The force awakens for return of higher education fees

The opening words of the trailer for the new Star Wars movie could also describe how the ground seems to be shifting on higher education funding: “There has been a disturbance in the force. Do you feel it?”

We seem to be moving towards a student loan model, although there is zero chance of anything remotely as contentious as that being announced so close to an election.

Higher education student fees for first-time undergraduate EU students were scrapped in 1996 at the behest of the then education minister, Niamh Bhreathnach. But the notion that fees were scrapped is a mistake.

There are some 173,000 full-time undergraduates in the higher education system. Of these, 14,200 are non-EU students, and almost certainly paying full fees.

A proportion of the remainder will be repeating years, taking second undergraduate degrees, or will otherwise be not eligible. So we can surmise that fees were abolished for about 90% of the undergraduate student body.

These students also pay myriad registration charges, exam charges, and so forth, as do those benefiting from the so-called free fees system.

At postgraduate level, fees are charged too, with rare exceptions for particular courses where the State deems a critical skills gap exists.

There are nearly 37,000 postgraduate students, the majority of whom pay fees.

Then we have some 20,000 part-time undergraduates who mostly pay fees too.

So of the total student body of some 230,000, we have up to a third paying fees.

We have an environment where, compared to 2008, student numbers are up by 12% but overall spend per student is down nearly 20%.

Everybody agrees that this, in the long run, is both self-defeating and unsustainable. So now what?

The leaks and noises from the Cassell higher education working group suggest they are enamoured of a student loan system.

This would be income contingent, similar to the Australian model.

People would begin to pay back their loans only on attaining a certain income level, and these would be below market interest rates.

Several problems arise with this.

Australia has grappled with the issue of migration, but it pales into insignificance compared to here.

Graduates are mobile: Especially here, when things are sticky, graduates move.

How will we recoup the loan payments from higher-earning graduates living in the UK or Germany?

Second, what sort of a burden will the loans place on people?

Bruce Chapman, the Australian expert on student loans, suggests this would be low, with a repayment burden of 10%-15% of income.

While in and of itself quite bearable, there are problems here too.

Firstly, the repayment burden as a percentage of income will, by his models, be considerably higher on those in lower earnings.

The issue of student loans cannot be treated in isolation either.

A loan with a repayment burden of, say, 20% of income has to be financed somehow. While repaying this loan the 20-somethings will have to live somewhere.

That requires renting, and a typical couple would also be saving for a home.

Can young workers take on this burden?

The third issue surrounds who would be charged with administering the loans.

We have a banking system that is only now barely returning to some degree of operating effectiveness.

Any banking system that would take on these loans would require significant state guarantees.

Can you imagine any minister, no matter how sensible it might be, guaranteeing bank loans in light of our recent history.

When there is a guarantee, there is moral hazard.

From the bank perspective the loan will be repaid by the taxpayer if the borrower defaults.

From the borrower, where is the recourse?

If we cannot repossess fixed assets what chance we can repossess human capital?

So the only way this would work would be to have Revenue collect loan repayments from wages and salaries like a tax.

We’ll then have Revenue collecting a tax, the State guaranteeing the loan, and all for what?