The Office for National Statistics is likely to announce shortly changes to how student loans are treated in the national accounts. This sounds like a techy accounting change, but it has big implications.
In a nutshell, student loans are currently counted as an asset to government, as there is a requirement for students to pay back a sum of money. This means they don’t affect the government’s deficit figures. The political focus there’s been on reducing the deficit is one of the reasons this has made loans a popular route for funding higher education (and further education, through Advanced Learner Loans).
However, in practice at least 45 per cent of money loaned will never be repaid, as people will not earn enough for long enough. Thirty years after the loan is taken out, any outstanding balance will be written off. But with so much of politics revolving around the day-to-day, this is very much someone else’s problem for politicians.
Creating an incentive
So, for me, it makes sense to change the accounting treatment of loans – the "fiscal illusion" in the current system creates an incentive to use loans over other ways of financing whether that makes broader sense or not. (Though it’s easier to say that the current approach should change than to say how it should change, there are a number of options for doing so).
What this means is that there won’t be such a strong incentive to use one financing approach over another. Which opens up a lot of opportunities for different approaches and is why the post-18 review of education funding is waiting for the ONS before making its recommendations.
Overall this is a chance to build a truly integrated tertiary education system. One in two young people participates in higher education in England. This is not unusual by many international standards. But what is more unusual is the extent of our focus on three-year, full-time undergraduate degrees for 18-year-olds. Of course, there also remain significant inequalities in access to higher education by socioeconomic groups.
This is something Learning and Work Institute has long highlighted. It’s one of the five big challenges our Youth Commission is focusing on, and I think there is now a groundswell to do better. Here’s a few things we might focus on:
- Creating more flexible routes. I was pleased to see Damian Hinds announcing plans for higher technical qualifications. This is one of the areas the UK does less well on compared to other countries. As with most things, the devil will, of course, be in the detail and the fit with other qualifications already at this level;
- Focusing on progression. Too often policy and support operate in silos. We need to better support people to progress from entry-level learning all the way through to higher education and make sure support doesn’t arbitrarily drop off;
- Engaging and supporting learners. Our survey of adults’ participation in learning shows that the most often cited reason for not learning is not seeing the value or relevance. So we can’t take an "if we build it, they will come" approach to any system we design. There are other costs to learning beyond tuition fees. How can we open up more support with childcare, transport, living costs, etc?
- Expanding flexible ways to learn. Many adults (but young people, too) need learning that will fit around work and home life. There are lots of interesting examples trying to help do this, including new digital approaches. What more can we do to make learning flexible and open up modules and bitesize learning for people, while maintaining that focus on then progressing to further learning?
- Considering changes to loans. The current student loans system is technically a loan. But it shares a lot of features with an income-contingent, time-limited graduate tax. Should we either rename it or even redesign it so it’s closer to a graduate tax? Should we do likewise for Advanced Learner Loans or just give people a greater entitlement to free learning at Level 3 and below?
Of course, all of these changes affect Labour’s proposals, too. The likely ONS change reduces the impact of their proposed abolition of tuition fees and Advanced Learner Loans on the headline deficit. And a shift to more flexibility and progression routes is in line with the principles of their proposed National Education Service.
Perhaps, in this age of division, this is one of those areas where we can forge a national consensus?
Stephen Evans is chief executive of the Learning and Work Institute