The effects of changes to university tuition fees

Student loan debt concept. Young woman with heavy box full of debt carrying it up the education ladder

By Luca Peluzzi

University funding and student finance are subjects often discussed in the news since they turned into a key battleground during 2017 general elections. It is evident that the Labour party has become increasingly popular among younger voters because of their promises to improve student fees that were at the forefront of Corbyn’s recent campaigns. The pressure for the Conservative party to regain their appeal to younger voters led Theresa May to address the issue at a recent Conservative party conference, on Wednesday 4 October. The Prime Minister announced that there will be a ‘major review of university funding and student finance’, even if it still unclear the strength, timing, and details of the whole plan.

Among the possible changes, the Conservatives announced that they are first considering to freeze fees at their current level and raise the earnings threshold at which graduates must begin to repay their loans from £21,000 to £25,000. In fact, tuition fees were set to rise from £9,250 to £9,500 next year due to inflation, but changing public sensibility on this theme forced May to reconsider the increase. Even if these two simple measures seem only to eventually benefit students, their implications and effects are more complicated. Freezing tuition fees will result in inflation eroding the income received by universities; Cardiff University, with its 22,000 undergraduate students, could possibly suffer a 6m loss, affecting the university’s investments.

Sure enough raising the repayment threshold does not reduce the overall debt burden, but low-earning graduates are the ones that will benefit immediately from it. However, in the long run, the biggest winners are the higher-earning graduates, since debt is written off after 30 years, fewer will have to repay the full amount of their loans.

According to Student Loans Company this year, for the first time in history, student loan debt in the UK has risen to more than £100bn, jumping by 16.6% in comparison to the figure of £86.2bn from last year. Loans and debts have changed a lot during recent years; tuition fees were introduced 19 years ago, then put up to £3,000 a year 13 years ago and finally increased to £9,000 in 2012 (when student debt was less than half the current level, at £45.9bn).

Currently, graduates pay back 9% of the amount they earn when their salary goes over £21,000. The interest rate is not fixed since it goes up with their earnings and is linked to inflation. Based on Institute for Fiscal Studies projections, at current conditions, 77% of students will never pay their loan back. If the repayment threshold is raised to £25,000, that figure is expected to rise to 83%. For what we can evaluate now this has not prevented students from the most disadvantaged backgrounds to attend university, since these students by 2016 were 74% more likely to enter university than they were 10 years earlier, according to University UK.

Labour’s £10 billion plan to fund university education by raising corporation tax and national insurance by 7% for those earning more than £50,000 a year was certainly appealing but perhaps too ambitious, because of their intention to completely revolutionise the whole UK university system. Student debt has become a significative problem that needs to be addressed since an increasing number of students are facing 30 years of repayments once they find a stable graduate job.