How can you appease the Lib Dem opposition to student fees without caving in to demands for a graduate tax?
That’s the question taxing the minds of some senior Tories, who want to see the coalition survive the explosive politics of university funding.
Chris Cook today reported on the latest thinking on how to fudge the answer — imagine them as bolt-on proposals to make the current system look more like a graduate tax.
1) Equity contracts
A somewhat bizarre policy wheeze. This contract would basically involve a student pledging a slice of their future income to a university in return for their education. The advantage over a graduate tax is that the system would cut out the government as middle man — the funding would go straight to the university from the student, rather than via the Treasury.
The trouble with this is the implementation. Is it wise to give universities independent revenue raising powers? And how would they enforce the contract? Just imagine the complication with overseas students, who would have to be offered the same terms as UK students.
2) Loans that increase with your earnings
A cunning Whitehall device to make high earners pay more for the same university course than low earners. How could this be implemented? Well, the fees system would remain. But a graduate that goes into banking will find that the interest rate they pay for their loan is much higher than their university colleague who became a social worker. The higher your pay packet, the higher the interest rate you pay.
This would certainly make the system more progressive. But again the implementation will be tough. There would be a big incentive for high earners to pay off their loan early while their income is still moderately low. A simpler system would be just to charge normal interest rates for student loans, which are currently subsidised to the tune of 23p in the £1. As students on low incomes are not required to pay back their loan, this would be progressive and far less complicated.
Jim Pickard
Kiran Stacey