Higher Education Funding Policy: who wins and who loses? Lorraine Dearden Emla Fitzsimons Alissa Goodman Greg Kaplan 18 th March 2005
Jan 03, 2016
Higher Education Funding Policy:
who wins and who loses?
Lorraine Dearden
Emla Fitzsimons
Alissa Goodman
Greg Kaplan
18th March 2005
Outline of presentation
1. What are the reforms to Higher Education (HE) funding proposed by Labour, the Conservatives and the Liberal Democrats?
2. How would students be affected by the proposed reforms?
3. A look at lifetime earnings profiles for graduates and non-graduates
4. How would graduates be affected by the proposed reforms?
5. What would the reforms cost and who would pay?
6. What do the reforms imply for university funding?
2003-04 system
• Upfront tuition fees of £1,200 p.a.• Full or partial fee exemptions for poorest students
• Zero grants• Means-tested maintenance loans of up to £4,305 p.a.
The proposed reforms
Tuition Costs
Labour Conservatives Liberal
Democrats
The proposed reforms
Tuition Costs
Labour Conservatives Liberal
Democrats
Fees - Upfront None None None
The proposed reforms
Tuition Costs
Labour Conservatives Liberal
Democrats
Fees - Upfront None None None
- Deferred £0-£3,000 p.a. None None
The proposed reforms
Tuition Costs
Labour Conservatives Liberal
Democrats
Fees - Upfront None None None
- Deferred £0-£3,000 p.a. None None
- Exemptions None N/A N/A
The proposed reforms (contd.)Maintenance Support
Labour Conservatives Liberal
Democrats
The proposed reforms (contd.)Maintenance Support
Labour Conservatives Liberal
Democrats
Loans £3,305 - £4,405 p.a.
Means-tested
£5,000 p.a.
Not means-tested
£3,225 - £4,300 p.a.
Means-tested
The proposed reforms (contd.)Maintenance Support
Labour Conservatives Liberal
Democrats
Loans £3,305 - £4,405 p.a.
Means-tested
£5,000 p.a.
Not means-tested
£3,225 - £4,300 p.a.
Means-tested
Grants £0 - £2,700 p.a.
Means-tested
£0 - £1,500 p.a.
Means-tested
£0 - £2,000 p.a.
Means-tested
The proposed reforms (contd.)Maintenance Support
Labour Conservatives Liberal
Democrats
Loans £3,305 - £4,405 p.a.
Means-tested
£5,000 p.a.
Not means-tested
£3,225 - £4,300 p.a.
Means-tested
Grants £0 - £2,700 p.a.
Means-tested
£0 - £1,500 p.a.
Means-tested
£0 - £2,000 p.a.
Means-tested
Bursaries Minimum £300 p.a. if fees are
£3,000 p.a.
Means-tested None None
What the proposed reforms mean for
student living standards
This largely depends on take-up of debt by students
Tuition fees should not affect student living standards, so maintenance grants and loans determine how well off a student will be
This is because
• Under Labour system, fee loans would cover full tuition costs
• Under Conservative and Liberal Democrat systems, no tuition costs
What the proposed reforms mean for student living standards (contd.)
Just how far would maintenance support
- maintenance loans, grants and possibly bursaries -
go towards providing students with basic standard of living (we consider NUS benchmark of £6,890 p.a.) under all three systems?
Student Finances under Labour proposals,assuming maximum debt take-up
01,0002,0003,0004,0005,0006,000
Parental income, £ p.a.
£ p.
a.
Maintenance Loan Grant Bursary NUS Shortfall
Student Finances under Conservative proposals,assuming maximum debt take-up
01,0002,0003,0004,0005,0006,000
Parental income, £ p.a.
£ p.
a.
Maintenance Loan Grant NUS Shortfall
Student Finances under Liberal Democrat proposals, assuming maximum debt take-up
01,0002,0003,0004,0005,0006,000
Parental income, £ p.a.
£ p.
a.
Maintenance Loan Grant NUS Shortfall
Debt take-up Just how likely is it that students would take out all available loans?
- It largely depends on the terms and conditions of debt repayment
Debt Repayment Terms and ConditionsLabour Conservatives Liberal
Democrats
Repayments 9% of income above
£13,925 p.a.
9% of income above
£13,925 p.a.
9% of income above
£13,925 p.a.
Debt take-up Just how likely is it that students would take out all available loans?
