Why arguments about student loans will end up harming further education

There are two sorts of policy questions. Some issues appear simple but are actually complicated – including in education. That is why there are such fraught debates over how to teach children to read, over academic selection at different ages and over the right balance between academic and vocational routes.

But many policy questions are actually simpler than they appear. Take the debates over academics’ pensions. It seems you need a detailed knowledge of pensions to understand them. In fact, the only important thing you need to know is that traditional pensions are unaffordable when life expectancy rises at something like 15 minutes every hour.

The accounting treatment of higher education seems incredibly complicated but is, in fact, remarkably simple.

Here is a potted history: in the 1990s, student loans appeared as public spending in the national accounts; in the 2000s, this did not happen; in the 2010s, many people want to put all or some of the loans back in the accounts.

When the first modern student loans were introduced in 1990 – just in time for my first term at university – the money loaned to my fellow students and me counted as current public spending. This was odd, for we were committed to paying back our loans after graduating. They were loans not grants, and the money would be recovered by taxpayers.

The result of counting repayable loans in the same way as other government spending was under-investment in education. In 1997, the Dearing Committee called for a better approach: ‘we see no merit in the present practice of treating loans in the same way as grants. It misleads rather than informs.’

The rules were changed. Today, not one penny loaned out to students as tuition fee loans or maintenance loans appears in the national accounts as current public spending. The money still adds to the national debt, so it is not hidden from view. But policymakers and the media tend to be more focused on the annual deficit figures than the total debt.

Now, there is a head of steam pushing for a change back to something closer to the old rules.

For example, a new report by the Economic Affairs Committee of the House of Lords declares: ‘Debate over post-school education funding is hampered by the treatment of student loans in the public accounts.’

The great-and-the-good who make up the Committee want ‘a better discussion of where public money in post-school education should be directed.’

They say changing the rules will help rebalance resources towards further education. It will, they say, end the situation in which: ‘Funding for post-school education is too heavily skewed towards degrees.’

To be fair to the Government, they merely keep to the accounting industry’s rules – and rightly so. In mature democracies, politicians do not make up their own accounting rules. It would be a disaster if they did, for short-term policymaking would trump long-term planning.

Yet the rules the politicians operate under could now be changed. The independent Office of National Statistics (ONS), which decides how loans are accounted for, are looking at the issue: ‘we have begun work with international agencies and other National Statistical Offices.’

Many people in the further education sector will shout ‘hurrah!’ They would be wrong to do so. It is incredibly dangerous for the future of FE.

Putting all spending on post-18 education into the same pot may, in theory, encourage sophisticated discussions about where each pound of public money is best spent. It also has two huge shortcomings in practice.

First, it pits higher education and FE against one another. History suggests FE loses out when HE and FE fight over the same money. Parliamentarians, senior civil servants and the media put more focus on HE, so it generally wins any bunfight for resources. If the current undergraduate loan system did not exist, FE would have been squeezed more, not less.

The second challenge is that the cake will get smaller. Reclassifying some or all HE spending so that it ceases to be ‘private’ and becomes part of general public expenditure will mean a smaller share of our national wealth being devoted to education.

Just as HE tends to trump FE, so the NHS, international development and tax cuts tend to trump education.

There may be neat-and-tidy arguments for putting some of the money loaned out to students back in the national accounts – particularly any sum expected to be written off. That is for the accountants to decide. But the expectation this will provide a boost to FE is deluded. The faster the sector recognises this, the better it can protect its students.

Don’t fall into the trap!

Nick Hillman, Director of the Higher Education Policy Institute

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