We've heard a lot in the past few weeks and months, about the merits of the proposed rise in
tuition fees (with the other measures in the HE funding bill) and the differences, or perhaps lack of, between them and the
graduate tax type proposals from the National Union of Students.
Nick Clegg in particular has gone on the offensive recently, calling on students to
read the proposals before protesting against them. Whilst I'm sure that many students haven't gone through every line of what is being proposed, they have watched, listened and read the reports in the media. NUS and individual students' unions have been going through the government's plan in fine detail and the vast majority of students' unions are proponents of the NUS
'graduate tax' model (or a close approximation of it).
But what is the real difference between the two models? For the answer you have to look backwards through the headlines. Throughout this I'll refer to the government proposals as the
tuition fee model, and those from NUS as a
graduate tax; if the system that is currently in use is referenced I will call it the
status quo.
When the money will be paid
Forget the fee cap for the moment, look at how each set of proposals is paid for. Both the
tuition fee and
graduate tax models, graduates pay back their fees through deductions from their pay once their gross earnings reach a certain threshold (at 9% of earnings above the threshold).
The threshold for the
tuition fee proposals is £21,000, and the original NUS
graduate tax was at £15,000; however this is the same threshold as the
status quo, as the NUS modelled the system well before the current proposals came about. Let's say that you could implement the
graduate tax at a threshold of £21k as well, you have payment at the same rate and the same time in both systems.
Real terms repayment
OK, I'll move on to interest rates and maximum terms on any
tuition fee repayment or
graduate tax. With the
status quo the real terms interest rate is zero, that is that the interest rate equals the rate of inflation meaning that you pay back the same amount as you borrowed for your fees. In the proposals under a new
tuition fee level, interest is charged at a rate of inflation plus an additional percentage depending on your earnings; 0% for earnings up to £21k, tapering to a maximum of 3% for incomes of £41k and above (just below the threshold for higher rate income tax payers). Fees and other loans not fully paid within 30 years would be written off.
A
graduate tax would, by its very nature, not have an interest rate but there would be a maximum period of paying the tax; 25 years in the original model (and the
status quo), but again there's no reason why this can't be 30 years to match the new proposals. However, there would be a maximum amount which could be paid by the tax, and should that amount be reached before the end of the maximum term then the tax would cease.
The base amount
Which leads me nicely back to the headlines and the amount of money the student pays for their education.
Firstly, it's very important to mention that both proposed schemes include provision for part time students for the very first time, and both schemes vary the amount paid depending on how many credits are studied.
So with that in mind, let's take a three year degree course from a university that chooses to charge £9,000 a year in
tuition fees, and that a student from that course jumps into a highly paid job on graduation with a salary of £41,000 and therefore have a 3% real terms interest rate imposed. The maximum amount they could pay is around £36,400. A graduate earning £31,000 in the first 30 years after graduation would pay around £27,000 (exactly what the fee level was, 1.5% real terms interest).
In the
graduate tax system there's a maximum amount a graduate could pay. Unfortunately it wasn't mentioned what that amount might be in NUS's documents (if someone knows what it was then please let me know), but we could use the £36,400 figure above. In which case the
graduate system is very similar to the
tuition fees proposals.
So what's the difference?
Easy. Stigma!
The
tuition fee proposals will put off students from poorer families because they will not think about what they might be earning after graduation, but what their family income is now. They will be borrowing money, admittedly at a preferential rate, but it is a debt none the less. A
graduate tax would take the debt away from the decision.
Clearly the pros and cons of both proposals are more in depth than I have gone into here, but the problem is debt and what it means to different families.
JR
