Friday, 25 April 2014

The cost of university tuition fees: it depends how you count up the numbers

The new Institute of Fiscal Studies report into English universities' tuition fees shouldn't surprise anyone. You can read the whole thing here if you'd like (opens as PDF). But the headlines will do. Basically, it says that the new scheme might cost more than the old. It certainly won't save any money. This won't be any sort of shock for regular readers of Public Policy and the Past, because we've said from the outset that this system might be financially unsustainable.

But let's stop for a minute and have a look at the numbers. Although this won't do our specific argument about tuition fees much good, it's important to say that the wider point usually made by this blog is that the world is very complicated, subject to unexpected outcomes and strange tradeoffs. A point we've made again and again (and again) is that statistics are built by human beings, and that they're very hard to interpret - especially if you only go by those headlines. How else do you think bankers hid all those suspect financial 'packages' for all those years?

And what do we find here? Well, it's that the IFS have made a series of assumptions to reach their main, bold, bald figure - that the Government will never see 43 per cent of the student loan cash ever again. There's nothing wrong with this. We have to. Public Policy and the Past is always sounding off about opinion polls, trying to peer into the future and estimate what they tell us about the outcome of the 2015 UK General Election. It's a natural and a necessary part of human life. What did President Eisenhower say, recalling his time as Supreme Allied Commander in Europe? 'Plans are useless, but planning is indispensable'. 

So the IFS have assumed that graduate earnings will stay low. They've assumed that the £21,000 graduates have to earn before they pay anything back will continue to rise with inflation, as the Coalition has promised. And that it costs the Government just over two per cent to borrow the money to lend to all those students - because borrowed much of it is. Still with me? Good.

Change those assumptions - imagine that graduate earnings start to accelerate again in a future boom, assume (shock horror) that governments change the terms of their deal with the electorate, and use the present bond market figures for government borrowing - and the loss might go down to 30 or even 20 per cent. Then the taxpayer really will be recouping a big saving, even while universities' total income is (for the most part) protected.

None of this is to say that English tuition fees are a good system. They're not. They're very risky. Graduate earnings might stay depressed - or fall. Inflation and borrowing costs might pick up. Future governments (especially a Labour one) might want to start all over again, given the total dog's dinner this compromised structure has become. But what it does tell us is this: anyone who tells you that they know exactly where all this is going should just be ignored.

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