- It largely depends on the terms and conditions of debt repayment
Debt Repayment Terms and ConditionsLabour Conservatives Liberal
Democrats
Repayments 9% of income above
£13,925 p.a.
9% of income above
£13,925 p.a.
9% of income above
£13,925 p.a.
Real interest rate 0% 4% - 5.5% 0%
Debt take-up Just how likely is it that students would take out all available loans?
- It largely depends on the terms and conditions of debt repayment
Debt Repayment Terms and ConditionsLabour Conservatives Liberal
Democrats
Repayments 9% of income above
£13,925 p.a.
9% of income above
£13,925 p.a.
9% of income above
£13,925 p.a.
Real interest rate 0% 4% – 5.5% 0%
Debt forgiveness 25 years after graduation
25 years after graduation
25 years after graduation
Debt take-up (contd.)
• Under the Labour and Liberal Democrat systems• loans subsidised• this means that students would be well-advised to borrow the
maximum amount, regardless of whether they can obtain external sources of funding
• Under the Conservative system• loans carry a real interest rate• this means that students may be well-advised not to borrow the
maximum amount and to seek cheaper external sources of finance if possible
• we assume that a student under a Conservative system borrows the amount that would provide him/her (as far as possible) with the same standard of living in university as (s)he would obtain under a Labour system
Student Finances under Conservative proposals, equivalising maintenance support to Labour system
01,0002,0003,0004,0005,0006,000
Parental income, £ p.a.
£ p.
a.
Maintenance Loan Grant NUS Shortfall
Debt levels on graduationEstimated so as to provide student with same standard of living in
university under all three systems
Labour Conservatives Liberal Democrats
Student’s parental
income
Low(up to £15,970 p.a.)
£19,340 £16,230 £12,340
Debt levels on graduationEstimated so as to provide student with same standard of living in
university under all three systems
Labour Conservatives Liberal Democrats
Student’s parental
income
Low(up to £15,970 p.a.)
£19,340 £16,230 £12,340
Middle(around £25,000 p.a.)
£19,340 £14,580 £12,340
Debt levels on graduationEstimated so as to provide student with same standard of living in
university under all three systems
Labour Conservatives Liberal Democrats
Student’s parental
income
Low(up to £15,970 p.a.)
£19,340 £16,230 £12,340
Middle(around £25,000 p.a.)
£19,340 £14,580 £12,340
Upper middle(around £35,000 p.a.)
£21,440 £13,810 £11,910
Debt levels on graduationEstimated so as to provide student with same standard of living in
university under all three systems
Labour Conservatives Liberal Democrats
Student’s parental
income
Low(up to £15,970 p.a.)
£19,340 £16,230 £12,340
Middle(around £25,000 p.a.)
£19,340 £14,580 £12,340
Upper middle(around £35,000 p.a.)
£21,440 £13,810 £11,910
High(above £44,000 p.a.)
£18,670 £10,730 £9,250
How Much More Do Graduates Earn Over Their Lifetimes?
Conventional Approach
• Sample graduates only
• Ignores large variability in possible lifetime earnings paths
• Ignores fact that the value of a degree will be different for different people
Estimate the ENTIRE DISTRIBUTION of lifetime earnings paths
New Approach
• Explicitly account for:• Spells out of work• Earnings mobility
• Simulation based approach
• Labour Force Survey – wages• British Household Panel Survey – employment
A Distribution of Outcomes
0.000.010.020.030.040.050.060.070.08
Lifetime earnings in £2006-07
Pro
port
ion
Graduate Males Non-graduate Males
A Distribution of Outcomes
0.00
0.01
0.02
0.03
0.04
0.05
0.06
0.07
Lifetime earnings in £ 2006-07
Pro
port
ion
Graduate Females Non-graduate Females
A Distribution of Outcomes – no mobility, full employment
0.00
0.01
0.01
0.02
0.02
0.03
0.03
0.04
Lifetime earnings in £2006-07
Pro
port
ion
Graduates All non-graduates
Median Graduate Advantage
Graduates
£
Non-graduates
£
Difference
£
Males
Females
Median Graduate Advantage
Graduates
£
Non-graduates
£
Difference
£
Males 1,112,000
Females
Median Graduate Advantage
Graduates
£
Non-graduates
£
Difference
£
Males 1,112,000 787,000
Females
Median Graduate Advantage
Graduates
£
Non-graduates
£
Difference
£
Males 1,112,000 787,000 325,000
Females
Median Graduate Advantage
Graduates
£
Non-graduates
£
Difference
£
Males 1,112,000 787,000 325,000
Females 754,000
Median Graduate Advantage
Graduates
£
Non-graduates
£
Difference
£
Males 1,112,000 787,000 325,000
Females 754,000 324,000
Median Graduate Advantage
Graduates
£
Non-graduates
£
Difference
£
Males 1,112,000 787,000 325,000
Females 754,000 324,000 430,000
Not a sure thing…
MALES:• 15% of graduates earn less than £900,000• 18% of non-graduates earn more than
£900,000
FEMALES:• 15% of graduates earn less than £500,000• 16% of non-graduates earn more than
£500,000
What do the proposed reforms mean for graduates?
