Can interest charges double the cost of HE participation?

Those Student Finance Calculator thingies are damn addictive. Hours can fly by when you’re sliding the little pointers up and down, watching how total repayment sums (and periods) change depending on variables like inflation, salary growth and average earnings.

They’re a great idea, but I do wonder how successfully young people manage to negotiate them. Can applicants really predict how RPI will change over the next three decades? How do they estimate their average annual pay rises? All I had to worry about at that age were beer prices in the Students’ Union.

The calculator’s default setting help, of course. Currently, they put average inflation at 3%, salary growth at RPA +2%, and average UK earnings growth at RPI +1%.  Based on those assumptions, a student’s maximum total repayment in today’s money is £90,400 for a 3-year degree (costing £50k, including living costs) and £124,290 for a 4-year degree (costing £66.7k). That’s assuming you’re paying maximum tuition fees and receiving the maximum maintenance loan, with London weighting.

Pay Day Lender extortion? No, far from it. But still huge sums for many students. Interest charges can’t quite double the cost of participation, but they can increase a graduate’s lifetime repayments by over 80%.

What the calculator also shows is that total repayments go up and up with your expected starting salary. Until, that is, they start going down and down. That’s the regressive nature of the system that I’ve mentioned before; it’s also discussed here by Ron Johnston.

Take Ruth, a stay-at-home student who begins a 3-year course at an £8k-a-year university in September 2013. She qualifies for no grants or bursaries, and takes out no maintenance loans. With a starting salary of £16.5k, Ruth’s lifetime repayments will be a mere £30, just one pound per year.

This shows the system is working – Ruth is a low earner so her degree costs are being heavily subsidised.

As Ruth’s hypothetical starting salary goes up, so too do her lifetime repayments. As you’d expect.

That is, until we set Ruth’s starting salary around £36k, at which point total repayments peak, and then begin to fall.

If Ruth is lucky enough to have a starting salary of £50k, she’ll pay three grand less in interest charges. If she starts on £60k, she’ll avoid paying a further £1.3k.

This is where ‘it’s a tax, not a debt’ line of argument begins to collapse. What kind of tax hits middle earners harder than higher earners? And don’t forget that the very wealthy have the option to repay the debt immediately upon graduation, thereby avoiding interest entirely.

Of course, to call it a ‘debt’ is also misleading. Debt collectors aren’t known for being generous towards those on low incomes, nor do they tend to ‘forgive’ after 30 years. In fact, any starting salary under £25.5k will mean that Ruth’s total lifetime repayments are actually lower than the loans she took out. And any starting salary under £21.5k means that she’ll get her degree for under ‘half price’.

According to some reports, the concessions to low-earners make the student loan repayment structure hugely expensive. For Nicholas Barr, professor of public economics at the London School of Economics, the solution is a “no-brainer“: drop the repayment threshold from £21k to £18k so that low-earners pay back more of their loan (“the purpose of student loans isn’t to help the poor,” Professor Barr says, “there are much better ways of doing that”).

But why not first remove the concessions for very high earning graduates?

The fairness case certainly seems much stronger. After all, you can (just about) understand why the City hotshot may feel the price of her degree shouldn’t be higher than the middle-earning schoolteacher’s. It’s essentially the same product. But is there really an argument that the price of her degree should be lower?

The ‘Avalanche’ Metaphor in UK Higher Education

According to a March 2013 report by the Institute for Public Policy Research:

“Right now, nothing looks more solid, more like that snow-covered mountainside, than the traditional university…”

This doesn’t sound good. Mountainsides never stay all nice and snow-covered for long. We all know what’s on its way. And, sure enough, the report soon breaks the news that we all feared:

“…an avalanche is coming.”

 

The report’s author is Sir Michael Barber, chief education advisor at Pearson. Pearson is keen to get a foothold in the UK higher education market, and already run a few courses. Sir Michael chairs the Pearson Affordable Learning Fund, because “affordable schools, operated on a for-profit basis, can make a big difference”. Barber is also responsible for coining the neologism ‘deliverology’, a truly beautiful addition to the educational lexicon.

