| Practice area: | Education and Labour Markets |
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| Client: | N/A |
| Published: | 3 May, 2023 |
| Keywords: | economics of education higher education 2023 Public Policy |
Following the Augar Review of post-18 education, the Department for Education put forward a set of proposals to reduce the costs of higher education fees and funding in England that included:
- A reduction in the repayment threshold to £25,000, frozen until 2026-27,
- Uprating the repayment threshold in line with inflation thereafter (instead of average earnings growth),
- The removal of real interest rates, both during and after study, and
- The extension of the repayment period by 10 years, from 30 years to 40 years.
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Under the Department’s response to Augar, the reduction in the repayment threshold (and slower uprating) and the extension of the repayment period increases the costs borne by low and middle-income graduates. At the same time, the elimination of real interest rates guillotines the repayments made by the highest earners as they are able to pay off their loans more quickly, so that high-earning graduates benefit significantly from these proposals. The changes under the Augar response system are thus deeply regressive.
Building on previous work for the University of the Arts London (link) from December 2022, London Economics modelled a number of additional alternatives ahead of the next General Election that are either fiscally neutral to the Augar response or generate additional cost savings to the Exchequer, but are also more progressive. By retaining real interest rates, these options include the re-introduction of maintenance grants (on top of maintenance loans) as well as stepped repayment rates.