Opinion: Laing Barden on kinder student loans

The entire UK population has free access to primary and secondary education, while higher education is available only to a minority. Take- up is skewed heavily in favour of the middle class, which is, in effect, being subsidised by the working-class taxpayer.

It is argued that financial contributions from students towards their higher education discriminates against working-class students. However, the American and Japanese systems, which demand the greatest private contribution, have the highest participation. Countries with the most generous grant schemes, such as the UK and Australia, have tended to attract fewer students from working-class backgrounds.

Rapid expansion of higher education over the past 10 years has brought the participation rate close to 30 per cent and a period of no growth or consolidation is planned to 1997. Demand for further expansion is growing, due to a number of factors: more students staying on after 16; rapid expansion of the further education sector; and the introduction of the new GNVQ vocational A-level.

Government policy has reduced the maintenance grant by 10 per cent a year, over three years, and a balancing loan is provided. This sensible policy is ruined, however, by a highly inefficient mortgage loan scheme. As the maximum loan rises towards pounds 6,000 by 2000, serious levels of default on repayments will undermine the scheme.

If re-expansion of higher education resumes at the end of consolidation in 1997, a student contribution must be added to the available public funding. A new contribution to tuition costs plus the increased maintenance costs could raise the average student loan to around pounds 10,000. This will clearly demand a very carefully designed Student Loan Scheme.

The 1991 World Bank report shows that 15 leading industrial countries provide student loans for maintenance support, and that six provide loans for tuition fees. Most loan schemes are mortgage loans, as in the present British system. Sweden, Australia and New Zealand, however, have moved to Income Contingent Loan repayment (ICL), which offers a number of advantages.

The present UK loan scheme involves simple mortgage-type repayments of 60 equal instalments over five years, provided earnings are above a specified annual threshold. It is operated by the Student Loan Company in Glasgow, using government funds, and hence is a significant burden on the PSBR. With its high early repayments and short repayment period, it is a deterrent to students from poor families.

An ICL scheme is based on varying repayments, according to a given percentage of income above an agreed minimum. It can therefore spread repayment over a much longer period, say 20 years, requiring smaller repayments in the early years, and is thus far less of a deterrent to access. Such schemes are best "piggybacked" on income tax or National Insurance collection.

Because ICL repayments are secure and can be spread over an extended period, it becomes realistic to charge real rates of interest (not included in the present UK mortgage loan scheme), combined with indexation. This could make the scheme of interest to private lenders such as banks, and the transfer of funding from the PSBR to the private sector must be attractive to government.

The Committee of Vice-Chancellors and Principals favours a maintenance - income contingent loan (MICL) scheme over the fees - income contingent loan (FICL)

Since 1989, Australian students have been required to pay contributions of around 20 per cent of the costs of tuition. Repayment through the taxation system commences when income exceeds an agreed threshold, beginning at 1 per cent of taxable income, and increasing to 2 per cent and 3 per cent as higher levels of income are exceeded. The amount of the loan is inflation- indexed, but there is no real rate of interest. Payments cease when the total indexed loan is repaid. Australian receipts are expected to exceed $1bn in 1995. The New Zealand Student Loan Scheme is unusual in that students pay a real rate of interest on their indexed loans.

Both the Australian and New Zealand schemes could provide the model for a FICL/MICL scheme in the UK. For the universities, it is extremely important that the private funding raised is directed to the resourcing of higher education.

The introduction of graduate tax, or of income-contingent loan repayment, will require legislation and time to implement. In contrast, the introduction of top-up fees can be effected by any university for any course in a matter of months; furthermore, the extra private income is collected directly by the university at enrolment. Such fees, however, may be a deterrent to students from less affluent families.

Fortunately, top-up fees are unpopular with most vice-chancellors, staff and students and will prove difficult to introduce.

The writer is vice-chancellor of the University of Northumbria.