under the new regime outweigh the total additional payments made to them through
the student support system.6
The net financial improvement per year to a student from switching from the old
system (the system in place in 2003-04) to entering under the new system (the system
in place from 2008-09) is illustrated in Figure . The calculations underlying this figure
assume that a student takes out the maximum student loans7, receives the average loan
subsidy through the course of their working life8, and incurs the maximum fee. To
provide a better idea of how the figures were derived, Table 2 shows the underlying
calculations for a student on family incomes of <£22,500, £25,000, £45,000 and
>£60,000 respectively.
Clearly the effects vary considerably across the parental income distribution. Despite
the higher fees and the loss of fee remissions, students with family incomes below
around £46,000 should be better off under the new system. This is because they gain
in grants, bursaries, and loan subsidies by more than the additional fees they will be
required to pay. As we will show when we look at the distributional consequences of
the system of loan repayments, this advantage under the new system would be higher
if they go on to be low earners later in life. It can also be seen from Figure that for
those with family income above £46,000 per year, the additional costs to entering HE
outweighs any additional benefits in the form of direct financial support from the
state.
6 Note however that this needs to be balanced against the fact that the removal of up-front tuition fees
might remove some immediate liquidity constraints of students. Moreover, changes in quality might
arise from the increased funding for universities. However, we do not consider the potential
improvement in education quality arising from the introduction of top-up fees as an additional benefit
that students take into account when making their education decisions. If the reforms lead to an
increase in funding per head however then this should, all other things being equal, increase both
quality and thereby demand (i.e. improve the incentive to attend).
7 Given the zero real interest rate it makes sense for all students to borrow the maximum available to
them.
8 Based on DfES projections, the average maintenance loan subsidy will be 21%, and the average fee
loan subsidy will be 33%. Source: Hansard, 10 November 2005, Education Finance,
http://www.publications.parliament.uk/pa/ld200506/ldhansrd/vo051110/text/51110-25.htm. If lifetime
earnings are lower than the level that attracts the average loan subsidy, then the subsidy will be higher.