The report is co-authored by two of Sir Michael’s colleagues, one of whom is Pearson’s ‘Executive Director of Efficacy’. Parts of the text are oddly chummy – “Whenever Katelyn inserted an example from Duke, Saad responded with one from Yale” – and I did sometimes wonder quite how much time the authors spent researching their topic in the lower reaches of the UK’s post-92 sector.

In fairness, ‘An Avalanche is Coming’ – characterised elsewhere as a “rich and nuanced account of the technological and economic pressures facing higher education” – raises some very important questions. Why should universities bother with research if that’s what thinktanks are for? How can any funding system accommodate the needs of mature students? Shouldn’t learning always be delivered through practice and mentorship? Doesn’t some HE teaching still assume that all students are would-be academics? Why does the cost of higher education rise faster than inflation? Can three year degrees remain the norm?

Particularly interesting is the way in which the report speculates about what students really want from a degree. While accepting that “undergraduates are too often seen as a necessary drudge that, with promotion, perhaps one can give up”, the authors don’t draw the simplistic conclusion that competition alone will drive up teaching quality:

“For many students it is the degree itself rather than the teaching and learning that really matters. A degree has currency in the labour market and, while … its value may be falling, it is nevertheless a passport to a range of professional opportunities denied to those without one… The university brand remains potent.”

Few answers are offered (“ponder anew,” we’re advised), but the tenor is pro-MOOC, pro-business and relentlessly pro-unbundling. New metaphors are offered on every page (“in the new world the learner will be in the driver’s seat, with a keen eye trained on value”), but less attention is paid to diagrams being printed the right way round (see Figure Six, page 66).

“An Avalanche is Coming” follows on from “The Oceans of Innovation”. However, for most in HE, the avalanche isn’t ‘coming’ – it’s been around for some time. The cause isn’t restless students, demanding a marketplace based on debt tolerance rather than academic potential; it’s the end-product of an ideology that began with the idea that “universities are complacent because they are over-protected from the market.”

Avalanches, like oceans, are natural phenomena. However, many of the issues facing UK universities are man-made. As a society, we’re choosing to see HE as private commodity, not a public good. Ways forward are still available – and Sir Michael helpfully points us in the direction of many – but whether metaphors of impending catastrophe allow the issue to be better understood, I’m not sure.

The Regressive Nature of UK Student Loans

Earlier this year, the LSE blogged a guest post by Ron Johnston, a geographer at Bristol University. Johnston, along with his colleague Tony Hoare, is the author of an important 2010 paper which found that “students with high A-level scores are more likely to get first-class degrees, but students from state schools with such high scores are more likely to achieve the highest degree grade than are students with similar scores who attended independent schools“.

Here, Johnston is talking about the new student loan structure, and his post is framed in terms of falling recruitment to postgraduate courses. Will Hutton had previously written about student fees leaving graduates too skint to consider a taught masters, and Johnston notes the picture is actually much grimmer than Hutton painted.

While I fully agree that the new undergraduate fee structure could hurt postgraduate recruitment further (at least on those courses leading to public sector professions), I was more intrigued by the figures put forward by Johnston about the regressive nature of the fee repayment system.

Naturally, I knew that the more a graduate earned, the quicker s/he would pay off the debt and the less interest s/he would therefore be charged. I was also aware of the coalition horse-trading that foreshadowed the decision to allow wealthier graduates to repay all of their  fees immediately after graduation. But what I hadn’t fully understood was just how much difference the power of compound interest made to total repayment. On this issue, the numbers really are quite staggering. Just look at the how a graduate’s starting salary affects their total repayment (figures based on fees-only borrowers of £27,000):

If your starting salary is £25k, total repayments are £57,526.

If your starting salary is £30k, total repayments are £50,943.

If your starting salary is £40k, total repayments are £44,354.

All projections about future graduate repayments are, of course, subject to assumptions about inflation and annual pay rises. However, according to Johnston, “the conclusion is clear: the less well-paid you are when you enter the labour market, the more your degree costs, both relatively and absolutely.”

