Blog: Talking about student finance

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27 September 2018

David Thompson, Senior Policy Analyst at the Russell Groups, explains why there must be better communication with students and their parents, or advisers, about the student finance system.

The current student finance system has done a lot for higher education in the UK. Perhaps most importantly, increasing tuition fees and asking graduates to pay more towards their education has made it possible to remove the arbitrary cap on student numbers, opening up university as an option for all. Crucially, the fact that students pay no upfront costs, and only repay their loans once they are earning above a defined threshold, has helped record numbers of disadvantaged young people study for a degree.

At the same time, following years of financial uncertainty, universities are now on a more sustainable footing, enabling them to invest in high-quality provision for the benefit of students, the public good and the UK economy.

Yet these benefits are often lost in the debate around student finance and public confidence in the present arrangements is low.

This is partly down to weaknesses in the system. While it broadly works well for young undergraduates studying full-time degrees, for example, the same cannot be said for part-time and mature students, where drop-offs have been dramatic and the reasons for this require further exploration.

How the ins and outs of the student finance system are communicated also needs a serious overhaul.

Ask most people about student finance and they have probably heard two numbers: the £9,250 annual maximum tuition fee and the £50k average debt on graduation (the combined tuition fee and maintenance loan plus interest accrued for a three-year course).

Yet these numbers do not tell the whole story. The majority of students will not pay back their full loan. A quarter will pay back none at all. This isn’t a failing of the system, but a conscious design feature recognising that the UK needs to invest in human capital and knowledge creation. The actual amount a graduate repays depends on their income, with repayments beginning once they are earning £25,000 or more and any unpaid balance is written off after thirty years. The outstanding money is covered by the taxpayer, splitting the costs of higher education in a way that is reflective of both its private and wider, public benefits. So, in practice, someone earning around £27,000 five years after graduation would pay back around £15 a month. If their income rose steadily, they could expect to pay back close to £18,000 over 25 years. Far less than the total nominal ‘debt’ plus the interest which is accrued.

On top of the numbers, the language of ‘loans’ and ‘debt’ can be misleading and difficult to navigate. Because of the way in which costs are shared and the income-contingent features of the student finance system, tuition fee and maintenance loans do not resemble normal, commercial loans. Yet the way in which information on student finances is presented masks these important features: Student Loan Company (SLC) statements, for example, emphasise the rapid accrual of interest on loans but do not mention the Government’s pledge to cover any amount that a graduate’s salary does not enable them to repay.

This is not to say that changing the language will be enough on its own to build confidence in the system. Simply “rebranding” today’s arrangements will not resolve legitimate concerns over whether the system is as fair and affordable as it should be. But changing the mechanics of how information is communicated to prospective students and graduates and identifying the information that is most practical and relevant to them would help ensure that student debt is properly understood; that disadvantaged young people are not wrongly put off university because they assume they cannot afford it, and that the wider debate on fees and funding is better informed.

One possible solution could be to reform the SLC application process to make the way in which students and taxpayers share the costs of higher education clearer.

Changing the SLC statement that graduates receive each year would also help to tackle the problem of perception. At the moment, a graduate’s statement shows the total debt balance along with monthly interest accruing which they will probably never pay back in full. This can be misleading and disheartening. A better approach could be for statements to focus on a graduate’s monthly repayments, estimating the length of time they will be paying back their loan, based on their likely earnings trajectory, and, on this basis, the approximate actual amount they can expect to repay.

Alongside these changes, universities can get better at explaining to prospective and current students how their tuition fees are spent and the benefit they can expect to receive from their education and broader student experience.

The current system is dogged by misconception. If we are to preserve its best features, it must be better understood. The Government’s review of post-18 education and funding is an opportunity to address these issues.

For more details, see the Russell Group briefing “Policy options for the post-18 review: improving communications with prospective students and their parents and advisers”.