Oral statement to Parliament

Statement on higher education funding and student finance

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

With permission Mr Speaker, I would like to make a statement on Higher Education Funding and Student Finance. This follows the statement made…

With permission Mr Speaker, I would like to make a statement on Higher Education Funding and Student Finance. This follows the statement made by my Rt Hon Friend the Secretary of State on 12 October.

Our higher education system has many strengths, but also faces challenges - the need for more focus on the student experience, the need to widen access, and the need for sustained funding.

These challenges led the previous government, on a cross party basis, to set up Lord Browne’s review. We are grateful to Lord Browne for his excellent work. I think he has made us all re-examine our positions.

On 12 October, my Rt Hon Friend said that the coalition endorsed the thrust of Lord Browne’s report, but were open to suggestions, before making specific recommendations, which would be radical and progressive.

We have listened very carefully, and with open minds. I can now give the details of our proposals.

First, we will introduce a progressive system of graduate contributions to the cost of their university education, with nobody having to pay up-front fees.

Lord Browne suggested that there should be no cap on the graduate contribution. We believe that a limit is desirable, and are therefore proposing a basic threshold of £6,000 per annum. In exceptional circumstances there would be an absolute limit of £9,000. No publicly-funded university will be able to charge more than this for its undergraduate courses. Since there will be a cap, we see no need for institutions to pay back a proportion of the graduate contribution as a levy to the Exchequer, as proposed by Browne.

We are also proposing a more progressive repayment structure. At present graduates start repaying when their income reaches £15,000. We will increase the repayment threshold to £21,000, and will thereafter increase it periodically to reflect earnings. The repayment will be 9% of income above £21,000, and all outstanding repayments will be written off after 30 years. Raising the threshold reduces the monthly repayments for every single graduate.

We will introduce a real interest rate on a progressive taper. For graduates earning below £21,000, the real rate of interest will remain at zero. For graduates earning between £21,000 and around £41,000, a real rate of interest will be tapered in to reach a maximum of inflation plus 3%. When graduates are earning above £41,000 they will be making a full contribution to the costs of the system but still incurring interest well below normal commercial rates.

Under our proposals a quarter of graduates - those on the lowest incomes - will pay less overall than they do at present.

The Government is committed to the progressive nature of the repayment system. It is therefore important that those on the highest incomes post graduation are not able unfairly to buy themselves out of this progressive system by paying off their loans early. We will consult on potential early repayment mechanisms - similar to those paid by people who pre-pay their mortgages. These mechanisms would need to ensure that graduates on modest incomes who strive to pay off their loans early through regular payments are not penalised. For example, a 5% levy might be charged on additional repayments each year over a specified amount such as £1000 or £3000. Alternatively, those on higher incomes (e.g. over £60,000) who made an additional repayment could be required to pay a 5% levy on this sum.

Whilst participation in Higher Education has improved in recent years, there has not been enough progress in securing fair access to some of our best known universities.

We can make progress by improving the school attainment of pupils from disadvantaged backgrounds. That is why the Government is investing in a new premium for two year olds and in the pupil premium.

But we want this focus on improving the life chances of those from disadvantaged backgrounds to continue through to university. That is why, as previously announced by the Deputy Prime Minister, we will also establish a new, £150m National Scholarships Programme. This will be targeted on bright potential students from poor backgrounds to encourage them to apply to university and meet their aspirations.

All universities that want to charge a higher graduate contribution than the £6,000 threshold will be obliged to participate in the National Scholarships programme. We will consult students and university organisations on the details. We will look to increase the leverage of Government funding by getting matched contributions from universities. Our current preference is for universities to offer scholarships to targeted students - including the principal beneficiaries of the pupil premium - that would mean at least their first year is free. Other attractive ideas include expanding the model of a foundation year for young people with high potential but lower qualifications.

To ensure that the universities that charge tuition contributions above the £6,000 threshold take account of their particular responsibilities to widen participation and fair access, we will introduce a tougher regime of sanctions. Each institution will draw up a new access agreement with the Office for Fair Access. This would be expected to include activities such as outreach initiatives to attract more pupils to apply from disadvantaged backgrounds, and targeted scholarships and financial support for poorer students. OFFA will agree with universities a programme of defined progress each year towards their access benchmarks as calculated by the Higher Education Funding Council. If they are not making adequate progress towards these benchmarks, a mechanism will be established to allow OFFA to redirect a proportion of the income from contributions over £6,000 to specified access activities

Our student support system is currently one of the most generous in the world. We will make it more progressive.

Lower income students, while studying, will get improved help with their living costs. Students from families with incomes up to £25,000 are currently eligible for a maintenance grant, that is not repayable, of £2,900; we will increase this to £3,250. Those from families with incomes up to £42,000 will be entitled to a partial grant. There will also be increases in maintenance loans for students from families with incomes from £42,000 to £60,000. We will retain a higher maintenance loan for those studying in London.

All parties agree that the present system gives a raw deal to part-time students. They are particularly likely to be mature or disadvantaged students. Even the great higher education reports of the past, such as Dearing and Robbins, largely ignored them. Lord Browne has confronted the challenge head on.

At last, under our proposals, part-time students will be entitled to a loan for tuition on the same basis as full-timers. And this support will be available to those studying for at least a third of their time, unlike the present grants for tuition which are only available to those studying for over half of their time.

Overall this is a good deal for universities and for students.

The bulk of universities’ money will not come through the block grant but instead follow the choices of students. It will be up to each university or college to decide what it charges, including the amounts for different courses.

All universities and colleges, whatever contribution they decide to charge, will be expected to publish a standard set of information about their performance on the indicators that students and their parents value: contact hours, teaching patterns and employment outcomes..

We also propose to open up higher education provision to new providers, including Further Education Colleges.

These proposals offer a thriving future for universities, with extra freedoms and less bureaucracy, and they ensure value for money and real choice for learners.

We need to act quickly so that prospective students know where they stand. We intend to implement these changes for the 2012/13 academic year.

We will therefore bring to the House our proposals on changes to graduate contributions before Christmas. Both Houses will have the chance to debate the proposals before a vote is taken. I am today placing in the Libraries of both Houses additional material that explains the modelling that we have done.

We will also take powers next year to set a real interest rate for graduate contributions.

We will, as usual, publish the details of the university financial settlement for 2011-12 in our annual funding letter to HEFCE next month.

We will therefore publish, later this winter, a Higher Education White Paper covering the wide range of long-term issues that arise from Lord Browne’s report. We will hope to bring forward legislation in due course. Given the timescales, we would not expect to be implementing changes before the 2013/14 academic year.

Lord Browne’s report has rightly generated much debate. When the review was established, exactly a year ago, it was on a cross-party basis. I hope the Opposition will feel able to maintain that spirit. From our side, the two parties in the coalition have accepted the report’s broad thrust and are today putting forward a single, coherent and progressive policy.

It will deliver a better deal for our students, for our graduates and our universities.

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