Cost benefit analysis of Top-up fees.
Cost benefit analysis
Top-up fees
In February 2004 the government voted on whether to introduce top up fees into the education system. This was passed, in order to increase finance to the universities as it has dropped by 40% per student over the last twenty years, despite enrolment doubling in the same period. The bill was passed by five votes. What difference would this have to the cost of education for students and what would the difference be in benefits to different classes of society?
Cost to students
Figures for students attending elite university, living in London (per annum)
Parents with total earnings in bottom 30% (of parents with children entering university)
Parents earning over £32000
Cost
Benefit
Cost
Benefit
University fees
£3000
£3000
Costs
Incurred
Whilst
Studying
Cost of living
£7859
£7859
Support
£2700
£0
Bursaries
£4000
£0
Total
£7859
£6700
£7859
£0
Amount in debt whilst studying
£1159
£7859
Maximum student loan
£4930
£4930
Profit/loss
£3771
-£2929
The table highlights the shortfall between the benefits that the lower class students will gain from the change to a "top up fees" model of payments. They will leave university with a total debt of £12477 in the form of a loan that will not have to be paid back until they start to earn £15000 and on which interest won't be added until they start earning £18000.
The student with the richer parents will fair much worse under the new system. Not only will they leave university with debts to the government of £9000, after a typical three year course, they will also have debts to the banks of £14790 as well as having to find an extra £8787 from another source of personal finance. This means that the students from a richer family would have built up a total personal debt of £32577 whilst at university. (BBC online)
Cost/benefit whilst at university
The shortfall between the cost of living and the money provided to sustain the student is the main factor why three quarters of working class students do not carry on to study at university. The government planned to remedy this situation using top-up fees and introducing bursaries.
For the student from the poorer background, it means that they can live at university simply on their loan. If they were to take the maximum loan that was offered to them, then they would have £3771 to spend on extra-curricular events at university. This ...
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Cost/benefit whilst at university
The shortfall between the cost of living and the money provided to sustain the student is the main factor why three quarters of working class students do not carry on to study at university. The government planned to remedy this situation using top-up fees and introducing bursaries.
For the student from the poorer background, it means that they can live at university simply on their loan. If they were to take the maximum loan that was offered to them, then they would have £3771 to spend on extra-curricular events at university. This figure is money that students can afford over and above the cost of maintenance.
For the student that gets no government support the situation is once again very different. These students have a deficit of £2929 a year after taking out the maximum student loan. This would mean that they either have to be lent the money by a third source, incurring repayments later in life on top of the loan and the top-up fees, or they have to work to reduce their cost of living.
At present more than half of students have to work 15 hours a week to support themselves along with other financial aid. 57% of these are doing this to cover the cost of basic essentials, whereas only 11% are working to cover the cost of tuition. (Facts from n.u.s. online)
This increase in workload can be seen to have an adverse effect with nearly half of those that are working complaining about it affecting their studies in an adverse way (n.u.s. survey). The richer student would be disadvantaged the most by this situation as they have to pay off the most to cover maintenance from "extra sources". This could lead to a gap in end grades at university as those who are on lower support would be having to combine studying and working to stay at school, whereas those in benefit of higher support would be able to concentrate solely on studying. This could to lead to a "two-tier" system, but one that benefits the poorer student. This gap between final grades achieved would be made less apparent as the level of drop-outs from richer backgrounds would increase as they fail to support themselves financially and only those that have the ability to pass their exams with little studying or have larger sources of exterior income, would survive.
There has been an increase in dropouts within the current structure from 7% to 10% of students within the last year. (from the guardian online)
Cost/benefit after university
(Figures taken from association of graduate employers 2003/4 report)
When the student leaves university, they should be able to achieve a job with a higher rate of pay due to their increased level education. However, the government intends to increase the percentage of the population who go through to university, to 50%. This would mean that 10% of the population at the leaving age will have degrees and therefore the competition for higher placed positions will also increase. This problem would be further compounded by the fact that over the last year, graduate placements have fallen by 3.4%. (AGR1)
It would also mean that as a whole the UK economy would lose its competitive edge. This is because the extra influx of students from the poorer backgrounds will take labour away from skilled, manual jobs. Instead of this the country will gain people with graduate degrees who are unable to get jobs to match due to the increased competition. The mobility of labour may not exist, as those with degrees will not be trained in the manual work, leading to a greatly increased time lapse, as they have to be re-trained to fill these positions.
This would not just be a problem for the individual student, but also a problem for the government as a whole. For the funding of Universities to work, a regular return has to be obtained. However, if the first students to leave university cannot achieve high paid jobs and instead take up jobs with a salary below or near to £15000, then the government will receive no return on their initial investment in the education of the student. This means that for the next generation of students to go through university the government will have to increase the level of subsidies to universities, a rise that would have to be paid for out of the taxpayer's money.
For those students that manage to achieve a job, graduating would mean that they achieve a salary of £20,300 on average, rising to £28,000 within three years. This is compared to a starting wage of £12,569 for skilled workers for their first year of work. (AGR1 and Guardian)
Nevertheless, as mentioned above, workers that have obtained a degree can be carrying debts of £32,577. This means that when they achieve a job with a high salary they will have to pay repayments on loans as well as paying the top up fees. This would be further exacerbated by the fact that they will be paying high marginal rates of tax due to earning a higher wage, the high level of taxes being used to subsidise the next generation of students from poorer homes.
Conclusion
Overall top-up fees will have a generally negative effect on both the individual's education and future life as well as the economy as a whole.
Students from poorer home would be the main beneficiaries if they could be guaranteed a job at the increased wage rate. However, due to the increased competitiveness of the job market, they may end up not having a job and being unable to do a job that they would have otherwise been trained in.
Students from richer homes will end up saddled with large debts as well as facing high maintenance costs whilst studying, also without the guarantee of a job at the end of the course.
The economy could lose out for two main reasons. It could become less competitive if people cannot achieve jobs in the graduate sector, as they would be overqualified to take up manual jobs, leading to a shortage of labourers and an excess of middle management.
The economy could also lose out if university leavers do not repay their loans as quickly as the government expects. This would lead to an increased level of investment in the system, with a decrease of initial funding. Either taxes would have to be increased to cover this shortfall, or the government would have to borrow large amounts of money, starting off the chain reaction of a boom and bust scenario.
Bibliography
Guardian online - http://observer.guardian.co.uk/focus/story/0,6903,1046463,00.html
N.U.S online -http://www.nusonline.co.uk/subsites/stopfeesnow/issues/facts.php
BBC - http://news.bbc.co.uk/1/hi/education/3445931.stm
Association of Graduate Employers -
1.http://www.agr.org.uk//assets/news_articles/pressreleasesummer2003survey.doc
2.
http://www.agr.org.uk//assets/news_articles/FT-AGR%20survey%20press%20release2003. doc
