degrees of hardship for students

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September 20, 2013 6:12 pm

Degrees of hardship for studentsBy Elaine Moore

University bars are in trouble. Student unions in Leeds,

Edinburgh and Birmingham have all reported a dramatic fall

in alcohol sales and other revenue. In Aberystwyth the

situation is so dire that the student union bar has closed

down.

All agree on the reason: money worries. Now that England inparticular is one of the most expensive places in the world to

study for a degree, students no longer have the means nor

inclination to socialise in bars.

The way that higher education is funded in the UK has

changed completely within a generation, as costs shift from

the state to the student – and the process isn’t finished yet.

Plans for students to contribute towards the cost of theireducation first gained traction in the 1990s as application

numbers grew and universities complained of underfunding.

When Labour came to power in 1997, it inherited a report

commissioned by the Conservatives suggesting that students

contribute about a quarter of the total cost. In spite of public

protests and a backbench rebellion, means-tested tuition fees

entered the statute book in 1998.Prices then began to rise. In 2004, top-up fees were

introduced, increasing the annual charge from £1,125 to

£3,000. Last year, the rules changed again, pushing up

annual tuition fees in England to a maximum of £9,000,



following a review chaired by former BP chief executive Lord

Browne.

Each change has been deeply unpopular with certain groups.

Top-up fees were passed in parliament with a margin of justfive votes – a narrower margin than the decision to go to war

in Iraq. About 50,000 people are thought to have taken part

in a 2010 protest against higher fees and the Liberal

Democrats’ broken pledge not to raise tuition fees led to

leader Nick Clegg’sinfamous “I’m sorry” video, which was

then parodied in a remix and has been viewed more than

2.5m times.For students, the political fights pale next to the raw

numbers. On top of a loan to cover the annual £9,000 tuition

fees, many will take out a maintenance loan to help cover

living costs of £5,500 a year, or £7,675 in London. Add in

overdrafts and money from part-time work and the total bill

for a degree could be £50,000 in three years.

UK universities

The FT’s round-up of news from the sector

According to the National Union of Students, balancing

loans and costs is proving tricky for many undergraduates. Itestimates that about 3 per cent of students have taken out an

expensive payday loan to meet costs. The University of

Northampton has started a credit union on campus in an

effort to help students find more affordable loans. Wray



Irwin, head of the university’s centre for employability, said

he had found many students were getting into serious

financial trouble as they tried to budget.

Owen Burek, editor-in-chief of financial advice websitesavethestudent.org, says that on average, students spend

£763 a month – £300 more than by the maintenance loan.

“We know they have cut back on non-essential costs and that

this is something that’s a huge cause of stress at a time when

they are trying to get a degree,” he says. “After the protests

against fees achieved nothing, there is a feeling that it’s a

slippery slope and fees could just keep on rising.”Labour says that if it comes to power in 2015, it will reduce

the fee cap to £6,000 a year, citing research showing that

between 2010 and 2011 university applicationsfell by 9 per

cent in England – but continued to rise in Scotland, Wales

and Northern Ireland, where university tuition is free or

subsidised.

The government would like students to think of tuition feeloans as a sort of graduate tax, and says they shouldn’t put

anyone off applying to university any more than a higher rate

tax would put someone off a pay rise.

That’s because under the “income-contingent” repayment

terms, borrowers do not need to start repaying loans until

they earn at least £21,000, after which they pay 9 per cent of

their income. Anything left after 30 years is cancelled.• AudioLloyds sell-off, university costs and manorial rights

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Nicholas Barr, professor of public economics at the LondonSchool of Economics, has long argued that the repayment

threshold is too high, and that the existing system is stressful

for students, who worry about the size of the debt, and is

poor value for taxpayers, who will not see a return on their

money for a long time.

“Because it is expensive to the state we still cap student

numbers, which is insane,” he says. “If I had my way, theloans would be redesigned so the repayment threshold was

lowered and the interest matched the cost of providing the

loan. Privatising the loans could make sense if they were the

right design. They could even be bought by pension funds. It

would make sense – pension funds want long-term assets

andstudents need long-term loans.”

The UK loan system remains mostly state owned, unlike theUS where the $1tn student loan market is big business for

commercial lenders such as Wells Fargo, which lend directly

to students.