Introduction
• How graduates fare depends on:• lifetime earnings • graduation debt• interest rate and repayment conditions
Introduction
• How graduates fare depends on:• lifetime earnings • graduation debt• interest rate and repayment conditions
• Compare graduate outcomes assuming that students living standards at university same under all three systems
Repayments• Under all systems, graduates on same salary
make identical minimum repayments
Repayments• Under all systems, graduates on same salary
make identical minimum repayments • Minimum does not vary by debt level or
interest rate & all debt written off after 25 years
Repayments• Under all systems, graduates on same salary
make identical minimum repayments • Minimum does not vary by debt level or
interest rate & all debt written off after 25 years
• Students making repayments reduce debt:• always under Labour’s and Liberal
Democrat’s scheme• only if repayment greater than interest
under Conservatives
Impact on graduates• Huge advantages from estimating the full
distribution of graduate lifetime earnings paths
Impact on graduates• Huge advantages from estimating the full
distribution of graduate lifetime earnings paths
• Show the average outcome, plus the dispersion around a particular outcome
Impact on graduates• Huge advantages from estimating the full
distribution of graduate lifetime earnings paths
• Show the average outcome, plus the dispersion around a particular outcome
• Also choose sub-samples of interest:• women who take more than 5 years out of
the labour market• low and high earners
Impact on ALL graduates
Taxpayer Subsidy on Loan
• Under Labour and Liberal Democrats – zero real interest rate on loans
Taxpayer Subsidy on Loan
• Under Labour and Liberal Democrats – zero real interest rate on loans
• Cost of government borrowing is not zero – therefore taxpayer subsidy in providing these loans
Taxpayer Subsidy on Loan
• Under Labour and Liberal Democrats – zero real interest rate on loans
• Cost of government borrowing is not zero – therefore taxpayer subsidy in providing these loans
• Under Conservative scheme NO taxpayer subsidy on loans as administered by banks
How much is the subsidy?
• Under Labour ranges from:• 27.4% to 29.1% for men• 41.2% to 45.7% for women
• Under Liberal Democrats ranges from:• 21.0 % to 23.3 % for men• 26.3 % to 30.9% for women
• Difference is wholly due to larger graduate debt under Labour
Time to pay back loans
• For male & female graduates from low income families:
• shortest under Liberal Democrats• longest under Conservatives
Time to pay back loans
• For male & female graduates from low income families:
• shortest under Liberal Democrats• longest under Conservatives
• For male & female graduates from high income families:
• shortest under Liberal Democrats• longest under Labour
Time to pay back loans
• For male & female graduates from low income families:
• shortest under Liberal Democrats• longest under Conservatives
• For male & female graduates from high income families:
• shortest under Liberal Democrats• longest under Labour
• Least variability in repayment times:
• under Liberal Democrats for men• under Labour for women
Years to pay debt - Men
Low income family
High income family
Labour: 17.3
(2.9)
17.0
(2.9)
Conservatives 20.9
(3.4)
15.2
(3.3)
Liberal Democrats 13.3
(2.7)
11.3
(2.5)
Years to pay debt - Women
Low income family
High income family
Labour: 22.2
(4.8)
22.0
(4.9)
Conservatives 23.2
(4.3)
20.9
(5.7)
Liberal Democrats 18.2
(5.6)
15.2
(5.5)
Proportion not paying back loans
• For male & female graduates from low income families:• shortest under Liberal Democrats• longest under Conservatives
Proportion not paying back loans
• For male & female graduates from low income families:• shortest under Liberal Democrats• longest under Conservatives
• For male & female graduates from high income families:• shortest under Liberal Democrats• longest under Labour
Proportion not paying off debt - Men
Low income family
High income family
Labour: 3.3% 3.1%
Conservatives 18.8% 2.9%
