STUDENT FEES CRISIS IN BRITAIN: LESSONS FOR SOUTH AFRICA?
Text of lecture given by Peter Hain, Visiting Adjunct Professor, Wits Business School
10 October 2017
‘The students are coming!’
WhatsApp pictures had alerted staff to students marching from the main University towards the Wits Business School during my first visit to this Campus a year ago, and I made a hasty exit to avoid being locked in.
It almost made me nostalgic for my own militant student protestor days against sports apartheid 45 years ago when we invaded UK rugby and cricket grounds and caused mayhem to visiting whites-only South African teams, imposing an anti-apartheid boycott which lasted until transformation.
It also reminded me of profound dissatisfaction with England’s system of student fees and university finance which is unfair, discriminatory and dysfunctional. I say England’s system because they do things differently in Scotland and Wales, thanks to devolution, which I had a hand in shaping while I was a Minister in the UK Government.
Quite apart from being unfair and discriminatory to all but students with the richest parents, who pay off the fees anyway, the current system of tuition fees in England is unsustainable. Students are emerging from universities with mountainous debts, preventing them getting loans for cars or houses, and universities are increasingly short of funds. It seems to me the same is true of South Africa.
English fees are over R160,000 annually and are a serious disincentive for some to go into higher education, especially those who are poor or mature – mature meaning people returning to study after some years break.
Average student debt in England is now R840,000, rising to R1 million for the poorest students.
The current system is based on individuals taking on student debt to pay for tuition fees. Graduates have to repay 9 per cent of their earnings above the repayment threshold (currently set at R350,000 per year) for a maximum of 30 years before any outstanding debts get written off.
Women and individuals in the middle of the earnings distribution are disproportionately impacted by student fee repayments over the course of their working lives.
For most graduates, their middle years of working life are likely to be characterised by significant deductions from their pay packet to repay their student debts – reaching up to 4 per cent of average earnings over their entire working lives. This will clearly lead to a reduction in their disposable income at a time when many graduates will be looking to start a family and/or purchase a house. This ‘middle age squeeze’ – actually a squeeze on graduates in their 30s and early 40s – was not foreseen by the UK government.
Student debt has another perverse effect. The current rate of interest on student debt in Britain is 6.1 per cent compared with a Bank of England base rate of 0.25 per cent. So an individual’s debt keeps rising rapidly in real terms at a compound rate, making it even more difficult to repay. Rather than a student’s debt obligation being fixed on graduation it can get heavier over time due to this exorbitantly high real rate of interest, leaving graduates feeling that the goalposts are shifting even while they are doing their best to play the game.
Nearly half English students default on repaying any of their their fees back, increasing government borrowing and debt. Which is supremely ironic, because reducing public spending was the intention of the Tory/Lib Dem Government in 2010 which effectively privatised university teaching with an 80 per cent budget cut that transferred the cost from taxpayers to students and their families.
But the projected share of individuals with some or all student debt written off rose from 41 per cent in 2011 to 77 per cent in 2017 following the 2015 removal of maintenance grants for students from the poorest families. That means three-quarters of students in England will never pay back all of their debt – a colossal failure in the system which was designed to reduce the Treasury’s debt and borrowing. In fact, as a direct result of the fees system, it has increased, with wasted public money on the cost of administering the system and with masses of students in despair at ever-mounting debts as a result of high interest rate charges.
It has been estimated that around the midpoint of this century, when the UK’s 30-year Treasury rule kicks in and the debt is written off, fully R1.5 trillion (£90 billion) of the R3.4 trillion (£200 billion) student support funded by the Treasury would remain unpaid. And that was the figure for 2014; under the latest, even more punitive, fees system the total will be even higher. That is a colossal waste of the very public expenditure that the British government is ideologically fixated with cutting.
Other research shows that English taxpayers now spend R130 (£7.50) on debt cancellation for every R17 (£1) they spend on teaching students.
Meanwhile university capital spending has been severely cut and in consequence more universities have been plunged into greater debt to finance the investment they require.
This high-fee, high-debt cancellation English system actually forces up fees and waste. As well as being grossly unfair, the system is financially unsustainable and damaging to Britain’s long-term economic let alone social ambitions.
As you will know only too well South Africa suffers from many of the same discriminatory and dysfunctional features as Britain. Indeed, especially given much higher levels of poverty and inequality, the problem is much, much worse.
