Professional Documents
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Financing of HE Nick Barr
Financing of HE Nick Barr
Financing of HE Nick Barr
Nicholas Barr
London School of Economics
http://econ.lse.ac.uk/staff/nb
1
Financing higher education : What 1 Objectives
policies in what order?
• Strengthen the quality of teaching and
1 Objectives research
2 The current strategy • Widen participation
3 What should the Independent Review • Protect autonomy
recommend? • Protect the fisc
4 Conclusion
1
3 What should the Independent 3.1 Explain student loans
Review recommend?
• Fight disinformation and scaremongering (‘high fees, high
• Four central policies debt’, conflating student loans with credit card debt)
• Message 1: higher education is free to the student
• Major publicity campaign to explain how student
• Message 2: loans have income-contingent repayments
loans work • Thus a payroll deduction, not credit card debt
• Expand the loan system • 25-year write off (strongly benefits women)
• Thus equivalent to a graduate tax that stops after a maximum of 25
• Action on the fees cap years, and for most people significantly earlier
• Alongside these, continue action to widen • Message 3: keep the scale in context: compare £20,000
payroll deduction with £1 million (cash terms) in income
participation tax and national insurance over a full graduate career
Why interest subsidies are regressive Interest subsidy and write off by
• In a conventional loan scheme, an interest subsidy decile of lifetime earnings (IFS)
helps people with low earnings
Source of subsidy Source of subsidy
• But in the UK student loan scheme Females Males
.8
.8
subsidy as % of loan
upside down
.4
.4
.2
• Low-earning graduates?
• High earning graduates with low early-career earnings?
0
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
• High earning graduates? 0% real interest Write-off 0% real interest Write-off
2
What should be done? Caveat: constraints imposed by
public accounting rules
• The default interest rate should be related to the
government’s cost of borrowing • With income-contingent repayments, a
• Targeted interest subsidies should prevent real loan higher interest rate does not increase
balances rising for people with low earnings and perhaps monthly repayments but extends the duration
also people with caring responsibilities
• Administratively feasible (Hungary), politically feasible of the loan, e.g. from 10 years to 12
(Sweden, Netherlands) • Thus savings from a higher interest rate arise
• A higher interest rate does not lead to higher monthly
repayments only in (say) years 11 and 12 when
• A higher interest rate has no effect on low-earning repayments continue when otherwise they
graduates, who are protected by the 25-year limit would have stopped
Nicholas Barr February 2010 13 Nicholas Barr February 2010 14
3
Who goes to university? It’s school Increase in applications from the
attainment, stupid lowest SEGs
Source: Office for National Statistics (2004, Figure 2.15) • Rise in applications 2007-2008
• Total applications, England: +11.7%
• Applications from lowest 3 SEGs, England: +26.9%
A level points 25 or more
• Annual average rise in applications, 2002-2008
A level points 13 to 24
– Total applications, England: 4.3%
– Applications from lowest SEGs:
A level points 12 or less • England: +6.5%
• N Ireland: +3.1%
Vocational Level 3 • Scotland: +0.5%
• Wales: +3.7%
Level 2
Higher SEG
• HEFCE (2010) finds that ‘young people from the 09:10
Low er SEG
cohort living in the most disadvantaged areas are around +30
Low er than Level 2
per cent more likely to enter higher education than they were
0 20 40 60 80 100 five years previously …, and around +50 per cent more
likely … than 15 years previously’ (para. 28)
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