But Danny Byrne, rankings commentator at education

research firm QS, points out that the loan terms in the US

are less generous still – and the costs far higher – but that is

offset for poorer students by the extensive availability of scholarships, endowments and other forms of financial aid.

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How to pay less – international tuition fees

compared



•

Ruprecht-Karls-Universität Heidelberg, Germany. Annual student fees:

undergraduate – FREE; postgraduate – FREE; international undergraduate –

FREE. Photo: Dreamstime

©Dreamstime



•

University of Groningen, Netherlands. Annual student fees: undergraduate –

£1,300-£2,600; postgraduate – £1,300-£2,600; international undergraduate –

£5,100-£6,400 (2012 figures)

©Dreamstime

• ETH Zurich (Swiss Federal Institute of Technology), Switzerland. Annual student

fees: undergraduate – up to £1,300; postgraduate – up to £1,300; international

undergraduate – up to £1,300

©Dreamstime

• University of Edinburgh, Scotland. Annual student fees: undergraduate – £1,820;

postgraduate – £6,100; international undergraduate – £13,500-£17,500. Fee

costs only apply to Scottish students

©AFP

• University of Cambridge, England. Annual student fees: undergraduate – £9,000;postgraduate – £5,968; international undergraduate – £13,662-£30,069

©Bloomberg

• Yale University, United States. Annual student fees: undergraduate – £28,100-

£29,400; postgraduate – £21,700-£23,000; international undergraduate – 28,100-

£29,400

©Dreamstime



• The University of Tokyo, Japan. Annual student fees: undergraduate – £2,600-

£3,800; postgraduate – £2,600-£3,800; international undergraduate – £3,800-

£5,100

©Dreamstime

• University of Hong Kong (HU). Annual student fees: undergraduate – £5,100-

£6,400; postgraduate – £2,600-£3,800; international undergraduate – £8,900-

10,200 (2012 fee)

©Dreamstime

• National University of Singapore (NUS). Annual student fees: undergraduate –

£5,100-£6,400; postgraduate – £3,800-£5,100; international undergraduate –

£7,700-£8,900

©Dreamstime

• London School of Economics and Political Science (LSE), England. Annual

student fees: undergraduate – £8,500; postgraduate – £11,112; international

undergraduate – £15,768©Getty

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Germany rejects tuition fees

As students in England face the highest tuition fees ever

charged in the UK, undergraduates in Germany are

breathing a sigh of relief.

The country’s experiment with tuition fees is over afterBavaria, the last state to charge undergraduates, announced

this month that it would abolish charges for state-run

universities after 1.4m people voted against them a

referendum.

Germany has about 2.5m active students, a similar number

to the UK, and universities were given the option to charge

fees in 2005 to boost their budgets.Fees levied on students were never as large as those charged

in the UK – up to just €1,000 (£840) a year – but they

nevertheless remained deeply unpopular with the general

public, especially when states charging them found that



student enrolment numbers were not rising as quickly as

they had before.

Germany’s decision means that all EU students, including

those from the UK, can study there for free – and UK students might want to note that many universities in

Germany offer programmes taught in English.

According to the European Commission there are nine

countries that mostly do not charge anything for students

from the EU: Cyprus, Denmark, Finland, Greece, Malta,

Norway, Scotland, Sweden and Austria (which has also

backtracked on the tuition fees it started charging in 2001).Some of these universities charge semester fees, but these

tend to be just a few hundred euros. Some also offer courses

in English.

Within the UK, things are a little complicated depending on

where you live, and where you study.

Tuition at Scottish universities is free for Scottish and other

EU students, but students from England, Wales andNorthern Ireland must pay. Universities including

Edinburgh and St Andrews have opted to charge the

maximum of £9,000 a year. A legal challenge to stop the

universities charging students from the rest of the UK failed

earlier this year.

Students from England, Wales and Scotland will pay up to

£9,000 if they study in Northern Ireland, but Northern Irishstudents will pay only around £3,500. Fees in Wales are up

to £9,000 but the devolved administration there will meet

the costs for Welsh students, even if they study outside

Wales.