According to a report by South Africa’s National Student Financial Aid Scheme, the #FeesMustFall movement, which had its early beginnings during 2015, arose from two key concerns: the need to put a stop to fee increases; and serious concern about the increasing amount of student debt, reported as increasing from R2.6 billion in 2010 to R3.4 billion in 2012, effectively 31 percent over two years.
To assist students with the worst historic debt and their continuing 2016 academic year costs, the Department for Higher Education and Training put aside R4.6 billion for the 2016 academic year. While this goes some way in alleviating the student debt crisis, it is not in the long term a sustainable solution, and the government will need to find strategies and mechanisms for making higher education more affordable.
In 2016 an official research study reported that the value of loan recoveries as a percentage of disbursements had fallen to its lowest rate – 3.7 percent – in 2014, due mainly to the growing problem of non-payment amongst debtors, with half the debtors having dropped out and inefficiencies in tracking and following debtors. Again this is unsustainable and dysfunctional, both socially and financially.
In Germany from October 2014, every state in Germany abolished student tuition fees following widespread political pressure. The following other European countries do not charge tuition fees: Denmark, Finland, Iceland, Norway, Sweden, Greece Austria, and the Czech Republic. The Dutch and the Swiss have modest tuition fees way below England’s.
Even in America in January 2017, New York State announced plans to make state universities tuition-free for children from families earning up to $100,000 annually extending to children whose families earned up to $125,000 by 2019. That is a million families or the great majority in the State.
The two main reasons advanced by New York’s Governor Andrew Cuomo in announcing the new free tuition policy are significant. First, by 2024, 3.5 million jobs in New York State will require a degree or higher qualification – roughly 420,000 more jobs than in 2014, so many more university students will be needed. Second even as university education becomes more necessary for an individual to succeed, the cost to attain a degree is rising beyond what most American families can afford.
Like many other countries, India and Argentina student fees are a small fraction of those in England which has the highest university fees by far of any public university system anywhere in the world.
Therefore those demanding fees must fall or be abolished do have other countries’ experiences to count upon.
This debate also bears upon the type of society we wish to build.
England, after the US, has the most unequal and divisive educational systems in the developed economies, with the current Conservative government promoting selective high schools, and elite private schooling are spreading. Social and economic inequality is increasing. England has one of the lowest levels of social mobility in the developed world, according to the Organisation for Economic Cooperation and Development. And all that is being worsened by growing inequality in our universities.
By comparison, Scandinavian countries and Germany have high-quality universities with no student fees. They are Europe’s most social cohesive and economically successful countries – far more so than Britain.
Significantly Scandinavian countries head the World Economic Forum’s ‘inclusive development index’. Britain and the US are way back in 21st and 23rd places respectively.
It is no coincidence that around 1980 Britain turned its back on the post-World War Two history of Keynesian economic management and opted for neoliberal economics, an ideology favouring market forces wherever possible and tolerating state intervention only where absolutely necessary. For much of the period since, Germany was looked down upon by the high priests of Britain’s de-regulated, privatising, marketising, shrinking-the-state agenda. Scandinavian countries with their high social standards and higher income taxes were seen as ‘old-fashioned’ and ‘uncompetitive’. Although the 2007-2008 crisis in the global financial system was the culmination of that neoliberal agenda, Britain continues to pursue it.
Yet the Germans and the Scandinavians, who never went down the neoliberal road, have more buoyant public finances and higher economic productivity. They have been able to afford to abolish student fees, whereas the UK government has been doggedly introducing neoliberalism into England’s university system, privatising the cost and dumping it upon students and their families, and marketising the entire university system.
However the mounting no-fees demand in both our countries ignores the reality that Britain – and even more South Africa – has other much greater and pressing priorities for public spending, not least because a university degree is a real privilege for those of us that have one, and normally leads to higher earnings.
In 2016, working age university graduates in England earned on average R160,000 per year more than non-graduates, while postgraduates earned on average R260,000 more. Over an entire working life therefore university graduates will earn around R6 million more than non-graduates.
If all university students were to make no contribution at all to their privileged education, that would leave much less money, for example to prioritise pre-school and primary school education which all the research shows is absolutely crucial to life opportunities, more so than at any other time in the educational cycle.
The truth is that the cost of university education has risen massively because the number of students is so much greater than in the past. When I went to university in London in 1970 fewer than one in ten school leavers went to university. Now the figure is over four in ten – numbers have more than quadrupled.
In South Africa the trend is in the same direction. For example there are over 400,000 extra students since apartheid ended, overwhelmingly black students. Again very welcome, but at huge extra cost, taking resources away from other pressing social and economic priorities, especially given the depth of poverty and homelessness in South Africa.
