A conference organised by the Liberal Democrats has recommended the removal of the blanket interest rate on student loans on the grounds that the £1.2 billion used to subsidise the existing system could be put to better uses.

At a seminar entitled “The university funding system: is further reform inevitable?”, it was suggested that if the blanket were lifted to a rate that reflects the actual cost of government borrowing, the liberated capital could be redistributed more fairly.
Nicholas Barr, Professor of Public Economics at London School of Economics argued that “The main beneficiaries of blanket interest subsidies are successful professionals in mid-career, not the right group, in my view”. Universal subsidies appear to benefit middle-income earners, who are able to quickly pay off their student debts when their salary exceeds £15,000.   Removal of the blanket subsidy would allow the government to use the money to improve university access through targeted spending.   

An influential voice in the student finance debate for over a decade, Professor Barr adds that the details of student finance are often “insufficiently understood.”  His phrase “information poverty” describes one of the greatest obstacles to fair access in Higher Education.  He stresses that “loans have income-contingent payback” so that graduates only have to pay as they begin to benefit financially from their university experience.

superficial changes to how and when students pay their fees

Barr believes it possible, and even beneficial for the funding of Britain’s universities, that the aim of making university accessible to students from lower socioeconomic backgrounds be incorporated into the system of variable tuition fees.
But Edward Maltby, spokesperson for Education Not For Sale, argues that this “constant refiguring and well-meaning reform” is unrealistic.   Maltby warns against making superficial changes to how and when students pay their fees, favouring a move towards free education funded by increased taxation of high income groups.

Tom McGee