Incidentally, for students who take out a full maintenance loan (£7,675 per year) on top of the £27,000 fee loan, it’s a similar story. If your starting salary is £30k, your total repayments are £135,914. But if your starting salary is £40k, total repayments are only £104,105.

It should be noted that the regressive nature of these repayment totals are partly the result of assumed starting salaries being relatively generous. For ‘fees + maintenance’ borrowers on lower starting salaries, the debt-wipe concession kicks in after 30 years.

It is this concession, of course, that allows the BIS website to brag that “under our new more progressive repayment system, around a quarter of graduates, those with the lowest lifetime earnings, will pay less [than under the previous system]”. The 2010 Institute of Fiscal Studies report, Higher Education Reforms: Progressive but Complicated with an Unwelcome Incentive, makes similar claims, and Vince Cable even argues that the new system is a “progressive graduate tax in all but name.”

But how progressive is a repayment system that squeezes much more from middle-earning graduates than it does from high-earning graduates? Martin Lewis’s Independent Student Funding Taskforce  reckons that fee levels are “irrelevant to most people – they’ll just keep paying the same proportion each month and if they don’t earn enough, they won’t come close to paying back what was borrowed (never mind the interest).” But once real graduates find themselves repaying different levels of debt over different lengths of time, I wonder whether they’ll be quite so blasé?

Johnston’s excellent blog (and startling graph, reproduced above) warns that unprecedented levels of debt will put further study beyond the means of most graduates. However, once the unfairness within the repayment structure begins to bite, it may not only be aspiring postgrads who feel aggrieved.

Thousands of graduates may wonder why their bill is so much greater than fatter-salaried friends who took the same degree at the same time.

Does the ‘Attainment Gap’ get Russell Group universities off the hook?

In the UK, Russell Group universities are the posh ones: institutions with the highest entry grade requirements, the highest graduate salaries and the most prestige. There’s 24 of them, and the group take its name from the Hotel Russell, which currently ranks 455th of 1,079 hotels in London by Trip Advisor (“bathroom not hygienic,” says Jan from Ghent, “there was some brown substance in the corner of the window”).

The question of who gets into Russell Group university is, for obvious reasons, an important one. According the UCAS application figures for 2013/14, “18-year-olds from the most advantaged areas are three times more likely to apply to higher education than those from the most disadvantaged areas, and entry rates to institutions that require high grades are typically six to nine times greater for applicants from advantaged areas.”

‘Six to nine times greater’ sounds an awful lot. However, the Russell Group do have an explanation: “The main problem is that students who come from low-income backgrounds and/or who have attended comprehensive schools are much less likely to achieve the highest grades than those who are from more advantaged backgrounds and who have been to independent or grammar schools,” explains Wendy Piatt, Director General of the Group. And she’s right: go to a private school and you’re four times more likely to get AAA in your A-levels than you would be at a comprehensive. “Universities simply cannot solve these problems alone,” says Dr Piatt.

Among the research supporting the ‘attainment gap’ is a paper by Haroon Chowdry and colleagues at the Institute for Fiscal Studies. It’s  a fascinating study, following two groups of English pupils from the age of 11, and noting how their academic performance at each stage of school testing affects their likelihood of participation. Findings suggest that differences in participation rates across the social classes “are substantially reduced once prior achievement is included”. They add that:

“Poor achievement in secondary schools is more important in explaining lower HE participation rates among pupils from low socio-economic backgrounds than barriers arising at the point of entry to HE. These findings are consistent with the need for earlier policy intervention to raise HE participation rates among pupils from low socio-economic backgrounds.”

Few would argue with the second point. What’s most helpful for children of low socio-economic status is intervention at an early age. You can’t correct for years of educational disadvantage as a UCAS deadline is approaching. The first point is also true – low attainment is undoubtedly the UK’s biggest barrier to participation. However, there is a tendency for Chowdry and Co to gloss over the differences that still remain at the point of entry.

