Tuition fee rise would be better than a stealth tax

Times

16 hours ago

Saddling a generation of young earners with a sharp tax by stealth is a cowardly political trick that harms universities too
ALAMY
B ritain's universities are an uneasy mix of contradictions. Many are operating near the brink of financial insolvency, despite the fact that, Luxembourg and America aside, UK universities bring in more money per student than anywhere. A number are among the world's most esteemed institutions; yet, there is a growing perception that the labour-market premium of even elite British undergraduate degrees has declined in recent years. In 2025 a record number of domestic 18-year-olds applied for places at college but despite this robust internal demand, higher education has become hooked on a supply of lucrative overseas students.
In fact, so many universities are negligently ­allowing their degree courses to be used by foreign nationals as a back door into the UK asylum system that the government is now cracking down. Universities will be penalised if more than 5 per cent of their international students, many of whom take advantage of taxpayer-funded accommodation and loans, drop out of study having secured their student visa.
That is an appropriate step but it will not fix the underlying financial precarity that makes universities desperate for foreign students in the first place. That is the fault of the ill-conceived student loan system, which seems no longer fit for purpose. It is an irony that when MPs voted in 2010 to increase tuition fees to £9,000, a key concern of the ensuing debate was that poorer students would be put off studying by the prospect of acquiring vast debts. In fact, the reverse happened. The number of young people pursuing higher education boomed. And the proportion of university-bound students from disadvantaged groups, for instance those eligible for free school meals, has risen robustly in parallel with their peer group. Still, although the present student loan system has thankfully not deterred poorer students from entering education, it has had other, less foreseeable, but clearly damaging effects.
Chief among them is that the student loan system has become a graduate tax in all but name. While back in 2010, it was taken for granted that a large proportion of debt held by low-earning graduates would inevitably be forgiven by the state, changes to the repayment scheme effective from 2023 have fundamentally altered that model. Graduates in England now begin paying off their loans on any earnings over £25,000. The interest on these loans, calculated by reference to the unorthodox RPI measure of inflation, is eye-watering: it stood at 8 per cent in August 2024. The time-frame over which repayment takes place has also been extended, from 30 years to 40. The result is that the average student in England, who leaves university £53,000 in debt, faces a steep additional tax on most of their earnings over their working lives. Because of the steep interest rates, low earners are most likely to be shackled with repayments that never even make a dent in the debt's principal sum. These graduates will find it comparatively difficult to buy a house, become economically mobile, save into pensions and start families.
Saddling a generation of young earners with a sharp tax by stealth is a cowardly political trick that harms universities too. Instead of trying to recover the true cost of education, there is a strong case that headline tuition fees should simply be allowed to rise. That they have been kept artificially low, at close to their 2010 level for over a decade, is one reason many universities now face financial ruin. As well as increasing internal competition and making the sector more dynamic, uncapping tuition fees would help to make students more immediately sensitive to the financial trade-offs involved in pursuing further education. At 18, students are young, their whole adult lives still ahead of them: all the more reason to inform them honestly of the costs and benefits of the first truly consequential financial choice they will make.