THE massive increase in university tuition fees may not save taxpayers any money and could actually add to the national debt because the Government has underestimated the cost of borrowing, a hard-hitting report has warned.
Almost trebling fees to £9,000 a year was designed to deliver annual savings of around £1.3bn with much of the cost of the higher education system being passed on to students to repay after graduation.
However, a report published by the Higher Education Policy Institute (HEPI) warns that the Government may have underestimated the cost of providing loans to cover these fees and overestimated the amounts students will pay back.
This is because the Government has miscalculated how much graduates will earn and be able to pay back, the report says.
It also warns that this could result in student numbers being cut or graduates being asked to pay back more as future Governments look to balance the books.
Tuition fees were increased to a maximum of £9,000 a year this September, but students only start to repay this cost once they earn more than £21,000.
The HEPI report focuses on the Government’s resource accounting and budgeting (RAB) cost in the long-term of providing loans to cover the initial fees. It says that the Government’s forecast of how much providing the loans will cost depends on “highly uncertain and optimistic assumptions”.
HEPI says the initial prediction by the Department for Business Innovation and Skills’ (BIS) that the average male graduate would be earning £99,500 a -year 30 years after graduation was “implausible”. It says a new figure of £76,500 was now being used, but this was still very high.
It says: “What were and remain the most doubtful assumptions are that the career growth in earnings that most graduates are estimated to have enjoyed historically will be repeated and that the distribution of earnings will remain the same. This is unlikely as has become clear since our original analysis, with evidence showing a growing difference between high and low earning graduates...
“It is incumbent on those making decisions about public policy, and particularly ones that have such significant cost implications, to make the most realistic assumptions they can. Both of these assumptions are critical and both are probably wrong.”
The report also warns that BIS is still basing its forecasts on the average fee charged being £7,500 despite HEPI estimating that the average charged this year being more than £8,200.
It says: “One of the main justifications for the introduction of these reforms was that they would reduce public expenditure, reduce Government borrowing, and put the future funding of higher education on a sustainable footing. There may be other arguments in their favour but this justification does not stand up. A reduction in the public sector net debt on the scale claimed is unlikely, it is even possible that there will not be any reduction whatever.
“Further given the size of the loans the repayment period the public sector national debt will increase substantially over the first half of the century. It is likely that the Government’s budgetary assumptions have seriously underestimated the cost of new policies as loan repayments will be lower than anticipated.”
The HEPI’s report has come out as new figures show that initial applications by English students to UK universities for 2013 have risen slightly compared with last year.
The latest UCAS statistics show that almost 600 more students have applied to start courses in 2013, compared to 2012.
In total, 36,051 students living in England have already applied, compared to 35,455 who applied for courses starting this autumn – an increase of 1.7 per cent.
Students have been able to submit applications for next year for all universities from early September, and those applying for medical courses and Oxford and Cambridge had to apply by October 15.
The new figures give the number of people who applied for courses with an October 15 deadline.