Figure . Distributional effects of new system compared to old system of HE
funding: net effects of i) increased government debt, ii) reforms to loan system
Percentile of the lifetime earnings distribution
--------- New system, £18,340 govt debt
-----Pre-reform, £12,350 govt debt
Finally, we take into account the fact that under the new system, the requirement to
take out private debt is likely to be reduced, because of the new up-front support in
the form of grants and bursaries, and the removal of the requirement to pay any fees
up-front. As we discussed above, the effects of these changes to up-front grant
entitlements and fee liabilities differs quite markedly according to parental
background. Here we show the effects for individuals at the lower and upper ends of
the parental income distribution: first the reduction in private debt required under the
new system amounts to £5,990 over 3 years for those at the lower end, mainly due to
the new grants and bursaries; second, the reduction in the need for private debt
amounts to around £4,925 over 3 years for those at the top end, mainly from the
replacement of up-front fees with fees that are fully deferrable. In order to estimate
the costs of such private debt, we assume fixed payments over 10 years at a 4% real
rate of interest.21 As shown in Figure , once the effects of the removal of up-front fees
21 Our assumption that all students would need to take on private debt to achieve the same standard of
living under the old system as under the new system helps to simplify the exposition. In reality, many
would obtain it from parents, or would take on part-time jobs instead, which have potentially quite
different impacts on educational outcomes.
21