Discussion paper: Updating student finance

The current system under which university education in England is financed via student loans has been accompanied by controversy since its inception. The 1998 Teaching and Higher Education Act was introduced by the recently elected Labour government under Tony Blair. It brought in tuition fees, with loans available for students to pay towards their fees, and also replaced maintenance grants by loans for most students.

Tuition fees were raised to £3000 per year in 2004, and in subsequent years to £9250. The increases were marked by student protest and street demonstrations, amid claims that this would discriminate in favour of middle class students and those from well-to-do backgrounds. The Labour manifesto pledge to scrap tuition fees altogether was reckoned by many analysts to have contributed to a large proLabour vote among young people.

Many claimed that tuition fees financed by student loans represented a shift from finance of university education by older taxpayers to finance of it by a cash-strapped younger generation which enjoyed few of the state benefits available to its older counterparts.

The replacement of maintenance grants by maintenance loans was seen by some as part of the same process, with these rising for the year 2016/17 to a maximum of £8,200 for students living away from home outside London, and more for those studying in the capital. For a typical 3-year course leading to a degree, this has meant that students upon graduating could face a debt burden in excess of £50,000 (according to the Sutton Trust, the average student debt at graduation was £44,000 in 2016). It causes disquiet among many students that they are starting their working life with such a huge overhang of debt.

The calculations of repayment liability and of interest charged are dauntingly complex and impenetrable, and the system has been charged several times with failure to process information rapidly, or to correct overpayment collected. The current basis for most is that interest will be charged at the Retail Price Index for salaries up to £21,000 and at RPI + 3% for salaries of £41,000 and over. Debts are written off after 30 years, no matter how much or little graduates pay back, and once you have paid off your debt you no longer make repayments. Graduates who go abroad for 3 months or more have to complete an Overseas Income Assessment Form so that repayments can continue to be made, although there are obvious difficulties in some cases of enforcing collection

Read the full discussion paper here.