Why lowering tuition fees is more complicated than you think

Labour is toying with the idea of fiddling with the English university tuition fees system, but doing so may have counterintuitive effects.

Early in the parliament, Labour said their preferred policy was to introduce a £6,000 upper limit on what universities in England can charge students each year - not £9,000, as it currently stands. But they haven't committed to it - and there are a range of good reasons why they might not.

First, it would rile the universities. Labour has sought to soothe their concerns by promising university vice-chancellors it would make up the difference in their institutions' income.

But this is probably not a good deal for the universities, who have no guarantee that this money - which could eventually increase the usual measure of public spending by around £2bn a year - would not be taken from their other state-backed budgets. Nor do they know how it would be distributed.

Why does this matter? Why care about academics? Well, because the vice-chancellors could - to use a word of the moment - "weaponise" it against Labour.

Remember, the English universities are wily campaigners - they have won all their fights in recent years.

They could, for example, start querying Labour's ability to find the extra money while remaining inside its fiscal rules. Having the leaders of our top universities question Labour's spending plans would play into the party's terror about looking fiscally conservative.

Fears 'not realised'

Second, the greatest fears surrounding the rise in tuition fees have not come to pass. Students cheerfully pay up, even poorer ones. And any concerns that the current student loan system is unaffordable also look rather overdone - I have explained why here.

Third, the beneficiaries of a fee cut may not be who you think they are, because of the way that the loan system works. And it's not totally clear you would want to spend £2bn a year helping them, especially since they would not feel the benefit for a few years.

If English students go to an English university their up-to-£9,000 fees are covered by a student loan, which is a so-called "income contingent" debt. That means you only make repayments which you can afford to pay.

So graduates need repay none of their loans while they are earning less than a threshold, which now set at £21,000. When they earn above that level, they repay a share of their wages over that benchmark to the Student Loans Company, a public company.

Once you finish paying off your loan, the repayments stop. But if you don't earn enough, you will not be asked to repay your loan in full. After 30 years, any outstanding debts are written off.

So it is a progressive policy - people who earn more pay more for their education.

Who would benefit from lower fees?

Students protest in London over the rise to tuition fees

So what would the effect of the changes be? I asked education economist Dr Gavan Conlon of London Economics to help with some maths to explain.

Dr Conlon estimates that around the top 60% of male graduate earners would roughly pay off a student loan with current tuition fee levels. Though someone at the 60% line would only just finish - such a person who started university last October would finish repaying their loan in 2047, as it got written off.

If you cut fees to £6,000, that person - and men who earn more than them - are big winners. I reckon a typical person at that point in the income distribution might repay their fee loans three years sooner.

A fee cut is also good for people who would not repay in full with fees at £9,000, but would if fees were at £6,000. Dr Conlon estimates that this group is men who are not in the top 60%, but are in the top 70%. It helps them, too - but by less.

What about men who earn too little to repay their loans even at £6,000? That bottom 30% would get no benefit whatsoever from a fee cut.

There's an interesting gender element to this, too. You'll notice I talked about men. The results are quite different for women. Dr Conlon estimates that, with fees at £9,000, only the top 20% earning women repay their fees. At £6,000, the top half will.

That is because, in brief, women earn less.

The general shape of the story is clear. Cutting tuition fees, counter-intuitively, helps better-off graduates the most, and it helps them in the 2030s and 2040s.

That is why spending money on a fee cut is not as simple as it seems. And why targeted measures might be a less complicated way to spend money in higher education, helping part-time and postgraduate students, for example.

That's an area where higher education policy is, by common consensus, still struggling.