Students at the centre

Universities are directly an issue of intergenerational equity, but also provide an outstanding case study of how policy goes badly wrong due to ideology, poor incentives and the failure to pay attention to sustainability. These have left us – in both the US and the UK, although we will concentrate upon the latter – with a needlessly expensive and misdirected higher education system. This is generally financed by the current student generation through student loans. There is over $1.6 trillion in outstanding US Government student loan debt. Students in England are leaving university with a degree and a debt of £60,000. Because of fundamental design flaws in the financing system, and a remarkably powerful lobby for the sector, governments have ended up with a patchwork of proposed fixes – for example, proposed debt forgiveness in the US – rather than engaging in root-and-branch reform.

Before 2012, students in England paid a modest amount towards their fees. The Teaching and Higher Education Act of 1998 introduced £1,000 per annum fees; the Higher Education Act of 2004 allowed for fees up to £3,000; while in 2012, maximum home student fees tripled to £9,000. They have risen modestly to £9,250 since then. A specific exemption in the Equality Act 2010 allows for overseas students to be charged more than local students. Overseas students are typically charged two or more times the home student rate. Ironically, the Liberal Democrat political party had campaigned in 2010 promising abolition of fees. But, as part of the Coalition Government with the Conservatives, the high-fee regime was instituted, partially explaining the near wipe-out of the Liberal Democrats in the 2015 elections.

Students can finance their degree from government student loans, a contingent repayment scheme that has become more complicated, less generous and more inequitable over time (as different repayment rules apply to different generations of students and different levels of study). On the now standard plan for new undergraduate students, they pay a levy of 9% on post-university earnings over £25,000, with their loan balance adjusted by an interest rate based upon the RPI. Loans accrue interest at the beginning of study not on graduation and are related to RPI rather than the more widely used CPI. The loans are written off after 40 years.