15 April 2014 
Matt Sisson, Projects and Membership Manager
An article by sector commentator Andrew McGettigan in The Arena magazine this week looks at the financialisation of the HE sector in relation to competition and the student loans system. He identifies that HE policy is now ‘dominated’ by the issue of student loans, and that the “decidedly shaky” accounting basis of the new system has sown the seeds of breakdown of the unitary funding and regulatory model, in place since the early 1990s.
According to McGettigan, “the new scheme is only modelled to reach steady state—when annual loan outlay is matched by annual graduate repayments—sometime around 2035. By this point …government borrowing needed to frontload the scheme will have crossed £100 billion”. In addition, this state of affairs is based on a series of “contentious” assumptions, including that the economy will recover such that graduate earnings consistently outstrip inflation by 2% each year, where instead the Complete University Guide shows that graduate salaries have fallen by 11% over the last 5 years. In addition, the “putative ability to sell loans as financial assets to third parties…. - an essential part of the transition to the new funding regime” is being undermined by the increasing levels of risk associated with repayments in the new system. He notes the “air of confusion” hanging over the sector.
This message is reinforced by recent figures from the Institute of Fiscal Studies that show that average student debt on graduation under the new system will be more than £44,000. The report finds that under the previous system nearly half of graduates “would have repaid their debt in full by the age of 40”, yet under the new system, only 5% will do so. Almost three-quarters of graduates will not earn enough to pay back their loans, with the average debt remaining to be written off standing at £30,000. The Times Higher has a good summary of the report here.
McGettigan believes that ultimately the system is unsustainable, and will need to be changed again. Yet we are unlikely to see a return to lower fees, as Labour have suggested, as the election is likely to be fought on issues of Macroeconomic competence. Read the article, and his conclusions in full here. For another good comparison of the costs for graduates of the ‘old’ versus ‘new’ systems, read John McDermott in the Financial Times.