Take this finding: once all prior attainment is taken into account, girls from the lowest socioeconomic quintile are 5.3% less likely to enter HE than girls from the highest socioeconomic quintile. Boys are 4.1% less likely. If you want a place at a Russell Group university, your odds are reduced by 4.3% and 2.5% respectively. Similar findings were reported earlier this week by Vikki Boliver for equal-attainment applicants in a survey of UCAS applicants from 1996 to 2006. Applicants from lower class backgrounds and from state schools were less likely to be offered a place at Russell Group universities than their comparably qualified counterparts from higher class backgrounds and private schools (even when ‘facilitating’ subjects were controlled for, despite the spin put on the research by some).

For Chowdry and his fellows authors, the point-of-entry gap between applicants of different socioeconomic status is “modest”. Encouraging less well-off students to apply to university at the age of 18 is therefore “unlikely to have a major impact” on participation. In relative terms, of course, this is perfectly true – improving attainment for all young people of lower socioeconomic status would make a bigger difference than focusing on the small proportion who defy the odds and get good grades.

But doesn’t this line of thinking get HE off the hook a little too easily? What of the thousands of high-achieving young people who aren’t making it to a top university each year? Jonathan Portes makes the same points about Chris Cook’s interpretation of the Oxford University data. He also uses the graph below to show that, if these young people did participate, they’d probably outperform students from more privileged backgrounds.

“We cannot offer places to those who do not apply,” says Dr Piatt. True. But there’s a growing body of research that suggests those who do apply to Russell Group universities are not always treated equally. The ‘attainment gap’ certainly isn’t to blame for that.

Not another Widening Participation blog?

The title of my blog refers to a 2004 Sutton Trust report which suggested that, every year, 3,000 disadvantaged young people in the UK don’t attend a top university despite having good enough grades to do so. The figures, based on benchmarks by the Higher Education Funding Council for England (HEFCE), showed that 45% of independent school students who obtain ABB+ (or equivalent) go to a leading university, but only 26% of state school pupils obtaining the same grades do so. ‘Leading’ universities are defined as the 13 highest-ranking UK institutions, and they’re the ones associated with greater prestige, better facilities and higher salaries. The consequences for social mobility are obvious.

Much has changed since 2004, of course. On one hand, a tripling of student fees and the abolition of AimHigher and the Educational Maintenance Allowance may make participation even trickier for some disadvantaged young people. On the other hand, the latest figures from UCAS actually show applications from the poorest 20% of the population at a record high.

The point of this blog is to help make sense of the (often contradictory) stats and the (often controversial) policies, with a view to finding out whether 3,000 young people still go ‘missing’ every year. I also want to shed some critical light on debates about Higher Education (HE). By ‘critical’, I mean asking questions like:

• Is being ‘missing’ from a top university the same as ‘missing out’?

• Does Widening Participation (WP) still matter? How wide must participation be? Can the WP battle ever be won?

• What makes a young person ‘disadvantaged’ or ‘non-traditional’? Which are the over–represented groups in HE?

• What assumptions are encoded in the language and discourse of WP? Why do we frame the debate in terms of ‘barriers’ to participation?

The Sutton Trust’s ‘Missing 3,000’ suggests that high-achieving working class youngsters may be deterred by the prestige associated with top universities, by the prospect of moving away from home, and by the cultural and social distance they perceive university to be from their own lives. Lots of other published research in the field (by Diane Reay and Penny Jane Burke, among others) find similar factors at play, and recent data I’ve collected in low-participation Manchester secondary schools suggest that these problems persist.

Despite the modest gains in WP over the last ten years, recent quantitative studies by Vikki Boliver and Chris Cook find alarming disparities. According to Boliver, state school applicants are only 4/5ths as likely to receive an offer from a Russell Group university as private school applicants, even when their  grades are the same  (although that statistic doesn’t control for predicted grades, subject choice or applicants being either under- or over-ambitious in their selections).

Clearly, debates in this area are complex and sensitive. But since dipping a toe in the field of HE (my academic background is in Linguistics), I’ve found the research to be stimulating and the debates fascinating. University participation is a topic about which everyone holds a view. Some of those views are well-informed, evidence-based and insightful. Others aren’t. This blog is simply one scholar’s attempt to help distinguish between the two.