Liberal Democrats 1.3% 0.9%
Proportion not paying off debt - Women
Low income family
High income family
Labour: 58.1% 54.6%
Conservatives 81.4% 50.3%
Liberal Democrats 21.9% 11.2%
Different types of graduates
• In report we look at implications of different policies for:• Higher earners and low earners• Women who spend more than 5 years out
of the labour market between ages of 22 and 46
• Graduates who have undertaken 5 year degree courses
Women who spend more than 5 years out of the labour market
Background
• In our sample, 21.9 per cent of women spend more than 5 years out of labour market between ages of 22 and 46
Background
• In our sample, 21.9 per cent of women spend more than 5 years out of labour market between ages of 22 and 46
• Of these women:• 60 per cent are in the bottom quintile of lifetime
earnings• 6.2 per cent are in the top quintile of lifetime
earnings• Average lifetime earnings £530,490 (£253,460)
Years to pay debt
Low income family
High income family
Labour: 23.4
(2.9)
23.3
(4.2)
Conservatives 23.9
(3.4)
22.7
(5.1)
Liberal Democrats 21.6
(5.5)
19.3
(6.4)
Proportion not paying off debt
Low income family
High income family
Labour: 82.2% 80.9%
Conservatives 87.9% 79.4%
Liberal Democrats 60.6% 40.5%
Outstanding Debt as % of total debt
Low income family
High income family
Labour: 42.4% 41.0%
Conservatives 143.3% 101.3%
Liberal Democrats 24.8% 15.9%
What does this mean?
• High proportion of women in this group don’t pay off debt – even though some end up in highest quintiles- raises questions about 25 year debt write
off
What does this mean?
• High proportion of women in this group don’t pay off debt – even though some end up in highest quintiles- raises questions about 25 year debt write off
• Banks administering Conservative scheme potentially face severe adverse selection problems• 25 year debt write off and fixed minimum
repayments source of difficulties
Conclusions
• Impact of different parties’ policies vary across the earnings distribution
Conclusions
• Impact of different parties’ policies vary across the earnings distribution
• Focussing on ‘example’ graduate or a ‘median’ graduate does not get close to telling the whole story
Conclusions
• Impact of different parties’ policies vary across the earnings distribution
• Focussing on ‘example’ graduate or a ‘median’ graduate does not get close to telling the whole story
• Our analysis on graduates should help ensure that the implications of whatever system is in place after the election are more fully understood
How much do the reforms cost, and who would pay?
Alissa Goodman
Summary
• Reforms mean gainers under all 3 parties: • Universities • Students
• Who pays differs across parties
• Labour and Conservatives: • Graduates and taxpayers share the costs
• Liberal Democrats:• Taxpayers foot the entire bill
Taxpayers: public expenditure
Labour Conservative Lib Dem
Additional
England, teaching and student support
Taxpayers: public expenditure
Labour Conservative Lib Dem
Additional £1.3 bn
England, teaching and student support
Taxpayers: public expenditure
Labour Conservative Lib Dem
Additional £1.3 bn £1.1 bn
England, teaching and student support
Taxpayers: public expenditure
Labour Conservative Lib Dem
Additional £1.3 bn £1.1 bn £2.2bn
England, teaching and student support
Taxpayers: public expenditure
Labour Conservative Lib Dem
Additional £1.3 bn £1.1 bn £2.2bnTotal HE
England, teaching and student support
Total HE spending 2003-04 system: £6.3 bn
Taxpayers: public expenditure
Labour Conservative Lib Dem
Additional £1.3 bn £1.1 bn £2.2bnTotal HE £7.6 bn £7.4 bn £8.5bn
England, teaching and student support
Total HE spending 2003-04 system: £6.3 bn
Taxpayer costs: Labour
2006/07
New fee loans £800mNew maintenance loans £70mGrants £420mTotal £1.3 billion
Taxpayer costs: Conservatives
2006/07
Fee replacement +£1350mGift of Student Loan Book +£380mGrants +£420mLoan subsidies -£1030mTotal £1.1 billion
Taxpayer costs: Lib Dems
2006/07
Fee replacement +£1680mGrants +£560mTotal £2.2 billion
Who pays, and who gains?
