for non-graduates it is 26 per cent. This may be one of the reasons polling shows 87 per cent of graduates do not regret going to university.

Graduates are also much more likely to be in work – so just comparing the earnings of those in work misses out one of the key benefits. 15 years after school-leaving age just 2 per cent. of graduates are on out-of-work benefits compared with 11 per cent of non-graduates.

Given that the party is keen on work as a route out of poverty and a vehicle for social mobility it seems odd that there is not more embrace of what is still the most powerful route we have to achieve that core Tory ambition.