Paying for Learning

Both the quantity and quality of education and training in Britain are being comparedunfavourably with arrangements in other countries at a time when public expenditure isfacing the most stringent constraints. This paper starts from the presumption thatimprovements in the quality and quantity of education and training will not primarily befinanced by increased public expenditure; that mechanisms are therefore necessary tofacilitate additional private spending; and that income-contingent loans offer just such amechanism. The major advantages of the income-contingent approach which emergefrom this paper are twofold: it protects individuals from a heavy repayment burdenduring time of low earnings, thus minimising deterrents to access; and it ensures that ahigh fraction of total borrowing is repaid. The paper compares different incomecontingent schemes with the current government scheme for higher education, and alsoinvestigates the long-run yield of a graduate tax and of an employer user charge forskilled labour. The results suggest that about 80 per cent of lending will be repaid underthe government scheme; depending on the rate of earnings growth, an incomecontingentscheme would repay up to 90 per cent of student borrowing in advancedfurther education and higher education, and up to 94 per cent of borrowing for nonadvancedfurther education. The results suggest that it would be possible for the privatesector to make student loans on the basis of a guarantee of between 10 and 20 per cent oftotal lending. Such an arrangement would result in immediate public expendituresavings, on plausible assumptions, of around £3.5 billion per year.[...]