Philip Booth: How to raise fees the painless way

The case for requiring undergraduate students to contribute to the cost of their tuition is now widely accepted. Lifetime earnings premiums of between £100,000 and £200,000 from undergraduate study are typical and, whatever the merits of government support for specific groups of students, it is difficult to make a case that all students should have all their fees financed by the taxpayer.

Unfortunately the Government's mechanism for charging students has hit the buffers. Fees are now capped at £3,225 and the Treasury is frightened of the cap being raised. There are sound educational arguments for raising it. The fee cap leads to overseas students paying much more than home students, and this distorts university recruitment policies.

The cap leads to direct government subsidy of university places and this, in turn, leads the Government to restrict the number of places on particular courses, preventing successful courses from expanding and others from contracting. There is also an equity argument in favour of raising the cap – why should poor taxpayers pay for the education of those with much better prospects?

But the Treasury fears that, if the cap is raised, there will be an explosion of spending on higher education. The Government has to pay the fee up-front and only recoups it from students via a loan repayment over many decades. Thus, raising the fee paradoxically raises current government spending. It is not just this government that is trapped by this dilemma – understandably, given the state of the public finances, the Conservative Party has no appetite for raising student fees either.

Neil Shephard, a professor of economics at Oxford University, may have found a way to overcome Treasury opposition. In a proposal he made at a British Academy forum, and which will be refined in a paper for the Institute of Economic Affairs, he argues that universities themselves should be able to charge an additional fee that is paid back through the current student loans system. This would not count as government borrowing because the university would take the risk of default.

There are several benefits that could flow from this. Currently, all universities charge the same fee for all courses because it is capped at such a low level. Someone with a degree from a former polytechnic learning in huge classes pays the same as a Cambridge undergraduate with, more or less, personal tutorials.

If universities could charge their own additional fees there would be competition between courses and universities. Yes, mass tuition in a course of doubtful academic rigour may not lead to such high potential earnings as a course in economics at the LSE – but the fee would be less too.

As such, the Government would have to set the maximum additional fee at such a level that some universities will want to come in below the maximum – perhaps at about £3,000. Over time, the maximum additional fee could be raised and, indeed, uncapped. After all, there is no cap on fees for Masters degrees – competition determines the fees in a very effective market serving a variety of needs.

The mechanism for repaying the additional fee is important. Shephard argues that it should be subordinate to the current fee so that students do not start to repay it until they have paid off the government-set fee. Graduates would also repay the fee only if they earned £15,000 per annum or more.

It would be a long time before universities received significant income from this new funding stream but they could borrow against it, and Shephard also suggests that parents or students could be allowed to pay the fee up-front if they chose to.

Either way, the universities would receive a long-term, ring-fenced revenue stream from the repayment of deferred fees. This income would more realistically reflect the cost of higher education. Incentives would also be aligned in ways that were beneficial to both universities and students: if universities had a poor reputation for teaching, students would go elsewhere – possibly taking courses with lower fees.

Even more pertinently, if a university did not have a good reputation for academic standards, the long-term job prospects of its students would be poorer and the university would be less likely to receive the income-contingent, deferred fee.

Overall, this mechanism seems like a sound, pragmatic way forward: competition should be effective; standards should rise; universities will be more independent of government funding and the poor will still be subsidised. Not only that, Sir Humphrey in the Treasury will be happy – whoever wins the election.

Professor Philip Booth is the editorial and programme director at the Institute of Economic Affairs

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Money
Welcome to tinsel town: retailers such as Selfridges will be Santa's little helpers this Christmas, working hard to persuade shoppers to stock up on gifts
news
News
i100
News
people
Arts and Entertainment
Architect Frank Gehry is regarded by many as the most important architect of the modern era
arts + entsGehry has declared that 98 per cent of modern architecture is "s**t"
Arts and Entertainment
Soul singer Sam Smith cleared up at the Mobo awards this week
arts + entsSam Smith’s Mobo triumph is just the latest example of a trend
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Education

Maths Teacher

£110 - £200 per day: Randstad Education Leeds: Secondary Maths Teacher for spe...

Senior Research Fellow in Gender, Food and Resilient Communities

£47,334 - £59,058 per annum: Coventry University: The Centre for Agroecology, ...

Senior Research Fellow in Water and Resilient communities

£47,334 - £59,058 per annum: Coventry University: Our team of leading academic...

SEN Teaching Assistant

£60 - £70 per day: Randstad Education Leeds: Special Needs Teaching Assistants...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker