Ministers 'underestimated cost of university policy'

graduate Hepi says government assumptions about tomorrow's graduates are "highly uncertain"

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The government has "seriously" miscalculated the cost of its higher education policy, the Higher Education Policy Institute (Hepi) claims.

The research body says the government underestimated how much universities charge in fees and overestimated how much graduates will earn in future.

It says the revenue the government expects to get back from loans made to students is "highly uncertain".

The government says it believes its modelling to be reasonable.

A Hepi report says the cost to the government of the loans it makes to students - which is known as the RAB cost - is based on "highly uncertain and optimistic assumptions and remains too low".

And because student loans are one of the measures taken into account when calculating inflation, there could be a rise in the cost of certain benefits.

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Either future taxpayers will need to pay more, or other parts of the higher education budget will need to be cut”

End Quote Bahram Bekhradnia Hepi director

The Office for Budget Responsibility has said that loans will add 0.2% to inflation the first year they are introduced which could lead to "bigger rises in various state benefits and civil service pensions", the study says.

It says ministers were wrong to think universities would charge average fees of £7,500 a year, saying tuition fees actually average nearly £1,000 more than this.

Graduate earnings

Hepi is also concerned that the government has overestimated the future earning potential of graduates at £75,000 per year, down from an earlier assumption of £100,000.

Hepi says this is still an "extremely optimistic assumption" given the nature of the world economy and the UK's in particular.

"That is based on an assumption that the future will be like the past, which is an optimistic and probably unwise assumption," the report says.

It also raises concerns that the government has assumed the rate of salary increases will be evenly spread among all graduates.

Hepi says that over the past 30 years top earning graduates have increased their salaries "very substantially", while those earning the median or less have had more modest increases if any.

"If low earners increase their incomes by less than higher earners, as has happened in the past, then this seriously impacts on the repayments that the government will receive."

Realistic assumptions

Hepi director Bahram Bekhradnia said: "We think that the government has badly underestimated what loans will cost them because they have made unrealistic, and in some cases, wrong assumptions.

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All long-term estimates have a margin of error, but we continue to believe our modelling is reasonable ”

End Quote Department for Business, Innovation and Skills

"One of these is that they have assumed average fees of £7,500 - we know that average fees are over £8,200. They haven't changed their assumption."

"If we are right, and the new policies cost very much more than has been budgeted - and may actually cost more than the arrangements that they have replaced - then there could be serious consequences - for the higher education sector, but more widely as well.

"Either future taxpayers will need to pay more, or other parts of the higher education budget will need to be cut, or student numbers will need to be held down even further than presently planned, or former students will have to repay more."

A spokeswoman for the Department for Business, Innovation and Skills said: "We have made an informed estimate of the RAB charge which sits in the middle of the debate.

"Some people take a more pessimistic view than we do about the amount that will be repaid to government, but other experts claim our RAB charge estimate is too high because it doesn't actually reflect the current low cost of borrowing.

"All long-term estimates have a margin of error, but we continue to believe our modelling is reasonable and neither unduly optimistic nor unduly pessimistic."

Russell Group

Meanwhile the Russell Group of the UK's top 24 research-intensive universities are warning they need more public funding if they are to continue to compete with institutions across the globe.

It says other nations, such as America, China, South Korea and Germany, are pumping millions of pounds into research and higher education and these overseas universities could go on to overtake the UK.

In a report on the importance of world-class universities, Russell Group chair Prof Michael Arthur and director general Wendy Piatt say it is vital the government does not cut funding.

"Many countries of a comparable size and world influence would dearly love to possess even a tiny handful of our leading universities," the foreword says.

"Worryingly for us, right now many of them are doing everything they can to emulate what we already have."

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