• Payments are made to and/or from:• Taxpayers• Universities• Students• Graduates
All payments
Base Labour Cons Lib Dem
Taxpayers -6.3 -7.6 -7.4 -8.5
Universities
Students
Graduates
£ billion
All payments
Base Labour Cons Lib Dem
Taxpayers -6.3 -7.6 -7.4 -8.5
Universities +5.8
Students
Graduates
£ billion
All payments
Base Labour Cons Lib Dem
Taxpayers -6.3 -7.6 -7.4 -8.5
Universities +5.8
Students -0.5
Graduates
£ billion
All payments
Base Labour Cons Lib Dem
Taxpayers -6.3 -7.6 -7.4 -8.5
Universities +5.8
Students -0.5
Graduates +1.0
£ billion
All payments
Base Labour Cons Lib Dem
Taxpayers -6.3 -7.6 -7.4 -8.5
Universities +5.8 +6.9
Students -0.5
Graduates +1.0
£ billion
All payments
Base Labour Cons Lib Dem
Taxpayers -6.3 -7.6 -7.4 -8.5
Universities +5.8 +6.9
Students -0.5 +0.9
Graduates +1.0
£ billion
All payments
Base Labour Cons Lib Dem
Taxpayers -6.3 -7.6 -7.4 -8.5
Universities +5.8 +6.9
Students -0.5 +0.9
Graduates +1.0 -0.2
£ billion
All payments
Base Labour Cons Lib Dem
Taxpayers -6.3 -7.6 -7.4 -8.5
Universities +5.8 +6.9 +7.0
Students -0.5 +0.9
Graduates +1.0 -0.2
£ billion
All payments
Base Labour Cons Lib Dem
Taxpayers -6.3 -7.6 -7.4 -8.5
Universities +5.8 +6.9 +7.0
Students -0.5 +0.9 +0.4
Graduates +1.0 -0.2
£ billion
All payments
Base Labour Cons Lib Dem
Taxpayers -6.3 -7.6 -7.4 -8.5
Universities +5.8 +6.9 +7.0
Students -0.5 +0.9 +0.4
Graduates +1.0 -0.2 0
£ billion
All payments
Base Labour Cons Lib Dem
Taxpayers -6.3 -7.6 -7.4 -8.5
Universities +5.8 +6.9 +7.0 +7.0
Students -0.5 +0.9 +0.4
Graduates +1.0 -0.2 0
£ billion
All payments
Base Labour Cons Lib Dem
Taxpayers -6.3 -7.6 -7.4 -8.5
Universities +5.8 +6.9 +7.0 +7.0
Students -0.5 +0.9 +0.4 +0.6
Graduates +1.0 -0.2 0
£ billion
All payments
Base Labour Cons Lib Dem
Taxpayers -6.3 -7.6 -7.4 -8.5
Universities +5.8 +6.9 +7.0 +7.0
Students -0.5 +0.9 +0.4 +0.6
Graduates +1.0 -0.2 0 +1.0
£ billion
All payments: compared to 03/04
Labour Cons Lib Dem
Taxpayers
Universities +1.1 +1.2 +1.2
Students
Graduates
£ billion
All payments: compared to 03/04
Labour Cons Lib Dem
Taxpayers
Universities +1.1 +1.2 +1.2
Students +1.4 +0.9 +1.1
Graduates
£ billion
All payments: compared to 03/04
Labour Cons Lib Dem
Taxpayers -1.3
Universities +1.1 +1.2 +1.2
Students +1.4 +0.9 +1.1
Graduates -1.3
£ billion
All payments: compared to 03/04
Labour Cons Lib Dem
Taxpayers -1.3 -1.1
Universities +1.1 +1.2 +1.2
Students +1.4 +0.9 +1.1
Graduates -1.3 -1.0
£ billion
All payments: compared to 03/04
Labour Cons Lib Dem
Taxpayers -1.3 -1.1 -2.2
Universities +1.1 +1.2 +1.2
Students +1.4 +0.9 +1.1
Graduates -1.3 -1.0 0
£ billion
University funding
• Increase similar under all parties• Up to 30% real increase in per student
funds
• Return to unit funding of early 90s
• Still below 1970s peak
University funding per student
4,000
6,000
8,000
10,00019
90
1995
2000
2005
2010
2015
£ p
er s
tud
ent,
200
6-07
public, incl. Fees 2006-07
University funding per student
0
4,000
8,000
12,00019
48
1953
1958
1963
1968
1973
1978
1983
1988
1993
1998
2003
2008
2013
2018
£ p
er s
tud
ent,
200
6-07
historic series public, incl. Fees 2006-07
Conclusions
• University funding to rise under all parties
• Students will also gain
• Taxpayer contributions higher
• Labour and Conservatives: graduates pay too• Conservatives: market for loans• Labour: market for fees