This week I held a debate in Westminster Hall, our second debating chamber, to explore options about how to finance higher education. The Prime Minister recently instigated a review into how to ensure our system provides value for money and works for students and taxpayers.
Currently students leave university owing upwards of £35,000, which they have to start repaying once they earn more than £25,000 (recently increased from £21,000). The statistics show that most graduates will earn significantly more than non-graduates over their lifetime, so it is right that students contribute towards the cost of their higher education. Why should the non-graduate, typically earning less, pay more tax to help others earn more? We are not talking peanuts: the cost of student loans each year is around £13 billion, an awful lot to add back into general taxation.
So why look to change the current system, which I have stoutly defended for years? I have come to the view that it is unsustainable, because: the individual loan amounts are rising to an unacceptable level for young people starting off in life; there is some evidence of impact on mental health; and about 70% of students will repay little or nothing, so the system is not working as it should. There is evidence that student debt is hindering young people buying their first home which is undesirable.
I have asked the government to consider a range of options. Perhaps the repayments should be tax deductible so that a significant saving is introduced. Perhaps the interest rate should be reduced to a much lower rate, to encourage repayment. Perhaps the system should move away from individual loans and move towards a general graduate contribution scheme whereby an extra level of tax is paid by graduates for a specific number of years, linked to their ability to pay, which would remove the individual capital debt from around the shoulders of young people.
We also need to look at wider issues. Are too many young people going to university? Should schools do more to encourage the apprenticeship route? Do we have too many universities or university places? Can we make savings in the costs of delivering higher education, not least from the absurd salaries paid to some vice chancellors? How can the head of a university justify earning three times more than the Prime Minister?
The government must ensure that we have a system in place that is fit for purpose.