The Government and the Conservative Party have announced starkly different policies for funding Higher Education (HE). The Government wants to raise tuition fees and increase student numbers. The Conservatives want to abolish tuition fees and leave student numbers roughly where they are. Funding per student would rise in both cases.

New research from the IFS compares the reforms proposed by the two parties, looking at the effect on student and graduate finances, the distributional impact on households with different incomes, and the cost to the Exchequer and taxpayers in general.

We find that:

• Under both proposals, students would be better off while at university than under the current system. The gains would be the same under each proposal, but still insufficient to cover living costs as calculated by the National Union of Students.

• The overall cost to the taxpayer would be about the same under both systems (around £1.8 billion under the White Paper, and £1.7 billion under the Conservatives).

• For a given amount of government spending, more students could go to university under the White Paper proposals because graduates would be contributing extra money through loan repayments to cover tuition fees.

• The Conservative proposals would benefit the richest households more than the Government proposals, while the poorest households would be worse off.

Financial effect on students and graduates

The financial impact on students while they are at university would be essentially the same under the two proposals. However, once they finish studying, the effects on graduates could differ significantly.

Higher contributions to tuition fees under the White Paper proposals mean that students would graduate with bigger debts than under the Conservative system. They would then have to repay their debts for longer over their working lives. Our research estimates that the "average" graduate (with no career breaks) would make loan repayments for:

• 7 years under the current system;

• 8 years under the Conservative proposals; and

• 11 years under the White Paper proposals.

Distributional impact on the whole population

If the Government's White Paper proposals were to be adopted, a move to the proposed Conservative system would mean:

• A redistribution of income from poorer to richer households (Figure 1).

• Households in the poorest income decile would lose 1.5 per cent of their income on average, while households in the top income decile would gain by around 0.4 per cent from this switch in funding regimes (Figure 1).

• This pattern of gains and losses would be driven by the fact that under the Conservative proposals, lower-income taxpayers (who are less likely to be graduates) would bear more of the total costs of tuition than under the White Paper. In addition, fewer people from lower income families would be likely to go to university.

Redistribution implied by moving from White Paper to Conservative proposals for Higher Education finance

Greg Kaplan, Research Economist at the Institute for Fiscal Studies said:

""The White Paper reforms would ask graduates to pay more of the costs of attending university and would extend the reach of the university system. On the face of it, this seems fairer and more efficient than asking taxpayers in general to pay more for each student, as the Conservatives propose. But the success of the White Paper proposals depends crucially on whether the government can persuade young people that taking on bigger loans should not deter them from entering higher education, given that the amount they have to pay back each year depends upon their income after graduation.""

Ends

Notes to Editors

1. IFS Commentary No. 94, 'Study now, pay later' or 'HE for free' by Alissa Goodman and Greg Kaplan is available online from Wednesday 25th June. It can be ordered in hard copy for £25 (£10 to IFS members).

2. If you would like a press copy, please contact Emma Hyman or Robert Markless on 020 7291 4800.

3. This event is part of the Economic and Social Research Council's Social Science week.