Students from England who want to stay in their home

country can find lower fees at a number of universities,

including London Metropolitan University (£6,982),

Coventry University (£7,238) and University CollegeBirmingham (£7,420).

An undergraduate degree from the Open University

generally costs £3,000 and the University of Buckingham,

once one of the most expensive place to study in the UK

because of its private status, offers two-year degree courses

which will cost £23,920 in total – less than a three-year

course at a university charging £9,000 a year.-------------------------------------------

Case study: Kirsten Powley, 21, graduated in English

Literature from the University of East Anglia this

year

My student debt (about £10,000) has put a stop to the life I

expected I would have as a fully-fledged graduate. The

prospect of renting my own flat or saving to buy a house is

almost non-existent. I have even had to move home with my

parents to reduce my living costs as much as possible.

When I think about how much money I will earn (when I get

a job!), I immediately think of how much of that will be going

back into paying off my student debts. Despite the fact my

student loan deductions won’t come out until I earn a certain



amount, it is still a big source of stress that looms over me

when I think about the future.

-------------------------------------------

Case study: Hugh Hammond, 18, first year at

Birmingham University, studying English

At my age, knowing that I’m about to go £9,000 into debt for

tuition fees alone this year is pretty terrifying. I’m going to

try to stay out of debt as much as I can but we’ll see what

happens.

One problem is that I didn’t get into university

accommodation, so I’ve had to find somewhere off campus

and the rents are really expensive – I’m paying £7,000 for

the year which is well outside my budget.

I’ve applied for a maintenance grant and I have a pretty big

overdraft with my student bank account and my sister has

signed me up to discount websites such as topcashback, but

one of my first plans when I get to university is to get a job.

I’m sure university will be a great experience and I’ll just

have to hope it’s worthwhile financially.

-------------------------------------------

Will the private sector buy student loans?

Selling the UK’s student loan book is, according to the

FT’s Martin Wolf, economic illiteracy . No private lender can

borrow money at a lower rate than the government, so they



will be unwilling to offer more for it than it is worth to the

government.

In spite of this, momentum appears to be gathering behind

the idea of reducing public debt by privatising student loans.By April 2013, outstanding loans totalled £46.5bn and in this

year’s fiscal sustainability report, the Office for Budgetary

Responsibility predicted that net debt from student loans

will peak at 6.7 per cent of GDP in the 2030s.Martin Wolf: How to free our universities to compete

The combination of financial responsibility for students with ideas of fairness has

precluded what limited competition there might be among institutions . . . Danny Alexander, chief secretary to the Treasury, has told

parliament that the government plans to help restore public

finances by selling off public assets from 2015 (an election

year) and that £10bn of this would come from assets such as

the student loan book.

But finding a buyer willing to pay a good price could be

difficult.

Two tranches of old student loans worth about £1bn each

have already been sold, in 1998 and 1999 and, because the

interest rates charged were below market rate, thegovernment agreed a subsidy for the buyer. Plans to sell the

last remaining “mortgage-style” loans were announced in

March.



“The private sector’s expertise makes it well-placed to collect

this debt and the sale will also help the Student Loans

Company to concentrate on providing loans to current

students,” says the Department for Business, Innovation andSkills.

Selling newer loans could be more complicated, say

economists. Not only are the interest rates charged on

student loans still subsidised, but the loans are now “income-

contingent”, meaning that repayments are no longer fixed

over a specific period, but are a percentage of the graduate’s

salary.Serious money

Elaine Moore: Are students the next big investment?

If the borrower never earns enough to repay their loan it will be written off entirely after 30 years. Professor Nicholas Barr

at the London School of Economics predicts that about a

fifth of loans will never be repaid in full.

The Department for Business, Innovation and Skills says a

tender has gone out for a feasibility study on income-

contingent loans, but it emerged recently that the Rothschild

investment bank has already submitted ideas on ways tomake the loan book look attractive, including raising interest

rates retrospectively and underwriting loans with a

“synthetic hedge” in which the government protects the

buyer against possible low returns.



Any sale will also have to navigate public opinion. Taxpayers

will want value for money and students will want

reassurances that a private owner won’t impose harsh terms.

Plans to sell may not have been agreed or announced, butthat hasn’t stopped 13,000 people from signing a petition

against the idea.

degrees of hardship for students

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