Notwithstanding the argument about ‘decolonisation’ from some angry South African students, the truth is there are tough choices in your country as there are for Britain’s: for both our governments, for both our universities and for both our students
In Britain we have been living through ten years of austerity and savage cuts in public spending – with many years more of the same to come promised by the Conservatives. In South Africa you have huge extra demands on the Treasury, imposed not least by the awful legacy of apartheid.
A Graduate Tax
My answer for Britain is to replace the student fees system with a graduate tax – a small addition to income tax paid by all graduates during their working lives.
In England – and by extrapolation South Africa – let’s assume that there is no alteration in the real value of money received by universities from the Treasury, and there are no changes in student numbers.
The main detailed English studies currently available come from the Million+ higher education think tank. Its 2010 study estimated that a graduate tax of 1 per cent could be adequate. But the figures rose sharply with the 2010 trebling of English fees, as a more recent Million+ study showed.
It looked at replacing the current English funding system (including the repayment of both fees and the maintenance loans which are provided), giving two options for 30- and 40-year repayment periods. It made calculations on the basis of abolishing the current fees system in the future, and also repaying maintenance loans.
Graduates would make a contribution based on their salary, with the rate of tax rising across bands in much the same way that income tax already does. Nothing would have to be paid on earnings up to R190,000 per year. Earnings between R190,000 and R450,000 would attract an extra tax rate of 2 per cent, then 2.75 per cent applied to earnings between R450,000 and R800,000. Earnings above that would be taxed at 3.5 per cent.
It would be perfectly practical for the Inland Revenue to implement such a system, and the economic costs to government would be less. It would be much, much simpler – involve far less costly bureaucracy – and it would undoubtedly be fairer. It seems certain that British graduates would prefer a graduate tax over the current system which involves them in a greater cost, saddles them with debts damaging their financial credibility and is totally unjust.
The clincher surely is that the new tax rates involved will all feel very much lower than what is paid now by students in interest charges in England, and thus remove the disincentive effect to enter university. Again surely the same would apply in South Africa?
Those in England earning between around R190,000 and R380,000 annually would pay extra 2 per cent tax, whereas under the present system such graduates pay back nothing at all until their pay exceeds R380,000, when they face a jump to an equivalent extra of 9 per cent because their fees debt is subject to an interest rate charge.
Compare even the highest graduate tax rate of 3.5 per cent which would be paid on earnings greater than R800,000 with the high 9 per cent now paid by former students in England earning over R380,000.
Foreign students would continue to pay fees of course.
However Vice Chancellors in Britain complain that whereas in the present system, money follows students into the University of their Choice. With a graduate tax, there is nothing to stop politicians in a tight spot redirecting funds away from universities to other priorities. I have heard the same argument from the Vice-Chancellor of one of South Africa’s top universities.
But surely it is up to Vice-Chancellors – and also up to students, their families, trade unions and businesses – to make the case for decent levels of public spending on universities, on the grounds that greater national economic success is the result?
Then it is said that a graduate tax would mean a ‘free ride’ for students from richer families who have their fees paid off by their parents. But that is not the case. They will very likely go into higher earning jobs where they will more than pay back the amount of the fees they incurred. A graduate tax is the fairest, most progressive way of dealing with the financing of university students because the more you earn, the more tax you will pay.
A graduate tax would also offer a more sustainable stream of revenue for the Treasury than currently, and thus be more fiscally responsible. Above all graduates would be in a much better place than they are now. So would their families and the whole country. So would universities.
In my view it’s a no-brainer. Certainly for Britain, and probably for South Africa too. Maybe your Government could look at the policy urgently and discuss it with student leaders and university vice-chancellors?
That way the student unrest could end, universities would be more stable and secure, and South Africa would be much better placed to confront fierce global competition.
There are 7.5 million new Chinese graduates and 7 million new Indian graduates every year. South Africa has 180,000 new graduates annually. Of course yours is a much, much smaller country, one-twentieth their size. But proportionately South Africa produces only half their annual graduate numbers.
Never forget that South Africa is being undercut by these economic superpowers, not just on low cost, but on high skills and high quality. And not just by those two countries but by many others. Resolving the student fees conundrum is vital, not just for students and universities, but for the whole country.
Lord Peter Hain is Visiting Adjunct Professor at Wits Business School. His childhood was in Pretoria until his South African parents’ anti-apartheid activism led to their exile in 1966 to the UK where he became a British anti-apartheid leader, then MP and Labour Government minister. He is now in the House of Lords.