Time to tackle teenagers’ fears of fees

Sir Peter Lampl says that a new Sutton Trust/Ipsos Mori poll highlights cost concerns among the next generation of university students.

Earlier this year, the Government breathed an audible sigh of relief as university applications appeared to rise again after falling off in the first year of higher fees, although they are still not at 2010 levels.

But a new Ipsos Mori poll for the Sutton Trust suggests that ministers may have been a little premature in taking too much comfort from the latest UCAS data. The poll shows that two thirds of school children worry about the cost of going to university. Only 7 per cent of the 2600 11-16 year-olds polled said they had no concern about the cost.

At the same time, aspirations remain as high as ever. More than four in five young people say they are likely to go to university, even though in reality the proportion of 18-30 year-olds who do so is still less than half. 38% of young people say they are very likely to go to university when they are older, and 43% say they are fairly likely to do so. This is the same proportion as last year when the same question was asked.

Two thirds – 65% – of all the young people polled had significant concerns about university finance which break down as follows:  28% were concerned about tuition fees; 19% were concerned about student living costs and 18% were concerned about lack of earnings while studying.

And although 67% of young people said the most important consideration when deciding whether or not to go to university would be their exam grades, 17% said it would be the cost of going to university, with students from the least affluent families (23%) more likely to cite cost as the biggest consideration than those from the most affluent families (14%).

So, despite high aspirations – and a realistic sense of what they might need to do to realise them – nobody can argue that most young people aren’t still worried about the cost of higher education.

It’s hardly surprising that they are worried when graduates face debts of over £40,000 with fees of £9000 a year for most courses. The truth is that young people are caught between a rock and a hard place.

They know that they still need a university education to get on in life and get a good job. For all the talk of falling graduate premiums, a degree – especially one from a good university – still brings a substantial income bonus. And as Sutton Trust research showed earlier this year, a postgraduate degree is increasingly important, and brings with it an additional substantial premium.

And even if graduates may be finding it harder to gain an immediate job after university, their long term prospects remain brighter than for non-graduates.

But the canny teenager knows something else too. He or she knows that a degree comes with a much higher price tag than ever. Where this year’s graduates might be paying off their student loans into their thirties, those graduating from 2015 onwards will be paying back right into their fifties.

There may be some lower up-front costs, but a £40,000-plus debt with interest rates of up to 3% over inflation a year means that those repayments could impact on whether or when to buy a house or have a family. We’ve asked the Institute for Fiscal Studies to look into the implications of these debt repayments and to model the likely impact on important life decisions. They will report later this year.

But I think there is something else the Government could do now to ease the burden on low and middle income graduates in the future. They should means-test the tuition fee – as happened from 1998-2006 when fees were first levied on undergraduates – in the same way that the maintenance grant is already means-tested. As I noted in an earlier post, this is already commonplace in the United States.

Given that the Government already expects to write off a third of its loans – and some observers think they will have to write off much more – this need not be a particularly costly option. But it could start to allay the fears of debt that face all too many of those who should become tomorrow’s students. That would be a real investment in the future.

High graduate debt state-side is rare and considered highly undesirable

Sir Peter Lampl reports on how US universities don’t want students leaving with big debts

I’m in the United States this week, visiting Ivy League universities to find out more about what they offer, preparing the ground for next year’s Sutton Trust US summer schools.

Here, the situation is very different. For one thing, one can’t help but be impressed by these magnificent universities and the quality of what is on offer. They certainly deserve their standing in the international league tables.

The American undergraduate has a much broader education than their British counterpart, typically spending two years taking a broad subject mix before majoring in one or possibly two subjects.  At Harvard an admissions officer told me that a distinguished former President said that when you graduate from Harvard, the objective is that you know a little bit about everything and a lot about one or two things. As someone who had to specialise much too early, as is the case with the English system, that strikes me as a pretty good principle.

But it is also on student funding that the differences between the US and the UK are starkest. American universities don’t want to see students starting life with significant debts.  This may surprise those who argued for raising the tuition fee to £9,000 for all in England thinking that we are just catching up with the Americans.  Nothing could be further from the truth.

An excerpt from the Princeton Financial Aid brochure puts it in perspective.  “Our no loan policy has made it possible for most students to graduate with little or no debt.  About 75% of our students graduate debt free.  Of the remaining 25% who choose to borrow, usually for additional expenses such as a laptop computer, the average total indebtedness at graduation is $5000.  For comparison, about 66% of college seniors in the United States graduated with loans in 2010, and they carried an average debt of $25,250.”

So the reality is that a third of Americans graduate with no debt and the two-thirds who do have loans to repay carried an average debt of $25,250 (£15,700) and that is for a four-year programme.  This contrasts sharply with the system in England where graduates will owe on average almost 3 times as much – $73,000 (£45,000) after only a 3 year course.

Americans find this hard to understand.  I remember talking to Lou Gerstner, former IBM chairman and CEO and now a major education philanthropist, about the plans to treble university fees in England. “What: you’re loading students from low and middle income households with debt? He asked, “What are you doing that for?  That’s a bad thing to do.” I now understand where he was coming from.  In the US, the newspapers complain about states raising tuition fees by 7% per year. People are astonished to hear that we just put ours up by 200% in one year.

Harvard, Yale and other Ivys have large endowment funds enabling them to provide needs blind admissions to students from anywhere in the world, with accommodation and tuition fees – worth $60,000[1] (£37,000) a year – free to those with family incomes below $65,000[2] (£40,000) a year.  All student support funds are means-tested.

Columbia, Brown,the University of Pennsylvania and many others pay the tuition and accommodation costs of all their less privileged students from the US and the costs of study for many less privileged overseas students.

Around seventy five per cent of US students go to public universities, which have big state subsidies, whereas we have cut the teaching grant in England by 80% so we are funding just one tenth of university teaching costs, effectively removing state funding for supporting undergraduates.

The truth is that when it comes to debt, we are a complete outlier amongst developed nations, drastically reducing state funding of universities when others are increasing theirs.

US universities want graduates to feel able to go into teaching or get involved in public service rather than head to Wall Street, without worrying about paying back a mountain of debt. They also want their graduates to feel able to go to graduate school, and indeed at the University of Pennsylvania in Philadelphia which I visited, two thirds of its graduates go to grad school within five years of graduation, which is typical for leading US universities.

In England last week, we learnt how less privileged graduates are being put off studying for Masters degrees and doctorates, with a potential cost to their careers and our economy.  The Higher Education Commission report highlighted how postgraduate education in the UK is becoming increasingly the preserve of well-off students from overseas.

By contrast, Ivy League universities are on a hunt for the best talent in the world, and they don’t want their affordability to stand in their way. So they will fund those that can’t afford full fees in their studies, the vast majority from abroad as well as the US.   I support the Commission proposal for a state-backed loan scheme that should be pursued alongside other measures to support non-privileged postgraduate students.

The Sutton Trust has also commissioned research in this area by the Institute for Fiscal Studies, looking at what the effects of leaving university with large debts are on the ability to go to graduate school, buy a house, start a family and so on.

But we need to think again about the debts we are loading on our low and middle income graduates– and learn the lessons from America about how to fund our universities and our students.