both of these options would affect low lifetime earners more than the withdrawal of
the interest subsidy.
Another alternative, and a potentially revenue-saving reform to the loan system from
the point of view of the Exchequer, could be to offer students the choice of a discount
on their fee if they pay up front. For example in Australia, until 2005, students had the
option of paying the fee upfront at the beginning of each academic term, at a 20%
discount.24 According to our calculations, just over one half of women and 77% of
men would benefit financially from this option.25 These are individuals whose
earnings are sufficiently high that they would not gain much from the fee loan
subsidies. This means that a substantial proportion of people would lose out
financially if they were to go for the discount option, and only those students who
have information to suggest that they will fall into a relatively high earning category
should consider taking the discount.26 Note also that risk averse students (or their
parents) who might prefer to pay off a fixed sum while studying could lose out
financially from this decision.
Finally, it is worth considering what the additional costs to the graduate and
exchequer might be if the fee cap, currently imposed at £3,000 per year, were lifted to
£5,000. Figure shows that of the extra £6,000 in fees over a three year degree that
such a lifting of the cap would imply (i.e. an additional £2,000 per year above the
current £3,000 cap), a very substantial proportion would in fact be covered by the
taxpayer rather than by graduates, because of fee deferral. On average, female
graduates would have to contribute £3,300 extra in total towards the increased fees (or
55% of the fee increase), and male graduates would have to contribute around £4,400
(73% of the fee increase), but the amount payable would be strongly increasing in
progressivity of the system remains.
24 This was reduced from 25% in 2005, and note that the proportion of eligible students choosing to
pay upfront was just over 20% in 2002.
25 These figures are calculated by comparing the net present value of total fee and maintenance loan
repayments, with the sum of the discounted value (at 80%) of upfront fees and the net present value of
maintenance loan repayments.
26 Note that the levels of uncertainty in future earnings and employment, which are at the core of this
paper, would render this an extremely difficult decision for the student.
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