Someone has to pay for university education. In the 1960s when 5 percent of the population cohort went to university, it was possible to meet this out of general taxation. The 5 percent had a very generous ride, with free tuition and local authorities paying maintenance grants. There was, though, a widespread feeling that Britain needed more educated people, and that a higher proportion of the age group could benefit from university education. People looked to the US, where roughly 40 percent underwent higher education.
Today the proportion in the UK has risen from 1 in 20 to 9 in 20, a figure comparable to that of the US. The costs of this increase imposed a huge strain on public finances, and the question was asked whether the general taxpayer or the direct beneficiary should be financing it. University graduates start with higher salaries on average than non-graduates, and estimates put the lifetime extra earnings at an average of roughly £80,000. Obviously the figure varies with the subjects chosen.
It seemed unfair that people less intellectually endowed should be paying higher taxes in order to provide a free entitlement to lifetime higher salaries for their more academic counterparts. Someone who left school to become an apprentice bricklayer was being asked to pay higher taxes to finance someone to become a far better-paid investment banker. It seemed like a subsidy to the children of middle class parents.
Tuition fees and loans were introduced to shift more of the cost onto those who benefitted the most from university education – the graduates themselves. But there is no doubt that as costs have spiralled, so has the burden of debt undertaken to finance fees and maintenance. A typical graduate can be £50,000 in debt by the time they graduate, including about £6,000 in interest charges.
Rather than shift the burden back onto the general taxpayer, the solution might be to move to a loans system like that used in Australia. In place of a Student Loans Company there is a Higher Education Funding Council that pays the fees at the time in return for a promise to repay when the graduate is earning enough. At a salary of AUD50,000 the repayment starts at 4 percent of salary, and at AUD95,000 it rises to 8 percent. The amount outstanding is indexed with inflation, but no interest is charged. The average repayment period is 8 years, and the proportion never repaid is 17 percent, compared with the UK's 45 percent. The system resembles the UK's, but the terminology is different and most students accept it as fair and do not feel the burden of debt incurred to the extent experienced by their UK counterparts, particularly since no interest is added.
Crucially, the Australian system allows for different courses to set different fees, so that students can choose less costly courses if they wish to trade higher future earnings for a lesser commitment undertaken while studying. The UK could overhaul its funding of higher education by incorporating similar features.