HE funding: past, present and options for the future

Date: 16.08.2018

Higher education (HE) in England has been subject to near-constant reform over the past two decades.  The most notable of these was the 2012 trebling of tuition fees to £9,000. HE is an area where England is a genuine world leader having long boasted several of the world’s finest universities, yet that position is increasingly under threat from increased global competition. Understanding the impact of various reforms on government, universities and students is therefore crucial.

Previous IFS research has evaluated the 2012 reform, finding that it increased overall graduate contributions considerably but actually reduced lifetime repayments for those in the bottom third of the graduate lifetime earnings distribution.

In this briefing note we use the IFS HE finance model to provide up-to-date estimates of the long-run cost of undergraduate loans to the government taking into account these recent changes. We consider the impact of the 2012 reform and the changes since 2012 separately by estimating the long-run government loan subsidy (the ‘RAB charge’) and the overall long-run cost to government for the 2017 cohort of students under three different HE finance systems (the ‘2011 system’, the ‘2012 system’ and the ‘2017 system’).

We also consider the system from the point of view of students, showing debt on graduation, ‘cash-in-pockets’ for students at university, and graduates’ lifetime loan repayments. We highlight the role of recent reforms, further freezes to the thresholds at which loan repayments are made, and the use of the positive real interest rates. To complete the picture for the changes since 2011, we focus on the status of university finances, highlighting the impact of recent reforms on the relative incentives to provide courses in different subjects. Finally, we consider some policy options, qualitatively outlining the potential impact of various reforms on the system of HE finance in England.