Inequality and student finance

Lindsay Paterson, University of Edinburgh

One of the great political myths of our time is that the current system of student finance in Scotland is progressive and that the system in England is iniquitous. Free undergraduate higher education has become such a premise of debate in Scotland that almost no politician who wants to claim egalitarian credentials dare challenge it. That same view now seems to be percolating to the left in England, since Jeremy Corbyn became leader of the Labour party. His policy, too, is to abolish fees, rejecting what he claims is the errors of New Labour which introduced fees in the late-1990s.

All these people claim that free tuition favours the poor. Yet the evidence is consistently and strongly that it does not, or at least not in present circumstances. The background here is how to finance a massively expanded system of higher education, with participation rates having risen from under 20 in every 100 young people in the 1980s to about 50 in every 100 today. In theory, this could have been paid for by taxes. But no government in the democratic world has successfully pursued a programme of raising taxes in recent decades. That approach to funding the welfare state is too unpopular, even in the extreme circumstances which some countries (notably Greece) have faced since 2008.

So the question has become how to find other sources of finance. The rationale for charging fees for university is that the beneficiary – the graduate – should pay part of the cost. Of course, both society and the individual benefit, but no serious politician in the UK (or anywhere in Europe) has proposed that the whole cost should be borne by the individual. The sharing has also now come to be only when the graduate is indeed benefiting financially – after graduation. Young, full-time students do not pay anything upfront, anywhere in the UK. But in England, there is retrospective payment, in proportion to earnings. In Scotland, nothing is paid, ever.

Three main questions then arise about the policy of charging fees:

  1. Has it discouraged overall participation in higher education?
  2. Has it widened inequality of participation?
  3. Has it disproportionately disadvantaged poor students?

On the first question, the answer is unequivocally that it has not. We can look at this in two ways – over time, and across countries. Over time, the graph of participation just keeps on rising, with some very short-term blips.[1] In England, these blips were in the years of the two large fee increases – 2006 and 2012. In each case, the proportion of 18-year-olds who applied to university dropped temporarily by about 1 or 2 percentage points. But the rate recovered again the year after, and continued inexorably upwards thereafter.

Across countries, the main comparison of England is with Scotland, where the rate of increase – even with no upfront fees since 2000 – has been very similar. Indeed, even when fees were abolished completely for Scottish students in 2007, there was no discernible effect on the trajectory, and certainly no difference at all from what happened in England. Comparing countries more widely, there is simply no relationship between the rate of participation and whether fees are charged. For example, the participation rates in New Zealand (which charges fees financed through loans that are repayable after graduation, as in England) and Sweden (where higher education is free) are very similar.[2]

On the second question the answer is also unequivocally that there has been no harm. Poor students and rich students have been swept along in the wave of generally rising participation. There is inequality, but whether fees are charged has not made it worse.[3] England provides a key test. The ratio of university application rates from rich areas and poor areas has steadily declined over the past decade, through two large fee increases. It was about 4.4 to 1 in 2004, declining to 2.6 to 1 in 2014. In Scotland, the decline has been similar, but when fees were abolished the inequality actually grew temporarily, as well-off students took advantage of the state’s generosity. This resembled what happened in Scotland further back, in the early 1990s, during the first phase of expansion of higher education. Though it was all free then, the main initial beneficiaries were the children of the middle class.

The important topic in connection with the third question is not the matter of fees but rather how students finance their living costs. Public finance for students is much more generous in England than in Scotland. There are better non-repayable bursaries for poor students, and also better loans. The effect is that the scheme of student finance which was put in place in England after 2012 is the most egalitarian of any scheme anywhere in the UK since fees started to be charged a decade and a half ago.[4] In contrast, the Scottish package disproportionately benefits students from middle-class backgrounds, who end up with less debt than any other group. The main reason for this – which at first sight might seem counter-intuitive – is because loans (including fee loans) are not repayable until after graduates start earning above a certain level, and because low-earning graduates have a large part of the debt eventually written off.[5]

It is not inevitable that free higher education would be fiscally regressive in these ways. Nor is it inevitable that charging fees should go along with progressively redistributive bursaries and loans. Free services tip over into being progressive when all or a large majority of a population uses them – such as primary or secondary school. Free services are also progressive when they are disproportionately used by poor people – such as the National Health Service. English financial support was made more progressive as a deliberate political bargain when fees rose.

But the point remains. For the time being, Scottish policy on student finance is socially regressive. So: will any political party take the risk of saying that publicly when campaigning for the Scottish parliamentary elections next May?

[1] Table 1 in Higher Education Statistics Agency (2014), UK Application Rates by Country, Region, Sex, Age and Background.

[2] Section B5 in OECD (2014), Education at a Glance.

[3] Tables 11-12 in Higher Education Statistics Agency (2014), UK Application Rates by Country, Region, Sex, Age and Background.

[4] Hunter Blackburn, L. (2014), The Fairest of Them All? The Support for Scottish Students in Full-Time Higher Education in 2014-15, Centre for Research in Education Inclusion and Diversity, University of Edinburgh.

[5] Johnston, A. and Barr, N. (2013). ‘Student loan reform, interest subsidies and costly technicalities: lessons from the UK experience’. Journal of Higher Education Policy and Management, 35, 167-178.


Professor Lindsay Paterson is Professor of Education Policy, Social Policy, University of Edinburgh