Changes to higher education funding and student support from 2012/13

The Government will raise the cap on tuition fees to £9,000 in 2012/13 and cut most ongoing direct public funding for tuition. It will also change loan repayment terms by increasing the repayment threshold to £21,000, charging a real rate of interest on loans for those making repayment, extending the maximum duration of loans from 25 to 30 years and making fee loans available to part-time students. Institutions charging annual fees of over £6,000 will have to spend some of this additional income on widening participation. The average tuition fee, after discounts, is currently expected to be around £8,070 in 2012/13. The proposed new system will apply to new students in England from 2012/13.

An average fee of just over £8,000 could mean that England has the second highest (average) fees in the developed world and the highest in any ‘public’ system. This package of reforms is expected to result in a more progressive distribution of repayments than at present. The highest earning graduates will repay considerably more, the lowest somewhat less depending on the assumptions used. On average graduates will repay more overall because they will repay for longer. Half or slightly more than half of graduates are expected to have some loan written off under these proposals, up from around 15% at present.

The accounting treatment of loans means that these changes will lead to an immediate cut public spending and help reduce the deficit. However, they will also increase the national debt in the short to medium term. The scale of the actual savings has been questioned by some commentators who believe the Government’s repayment model is too optimistic.

The average fee looks set to be above the £7,500 predicted by the Government. This would increase the public cost per loan and, if student numbers remain constant, savings would have to be made elsewhere. The financial impact on universities depends in large part on their fee levels and how they fare from changes to student number controls. The number of new students is expected to fall in 2012 as it did when fees were introduced and raised in the past. These earlier falls were quickly reversed. A deeper and longer fall in numbers could cause financial difficulties for some universities.

This note sets out a brief summary of the main technical aspects of the Government’s reforms for England and compares these with proposals in the Browne report and the current system. It looks at the impact on universities and public spending and on different groups of graduates. Finally it illustrates the effect of different assumptions about loans and fees.