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6 “Big Myths” about a Graduate Tax January 1, 2011

Posted by AaronPorter in Uncategorized.
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6 “Big Myths” about a Graduate Tax

http://www.nusconnect.org.uk/news/article/fundingourfuture/515/
Since Vince Cable’s announcement on Graduate tax, a whole host of distortions have been released designed to scare off those who want to see a more progressive system. Below we reproduce our favourite six graduate tax lies.

1. Most graduates would pay much more than they do now.

This is nonsense. In the NUS proposal, earners in the lowest quintile would overall pay less than £500, those in the next quintile about half than now, and those in the middle quintile roughly the same as now, it’s only those who really benefit that would pay more. A graduate tax has also been described as “the student loan you never pay off”. This is also nonsense- in the NUS model there’s a 25 year limit and an overall maximum amount to ensure fairness. 

2. The money would go to the state.

People would be right to worry about the money going to the Treasury, but that doesn’t mean the only other option is fees going to individual universities. In the NUS model, money collected would flow into a trust controlled by the higher education sector, which is legally independent of government and accountable to Parliament. This ensures hypothecation of resources to the higher education sector at a high level and ensures that overall control and shared responsibility lies within the sector.

3. Don’t we already have a form of graduate tax?

It’s true that the current system of fees and loans is paid back by graduates through the tax system, but “rebranding” the flawed system won’t fool anyone. The problems of a market in prices and prestige would remain and as Vince says, “it can’t be fair that a teacher or care worker or research scientist is expected to pay the same graduate contribution as a top commercial lawyer or surgeon or City analyst whose graduate premium is so much bigger”.

4. It would starve universities of the money they need now because the returns come in down the line.

Vince Cable described this problem as “soluble”. He’s right. In our model the Higher Education trust would be empowered to issue bonds on the market, or to other investors, set against future revenues. It would also be empowered to operate an ‘opt-out’ scheme whereby the graduate contribution is waived where a student agrees to pay the ‘maximum’ amount to the trust in advance. These devices allow the money from graduate contributions to be ‘brought forward’, mitigating the risk of a gap in resources for institutions.

5. This is a huge threat to university autonomy who should receive the fees or contributions from their own graduates.

We prize academic freedom and autonomy in the UK, but to conflate these concepts with the student contribution system is dangerous and disingenuous. NUS wants to see a system where research is properly funded and excellence recognised, but that won’t be delivered through a market in prestige where the rich institutions get richer and vice versa.

6. A pure market in fees will make Universities more efficient and drive down prices.

There is no evidence from any other country that a market in Higher Education would work this way- and in fact most other countries’ evidence points to the opposite. The average annual tuition fee at a private university in the US currently stands at $26,273. That’s just tuition- before we add in books, living expenses etc. There is also no evidence at all that the “market” improves quality or that there is any link between the quality of teaching and the price paid. For a detailed look at the role of the “market” in HE, see here.
 

What a “real” graduate tax would look like

Following Vince Cable’s comments on a proposed “Graduate Tax” in July, a debate has emerged about what a “Graduate Tax” or “Graduate Contribution” scheme might look like. Some voices would like to see a mere ‘rebranding’ of the existing fee/loan regime; others want more developed structures including much more use of the private sector in providing student finance. 
 
A truly progressive graduate contribution must meet, in our view, five tests. No system that lacks any of these five features can properly claim to be progressive, and may well represent a more basic reform of, or simply a new representation of, the current system.
 
As the body that first introduced the notion of a ‘progressive graduate contribution’ into the debate alongside a clear and fully costed proposal for how it could be put into practice, we thought it would be worthwhile to issue a statement defining the key characteristics of such as system.

The ‘five tests’:

1. End the market in course or university prices, it puts students off

There should be no ‘sticker price’ variation between institutions or courses, and direct price variation should be actively barred within the system. This ensures that students choose courses for the right reasons and ensures equality of opportunity at the point of use.

2. Ensure that graduates on low pay don’t pay; and set a maximum for high earners

There should be a lower threshold of earnings below which no payments are collected, balanced by an overall, single maximum amount that any person can pay in total. This ensures fair and proportionate treatment for both low and high earning graduates.

3. Only charge students a percentage of their earnings for a fixed period- it’s progressive

Payment should be made at a fixed percentage of earnings above a threshold for a fixed period. This ensures simplicity for users and also ensures that graduates with sustained high earnings pay the most overall, while those with sustained low earnings pay very little.

4. Don’t given the money to the state- ringfence it in a trust

Money collected should flow into a trust or other body that is controlled by the higher education sector, which is legally independent of government and accountable to Parliament. The trust or other body should itself determine the rules for distributing its funds to institutions. This ensures hypothecation of resources to the higher education sector at a high level and ensures that overall control and shared responsibility lies within the sector.

5. Issue bonds to ensure that universities get the cash they need now

The trust or other body should be empowered to issue bonds on the market, or to other investors, set against future revenues. It should be empowered to operate an ‘opt-out’ scheme whereby the graduate contribution is waived where a student agrees to pay the ‘maximum’ amount to the trust in advance. These devices allow the money from graduate contributions to be ‘brought forward’, mitigating the risk of a gap in resources for institutions.
 
To download this resource, click here.
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