Tuition Fee Fracas


Since the coalition government raised the cap on tuition fees in 2012, student debt has soared. Due to interest on student loans, many graduates will spend most of their working lives paying off a debt that is greater than what they borrowed. The system has produced intractable problems: students are paying more than ever to get degrees, but many will not get graduate-level jobs. The declining value of tuition fees has left some universities struggling to cover their costs. Increasingly, they rely on recruiting international students and selling expensive master’s courses.

Labour’s initial solution was to scrap tuition fees altogether. Sir Keir Starmer has now reneged on this promise. The question is what will replace it. The current system magnifies inequity. In 2022, the government lowered the threshold at which graduates start repaying their loans to £25,000 and extended it to 40 years. Some low- and middle-income earners, who would have previously only paid back a portion of their debt, will now pay it back in full. The government’s decision to reduce the interest rate on loans was a small improvement. But the setup remains fundamentally unfair as high earners who can pay off their loans quickly will end up repaying less.

It’s a common refrain that student debt is not a cause for worry because it functions like a tax. But taxes do not provoke the gnawing anxiety of compounding interest. Moreover, an estimated 10% of students have rich parents who can pay their fees upfront, thus avoiding any “tax”. One way of making the system more like a tax would be replacing the Student Loans Company with a student funding agency that paid fees to universities, the cost of which would then be taxed back from graduates, with high earners paying a larger contribution. The psychological toll of debt would be diminished, while high-earning graduates – including those whose fees were paid upfront – would pay more of the tax.

This would not be a magic bullet. Taxing graduates who already face steep housing costs is unlikely to be an easy sell. And Sir Keir will need to find a way of increasing university funding. The next government is likely to come under pressure to raise tuition fees. It should avoid doing so. More generous funding from central government would be a better solution – but it would also require an independent funding body, insulated from the political whims of ministers.

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