There have been several significant changes to the way higher education (HE) is funded in England over the past 20 years, moving from a heavily grant-based system to a heavily loan-based system. All students can borrow up to £9,250 per year to cover their fees and, on average, around £6,500 per year in maintenance loans to help with their living expenses. Because the loans are income contingent - meaning graduates only repay 9 per cent of their income above £25,000, with any outstanding debt written off after 30 years - the government can expect to write off around half of loans issued. As a r
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There have been several significant changes to the way higher education (HE) is funded in England over the past 20 years, moving from a heavily grant-based system to a heavily loan-based system. All students can borrow up to £9,250 per year to cover their fees and, on average, around £6,500 per year in maintenance loans to help with their living expenses. Because the loans are income contingent - meaning graduates only repay 9 per cent of their income above £25,000, with any outstanding debt written off after 30 years - the government can expect to write off around half of loans issued. As a result, the government is much less able to target the money it spends on HE and, instead, the subsidy mechanically accrues to those graduates with the lowest lifetime earnings. Although there are several very good reasons for the government to subsidise HE, this distribution of spending may not necessarily align with the students, or subjects, that the government wishes to prioritise. This work estimates how government spending is distributed by subject studied and university attended, based on grants and unrepaid student loans (including both tuition and maintenance loans).
We estimate the implied levels of spending for each subject area via unrepaid loans and direct teaching grants, noting that in practice this may not reflect the true distribution of spending because universities are likely to cross-subsidise courses that are expensive to teach with courses that are relatively cheap to teach. It is also important to note that this work is not estimating returns to different degrees, and is instead estimating the value of loan repayments, which is of course determined by many factors other than the degree itself, such as gender and prior attainment.
Key findings: (1) Our best estimates suggest considerable variation in loan subsidies by subject area; (2) Differences in loan write-offs across subjects largely reflect differences in loan repayments, rather than differences in the size of the loans; (3) The subjects with the highest loan write-offs typically receive the highest government spend per student; (4) The government cost per student also varies a lot by institution type; (5) The distribution of spending by subject and institution has been hugely affected by reforms since 2011; (6) Consequently, the distribution of total government spending on HE is very different today from what it would have been with no reforms; (7) The recent ONS review on the accounting treatment of student loans dramatically affects the impact of different subject areas on the deficit; (8) Combined with the design of the finance system, the recent removal of controls on student numbers exposes the government to risk of spiralling costs; (9) Lowering the fee cap from £9,250 to £6,000 could give the government more flexibility to target spending and reduce exposure to risk; (10) Variable fee caps could also allow the government to regain flexibility in where it targets spending - but there are significant caveats; and (11) Any cuts to tuition fees would reduce the progressivity of the system.
Edited excerpts from publication.
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