Universities are demanding higher tuition fees – here’s what it would mean for students and taxpayers

Universities are demanding higher tuition fees – here’s what it would mean for students and taxpayers

Universities are demanding higher tuition fees – here’s what it would mean for students and taxpayers

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University Vice Rectors in England and Wales recently called for an increase in tuition fees.

There are a number of reasons for this request. Faced with a ten-year decline in real wages for university staff, the pressure from trade unions for a higher wage settlement is increasing. Energy costs are reaching unprecedented levels.

The current tuition cap of £ 9,250 in England has been in place since 2017 and the government expects it to remain frozen until 2025. With inflation now reaching 10%, this means that by 2025 there will actually be a long-term cut to university per student income by about one-third.

A substantial increase in tuition fees in the near future towards £ 12,000 or £ 13,000 per year, as suggested by Buckingham University School of Medicine founder Karol Sikora, seems increasingly inevitable.

This is despite the government having defined its current plans for the future funding of higher education only in February of this year. The government plans provide for a lower salary threshold for student loan repayment, a longer repayment period (40 years instead of 30) and a tax freeze.

So what would higher taxes mean for students and taxpayers who ultimately subsidize higher education?

More costs for the taxpayer

The average student loan in 2021/22 was £ 46,000, consisting of around three years of full tuition fees at £ 9,250 per year and three years of maintenance loans at £ 6,000 per year.

Under the current system, a student earning a starting salary of £ 40,000 per year with annual salary increases of 2.5% does not repay this loan. They would have paid a total of £ 84,000 over 30 years, of which £ 54,000 was interest, and would have left nearly £ 16,000 unpaid.

An increase in fees to a hypothetical figure of £ 13,000 per year would result in the same £ 84,000 in repayments over 30 years, but almost all of it would be interest on the initial debt. £ 56,000 of debt would remain unpaid after 30 years, with the taxpayer footing the bill. Even with the repayment term extended to 40 years, £ 12,000 would remain unpaid and canceled.

Of course, this assumes that maintenance loans (which cover the cost of living for students) are not affected, which seems unreasonable in the current economic environment. The final debt figure and the unpaid amount are likely to be even higher.

However, loan repayments are notoriously difficult to estimate in the distant future. Inflation, interest rates, rising annual income, and changes in work and life expectancy all affect repayment calculations.

Under current loan repayment schedules, only about 20% of students are expected to repay the student loan in full. This effectively turns college tuition and related loans into a graduation fee for everyone else.

Government-planned changes to repayment schedules from 2023/24 would increase this number to just over half of graduates fully repaying their debt, but this percentage will likely drop again if taxes rise.

So increasing the nominal fee would mean that about half of the graduates would pay more and in a longer time. But the other half wouldn’t actually be interested as they won’t fully pay off their debt even at the current commission level. Instead, it would shift more of the cost of higher education to the taxpayer.

Doubts about the university

Perhaps the greatest danger of a tax hike would be that higher debt and potentially higher vital repayments will dissuade talented young people from less advantaged backgrounds from going to college. We know that debt aversion is strongest among those with lower household incomes, and therefore there is a real danger to social mobility if tariffs are considered prohibitive.

Graduates in gowns throwing hawks in the air

On the other hand, allowing the amount of income per student that universities receive to be eroded by inflation, among all the other rising costs they face, could lead some universities to have to reduce places, cut courses, merge with other institutions or, in extreme cases, permanently close their doors.

These cuts would also be detrimental to social mobility. If there are fewer universities and university places, the remaining places are likely to go disproportionately to wealthier students.

Is it worth it?

The question missing from the popular discussion of tuition fees is: is it worth it? The answer to this question is crucial. It can change the perception of student debt immensely.

The short answer is yes. Even though students find the current cost of the university poor value for money, the degree continues to be beneficial. At the age of 29, men earn 8% more than their peers who do not go to college. Women earn 28% more.

The Institute for Fiscal Studies has estimated that even after taking into account the higher fees paid by graduates and the repayment of loans, the average financial return over the life of a degree is £ 130,000 for men and £ 100,000 for women. women. These are substantial returns and would dwarf the impact of a small increase in tuition fees, so lifetime returns are likely to remain high no matter what happens to fees in the coming years.

This obviously happens with the caveat that not all degrees will lead to the same return in terms of earnings. Studying math, medicine, or economics is likely to result in significantly different earnings than studying the creative arts or social work.

The number of 18-year-olds in the UK is estimated to increase by 24% between 2020 and 2030. This population boom will fuel the growing demand for higher education and, with the myriad cost pressures facing universities, something will have to deliver.

Given the yields still available, a tax hike right now to support universities is perhaps the way to go rather than risk the financial collapse of some institutions.

This article was republished by The Conversation under a Creative Commons license. Read the original article.

The conversation

The conversation

Franz Buscha has already received research funding from the Council for Economic and Social Research and the Department of Education.

Matt Dickson currently receives funding from the Economic and Social Research Council and the Nuffield Foundation and in the past has received funding from the Department for Education, the European Union and the Low Pay Commission.

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