UK university tuition fees demystified, and potential consequences of Labour’s pledge to reduce them

Ed Miliband announced last week that Labour would reduce university tuition fees from £9000 to £6000 if elected. This undoubtedly makes for good headlines, but what does it actually mean, for students and universities?

To answer this, let’s look at the current fees, how they are administered and what they cover.

In fact the term ‘tuition fee’ is potentially misleading, as this can imply something that is paid upfront. In fact what happens is that students are effectively loaned £9000 a year to cover their tuition, which the government pays. Then, in the future, if and when their earnings exceed a certain amount (£21000 per annum), they start paying it back, at a rate of 9% of what they earn over the £21000. The size of the instalments they pay and the rate at which they pay them is a subject in its own right, but it is explained in detail here.  The loan is also written off after 30 years, making it possible, even likely that some students will not pay everything back. But from the student perspective, in going to university they are taking on a loan of £27000 for a 3-year degree, plus any living and maintenance costs. It is interesting that despite dire predictions, this has not put off students wanting to go to university, and on the contrary application numbers are generally up.

From the university perspective, the government pays them £9000 per student per annum, all of which is potentially repayable by the student. This is in contrast to previous systems, where the government paid a contribution to universities for each student they taught, which was a grant as opposed to a loan. The rationale for the change was that the government made the decision that they could no longer pay student tuition fees, especially with the increasing student numbers planned and anticipated. The £9000 is sufficient for some courses, but many universities say that it doesn’t cover the cost of some science, engineering and medicine courses, due largely to their increased equipment and facilities costs. In these situations they have to subsidise the courses from their own funds.

Turning now to Labour’s pledge to reduce tuition fees to £6000 per annum, from the student perspective it reduces the size of the loan they are taking on, which in turn will reduce the maximum  amount they have to pay back. But in practice, depending on their salary and how it increases with time, it might have less impact, because of the salary cap before repayment kicks in, and the 30 year write-off. (again, see Martin Lewis’ blog post, referred to above for more details).

From the university perspective this reduction can only work if the imbalance of £3000 per student per year is made up, otherwise they will be seriously out of pocket (and it was mentioned above that £9000 barely covers the cost of some courses). While Labour have alluded to how this amount will be recovered, it is by no means clear that it will work, and universities are justifiably concerned about it.

In conclusion, I have tried to explain tuition fees as they are now, and how a change would affect students and universities. A reduction in fees could potentially have a far more serious effect on universities than any positive effect on students, except from a psychological perspective, and I think it needs further thought!

One thought on “UK university tuition fees demystified, and potential consequences of Labour’s pledge to reduce them”

  1. It has been pointed out that one additional positive consequence of a fee reduction would be in mortgage applications and repayments, where overall debt can be taken into account.

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