Lucy Hunter: The real cost of free tuition

A university education promises a brighter future, but for some students from low-income backgrounds, future debts may be larger than anticipated. Picture: Ian Rutherford

EARLIER this month, the Scottish Government published its draft budget, revising its plans for 2014-15 and providing figures for planned spending in 2015-16 for the first time. The figures show that there will be a continued squeeze on student funding in higher education. But ministers have given little away about plans for managing this. Speaking in the parliament, John Swinney said only that “free higher education will continue for Scottish students as part of annual investment of more than £1 billion in the sector”, consistent with the brief explanation in the published commentary.

The first place to search for clues about what lies ahead is the budget line for “Student Support and Tuition Fee Payments”, now worth just over £300 million a year. About three-quarters of this goes on tuition fee payments made by the Student Awards Agency Scotland (SAAS) to universities and colleges on behalf of Scottish and EU students, to cover some of the cost of their teaching on courses of higher education. The rest of this line is money paid direct to students as non-repayable student support, mainly means-tested grant (now known as bursary).

As Table 1 shows, in 2014-15 this budget line is set to rise by only 1.2 per cent in cash terms (previous plans: 1.5 per cent) and is then frozen in 2015-16. The table also shows the figure for 2013-14 is already well below that for last year, explained by the fall in the value and availability of student grants in Scotland from this autumn. The most obvious options for managing the smaller real terms reductions planned for next year and the year after would be some combination of:

n ending the practice of increasing grants annually in line with inflation, and so further eroding their real terms value at the expense of lower-income students;

n a reduction in spending on smaller-scale grants, such as Disabled Students Allowance, or switching these to repayable loans; the room for manoeuvre looks limited, however; and/or

n a planned fall in student numbers.

Reducing student numbers would be challenging. Although the number of 18-year-olds in the population is falling, UCAS figures have suggested for some time that demand for university places is rising more than quickly enough to compensate. Reducing numbers would also make Scotland the only part of the UK going into reverse. Statistics published last week already suggest that the rest of the UK is seeing more growth this year, albeit from a 2012 baseline depressed by the introduction of higher fees. Still, estimates for the rise in acceptances through UCAS this year stand at 10 per cent in both England and Northern Ireland and 5 per cent in Wales, compared with 2 per cent in Scotland. Meanwhile, ambitions to widen access would be harder to achieve in a contracting system. Freezing student grant levels therefore seems likely to be a strong contender for managing the pressure here.

Yet grants have already taken a large hit. As Table 2 shows, if the relevant line had been maintained at its 2012-13 level in real terms, by the end of this budget period in 2015-16 spending would have increased by just over 6 per cent to £345.8m, a difference of £40m a year. Because of the protection afforded to tuition fees, most of this £40m saving – probably about two-thirds – will have been achieved by a sharp decline in means-tested grants.

These figures imply that by 2015-16, students from lower-income backgrounds will need to borrow well over £20m more every year, because the Scottish Government has replaced this lost grant with student loan. This additional borrowing will confer no extra spending power and is additional to the extra loan being used to achieve a “minimum income” for students.

Some argue that while they are studying, many students are not too concerned whether their living costs are covered by government debt or grant. However, this extra loan will turn into a real deduction from earnings in a few years’ time. Repayments function like a tax, collected as a percentage of all income over a particular figure, at present £16,365. Only when their larger debts take longer to clear will graduates from poorer backgrounds notice the resulting loss of income.

Table 2 shows how the cumulative loss from this part of the budget up to 2015-16 will be in the region of £100m. Unless the government publishes the underlying split between tuition fees and student support, it will not be possible to identify the exact amount being saved on grants over the period. However, even without access to the precise figures, it is safe to say that that these spending plans must be underpinned by a significant raid on the future earnings of students from low-income homes – pretty much the same group who elsewhere are the target of widening access policies.

It will also be worth keeping an eye on the tuition fee payment made by SAAS to universities and colleges, mentioned earlier. For some time now, the amount paid per student has been frozen. This seems likely to continue: otherwise the pressure on student grants will become even more acute.

Looking just at universities, these SAAS fee payments appear to account for about a quarter of the income from the Scottish Government for teaching, so holding this element cash-flat over a long period will have a noticeable effect on the resources available for tuition. This is particularly true once plans for the Scottish Funding Council (SFC) element of university funding are considered.

As Table 3 shows, funding for universities from the SFC still increases significantly up to 2014-15, reaching £1060.9m, only marginally less than was originally planned for that year. Funding then remains steady in cash terms.

Some relief for the system will come from switching the last few “rest of UK” students out of the funding equation, as this group is moved wholly on to the new fee regime, paying up to £9,000 a year. However, unless either the number of places for Scottish students or the share spent on research is planned to reduce, by 2015-16 a real-terms fall in funding per student looks hard to avoid, particularly assuming the SAAS contribution to tuition fees remains frozen in cash terms.

It is harder still to tell from the published figures exactly what effect the separate pressure on college budgets will have on the 40 per cent or so of higher education now provided by further education colleges, as HND/C and equivalent qualifications.

More on the thinking behind these figures should emerge as the budget is subject to detailed parliamentary scrutiny. However, for the moment, given the pressure on public finances, the scale of the higher education budget and the commitment to maintaining free tuition, it is hard to see how the government can avoid being caught between several rocks. Unless it is considering a reduction in available places, the Scottish Government looks likely to be relying mainly on some combination of a real-terms reduction in the value of teaching funding per student and a hard-to-spot raid on the future earnings of graduates from low-income backgrounds to navigate its way through the next few years.

• Lucy Hunter is a freelance analyst and formerly Head of Higher Education, Science and Student Support in the Scottish Executive. Further background to the figures in this article can be found at http://adventuresinevidence.com