The subject of how to finance higher education has been debated for many years, most recently upon the introduction of top-up fees of up to £3000 per year for students starting degree courses in 2006. A key promise made by the Labour government as part of the reform package, was to run a comprehensive review of the system in 2009 - at which point all students in the system would be subject to the £3000 fee cap. The review was announced on 9th November 2009 and will be chaired by Lord Browne, the former head of BP.

Lord Browne has been asked to examine three issues: widening university participation, affordability of higher education for students and the taxpayer, and how to simplify the current system of support, which includes means-tested maintenance grants and loans and universal fee loans which cover the full value of the £3000 fee. Given the current economic circumstances, perhaps the most important issue arising from the review will be how to expand the HE system while cutting costs to the exchequer. A variety of possible policy changes arising from the review have appeared in the press, such as increasing the level of fees (and the fee loan) to £7000, or charging a real interest rate on maintenance and fee loans.

This project aims to quantitatively evaluate a number of these scenarios, primarily in terms of the impact on costs to the exchequer, but also examining the behavioural and distributional impact on different types of student/graduate. In each case, the questions we will seek to answer regard the possible public expenditure savings per student/graduate, the change in net costs of attending university for different types of student (according to parental income), and graduate (according to lifetime income), the distributional impact of the reforms and the remaining cost to the taxpayer.

The project will build on previous IFS work in which we used copula functions to simulate lifetime earnings for 20,000 future graduates. In our new work we will advance our methodology so that we can better take into account the likely persistence of earnings and employment shocks, arising, for example, from a recession. Crucially, our earnings profiles will allow us to look at the impact of reforms on the entire distribution of graduates - not just those of the 'average' HE graduate.

Once we have obtained new earnings simulations, we will use these to calculate graduates' fee and maintenance loan repayment schedules under a number of different reforms, and therefore to assess the change in costs to the exchequer of changing HE finance policies.

One of the most challenging parts of the work will be to build in realistic behavioural responses into our analysis of the impact of possible reforms.