For the Greater Good

Times Higher Education, March 27, 2014 | Go to article overview

For the Greater Good


Government should use the funding system to align the interests of students, universities, employers and wider society, says Johnny Rich

What if a simple change to student funding could do away with student debt, give universities secure long-term funding and improve graduate employability in one fell swoop - all without costing the taxpayer more?

It sounds too good to be true, but bear with me. With the cap on student numbers soon to be lifted, the sustainability of the current system is cast into the spotlight. We have to ask: is there a better way of doing things?

My modest proposal is in two parts. First, rather than having a graduate tax in all but name, repaid alongside the employee contribution to National Insurance, why not simply move the payment across to the employer contribution? In other words, do away with fees altogether and pay for higher education teaching through a tax on employing graduates, rather than on being one.

Whoosh. Student debt disappears (or most of it). It was not a real debt anyway as what graduates end up paying has only a nodding relationship to what they "owe".

The idea of a tax on employing graduates may seem odd when some 900,000 young people in the country are unemployed, but in fact that is exactly why it makes sense. The tax is an illusion but the realignment of interests is critical.

Employers might grizzle about another so-called tax on jobs, but actually their wage bill for the same staff need not change. Under the current system, a graduate might get a £25,000 salary, of which £360 goes to pay off their debts of £50,000. If offered £24,640 with no debts to pay (but with their employer making the £360 payment instead), I know most graduates would choose to be debt-free. They might earn less in gross terms, but their disposable income does not change and nor does the cost of employing them.

Businesses could of course cut costs by shifting to employing non-graduates, but that is nothing new and, as last August's report, University Degrees: impact on lifecycle of earnings, by the Department for Business, Innovation and Skills showed, the demand for graduates is not slacking as numbers grow. Employers are always willing to pay more for staff who will add more value than they cost.

There's the rub. Employers sometimes maintain that students have not studied the right subjects, that they have not acquired the right skills and that they are not able to be productive from day one.

That is why the second part of the solution is needed to create a better connection between demand and supply in the labour market: namely, that the "taxes" should be paid to the institution where the graduate studied.

The government's current approach is to put students "at the heart of the system", with universities running whatever courses they can fill. …

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