Opportunity Costs

09/08/2017 17:06
baona via Getty Images

No-one wants education to be financially exclusive. No-one wants students to be prohibited from going to university because of their economic background. No-one wants education to be dictated by money. Whichever side of the fees debate people are on, they all agree that accessibility is vital.

Those in favour of tuition fees make particular effort to demonstrate that their system is not exclusive. They argue that the provision of loans ensures that every student can access university, independent of their background. This claim has certainly got some truth to it - all students wanting to go to university are guaranteed financial support. Yet, although the financial support is universal at the point of need, it has different implications for different students. The overall result: poorer students end up paying more for university. Here's how.

Maintenance loans are means-tested, ranging from a maximum £8200 to a minimum £3821. The idea is that richer students will receive more financial support from their families and therefore require smaller maintenance loans, if any at all. Students from poorer backgrounds, however, require more financial support and so receive a larger sum. This seems perfectly sensible. But the fact that the money comes in the form of a loan, not a grant, skewers the result. Students who take out the minimum rate of maintenance loan will end up owing £11,463 after three years plus their tuition loan, but students who receive the maximum loan will owe £24,600 plus tuition. University therefore costs £12,537 more for the poorest students.

Perhaps this phrasing takes a little liberty: although poorer students do end up owing more, it is not the case that their education costs more. Richer students do not pay cheaper rates, it is just the money that they use to pay the fees comes from elsewhere. Often from family, sometimes from money they have earnt. Obviously, the students themselves aren't doing anything wrong, but that does not mean the system itself is justified. The fact that university for a poorer student comes at a greater personal cost than for a student from a more privileged background is a problem that still needs addressing.

But even if you reject this line of argument entirely, there is still a problem. Because of interest rates richer students actually do pay considerably less than poorer students, regardless of the source of funding. To illustrate how, consider the following.

Whilst the student is studying, the interest rate on their loan is RPI plus 3%. At current rates, a student who takes out the smallest maintenance loan each year will accrue roughly £1000 worth of interest of by the time they graduate. In comparison, a student who takes the largest maintenance loan will accumulate roughly £2200 interest. The difference between these two numbers will only increase with time. Larger loans will generate larger interest, resulting in larger real-term payments. We are no longer talking about the different ways students find funds to pay their fees, we are talking about a concrete difference in the cost of university. The poorest students have to pay the most.

Indeed, the fact that some of the richest students can afford to pay their fees upfront, and therefore avoid any interest, causes further inequality. Consider two students: one who pays her fees immediately (A) and one who is forced to take out a loan (B). Discounting any maintenance arrangements, A's university education will cost £27,000. But by the time B graduates, her education will have cost over £28,500. From that point on, B must pay back at least £450 a year to stop her debt growing. Once again, therefore, the loans system makes university a cheaper proposition for the richest, and more expensive for those less well-off.

Given that we care so much about accessibility, it seems strange that we overlook the financial consequences of the current system. We seem to think that our moral duty has been fulfilled once we have ensured all students have the immediate funds required for university. But we also have a responsibility to make sure that no student is disproportionately burdened by the cost of their education later on. Equality of opportunity, yes. But surely equality of the cost of those opportunities is just as important.