in place at least until 2010.5 In addition, there are no longer any exemptions for fees
based on family income (see Table 1). Instead of being payable up front, all fees are
now deferrable until after graduation, with loans available at a zero real interest rate,
repayable according to income (at 9% above a threshold of £15,000). New grants are
available for many students (up to £2,700 for the poorest students, tapered to zero at
parental income of £60,000) and bursaries are now received by the poorest students
(at least £300 for the full fee). Further details are set out in Dearden et al (2005,
2007).
Table . An outline of the old system and new HE funding system for England
The “old” system The “new” system
Students would pay £1,200 in 2006-07a From 2006-07 students pay £3,000
- Up-front fee - Deferred fee
(subsidised loans: zero real
interest, 25 yr debt write-off)
- Flat fee rate - Variable fee rate
- Exemptions based on family - No exemptions
income
- Pre 2004-05, no grant - Up to £2,700 in grants, plus
additional bursaries
a In 2005-06 the fee is £1,175, and in the absence of reform this is up-rated in line with inflation each year.
For more detail, see Dearden et. al. (2005).
Sources: Department for Education and Skills, The Future of Higher Education, Cm. 5735, 2003; The Higher
Education Bill, Bill 35, 2004; The Future of Higher Education and the Higher Education Act 2004: Regulatory
Impact Assessment, 2004; Moving toward a Single Combined Grant for Higher Education, 2004; DIUS Press
Release Increased Support for Students in Higher Education, 2007.
3. Distributional effects of the reforms: by parental income
Much concern has been expressed about the equity, or distributional consequences of
the new fee regime. In this section we consider the distributional consequences in one
particular dimension, namely how individuals are affected according to their parents’
income. By looking at how payments balance out across the lifetime, we show that
relatively less well off students are more than compensated for the increases in fees by
large additions to up-front support in the form of maintenance grants and subsidies.
For students from richer backgrounds, the total additional costs of entering university
5 The system against which changes are measured, is the system in place in 2003-04, which was the
final year before any of the new reforms, first set out in the 2003 White Paper, had begun to be
implemented. Note also that all figures throughout the paper are expressed in 2006 prices.