The Hunt Report states that the annual funding requirement for higher education in Ireland is €1.3 billion. This funding would need to rise to €1.8 billion in 2020 and €2.25 billion by 2030 in order to continue to meet current demands. Given that the Department of Education and Skills projects that the demand for places in higher education is set to continue to rise, where will this money come from?
The Report found that, given the combination of low levels of private investment, high levels of anticipated demand and constraints on the public finances, a new approach to funding was required. A requirement for students or graduates to directly share in the cost of their education, reflecting the considerable private returns that they can expect to enjoy is the only realistic option. Dr. Hunt's Committee makes the case that those who can afford fees should be asked to make a contribution. That contribution should come through an income contingent loan scheme, allied to a combination of means-tested grants and student fees.
The outgoing Minister for Education and Skills has said that the Hunt Report is not a discussion document; it is a government approved strategy. The re-introduction of higher education fees, although widely opposed, seems now to be a foregone conclusion. The question becomes: how will students afford them? As to this question, the Hunt Report suggests an income contingent loan scheme.
It falls short, however, of recommending how the student loan scheme will work. This article examines student loan schemes in the UK and Australia.
The UK Experience
In 2006, income contingent loans were introduced by the UK Government to allow students pay their fees on a deferred basis. Fees were at that time capped at £3,000 per annum, indexed over time. It was reported that by the end of 2009/2010, £1.3 billion of additional annual income was received by higher education institutions as a result of the 2006 reforms.
Student loans and grants were and still are primarily provided through the Student Loans Company (SLC), a non-departmental public body. Under the SLC scheme, the loans are repaid directly out of a graduate's wages, at a rate of 9% for everything earned above £15,000 in that tax year. This threshold will now rise to £21,000 in 2012/2013. Currently repayments continue until either the loan is paid off, the student turns 65 or the payments have been continuing for 25 years-although this will be raised to 30 years. This system of collection is known as Income Contingent Repayment (ICR), because it tapers the repayment obligation according to the gross income of the account holder.
In October 2010 an independent review of higher education funding and student finance chaired by Lord Browne was published. The Browne Report made some recommendations as to how a student finance plan should operate. The key findings are that the ability of students to defer payment of fees is critical - no student should have to pay towards the costs of learning until they are working. This supports the current approach of the SLC scheme. It also suggested that institutions should contribute to meeting the costs of finance for learning by a levy on each £1,000 of fees charged over £6,000 (45% on the first, 50% on the second and 55% on the third). This suggestion was rejected by the UK Government.
Browne recommended that the 2006 cap should be removed, but that did not happen and instead there will be a £9,000 cap from the 20122013 academic year.
The Report found that because no real interest rate exists, wealthier students who could afford to pay up front were obtaining student support loans. For example, the SLC was charging 1.5% on tuition and maintenance loans for the 2010/2011 academic year, capped at 4.4%. Browne suggested a flat rate of 2.2% plus inflation but the Government has opted for a rate which is tapered depending in graduate earnings, in order to make the system more progressive.
The Australian Experience
Australian higher education institutions are part publicly funded, part funded by student fees. The Government offers support to students for fees in the form of the Higher Education Loan Programme (HELP). HELP loans cover all or part of the student contribution amount of their higher education fees.
Like SLC loans, HELP loans are repaid over time through the tax system. However, whereas SLC loan repayments are simply deducted at source before income tax and other levies (and not as a tax), HELP loan compulsory repayments are made through the graduate's income tax payments themselves. The compulsory repayments are calculated using a sliding scale based on their taxable income. As with SLC loans, the debt does not attract normal interest, but is increased in line with CPI. Discounts are available for early repayment, and voluntary payments may be made. There are no loan fees.
One criticism of the Australian and UK approaches, which may equally apply to Ireland, is that it is seen by some to encourage graduates to emigrate following graduation to avoid repayment of the loan.
Conclusion
The outgoing Minister for Education & Skills, Mary Coughlan, was unequivocal in her endorsement of the Hunt Report as the government's strategy for higher education. Even the impending change of government is unlikely to result in a change to the conclusion that higher education institutions can not continue to be funded solely from public resources. What the government now needs to urgently examine is how much the institutions can charge, and how students are to be assisted.
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