FE beats HE when it comes to repaying loans, says study
Nick Barr, senior lecturer in economics at the London School of Economics, has researched loan repayment patterns as part of his wider studies in student finance.
His findings have profound implications for the Government's higher education expansion plans, tied as they are to loans and tuition fees for most students on degree and sub-degree courses, whether in universities or further education colleges.
Sir Ron Dearing called for an immediate expansion of sub-degree (Higher National DiplomaCertificate courses) in FE colleges. The cap on degree courses would be lifted within three years, with expansion concentrated in universities. All HE students in colleges and universities would be liable to tuition fees under Labour's proposal.
Dr Barr said: "The repayment performance of students in FE is staggeringly good. My feeling at the beginning was that FE students would do less well. I was gob-smacked when I saw the results."
He and a colleague, Jane Falkingham, carried out their research using a simulation model of the population, Lifemod, developed by the Welfare State Programme at the LSE.
It is a hypothetical population study which charts individuals from birth to death, including major events such as schooling, tertiary education, marriage, divorce, childbirth, employment and retirement.
Although it is a theoretical model, it has been used to predict very accurately a range of social and economic issues affecting long-term Government planning and expenditure.
It is a lifecycle model used for anything financial that takes place over a lifetime.
For example, it has been used for pensions where people have different lifetime contributions and expectations. It is also used to predict and to model health expectancy in different sectors of society.
Dr Barr introduced student loans into the model, first for HE students and then for FE. "We found that people in FE borrowed less or for fewer years, they started in the labour force earlier and they had more years to repay so they did better than the HE people."
He said that assuming a zero interest rate attached to the loan, a larger fraction is repaid by FE students, 86 per cent compared to 81 per cent in HE. "That's assuming earnings do not grow. But if you assume growth of about 1.5 per cent, then the figure for HE is 87 per cent and for FE 91 per cent. "
The disaggregated figures for FE give men a repayment figure of 97 per cent and women 86 per cent. Income-contingent loan schemes were much more effective in ensuring payment from people with lower incomes. They were also superior to any hypothetical extension of the existing Government higher education loan scheme to this group of students.