Estimating the costs associated with the student support offer – February 2018

Sector: Economics of Education | Education and Labour Markets | Higher education
Client: London Economics’ Publication
Published: 19 February, 2018
Document type: LE publication 
Tagged: 2018 economics of education education England EU financial modelling impact assessment labour market economics quantitative analysis UK

With the potential review of higher education approaching, London Economics have undertaken further modelling of the costs to the Exchequer associated with amending the interest charged on student loans, as well as the abolition of tuition fees. The analysis demonstrates that charging a 0% real rate of interest during study would cost the Exchequer £230 million per cohort, while charging a 0% real interest rates both during and following the completion of study would cost £1.581 billion per cohort. Despite the reduction in debt on graduation (by £2,100 per student), the cut in fees would have no impact on the repayments of graduates in the lower half of the earnings distribution (for men) and only benefit wealthier graduates. Only women in the top earnings decile would see any change in their repayments.

Compared to the baseline, the abolition of tuition fees in their entirety would imply an additional Exchequer cost of £4.581bn per cohort –assuming that HEIs are fully compensated for the loss of £9.794 billion in net tuition fee income. This is because the reduced volume of loans issued, and the 19.4 pp reduction in the RAB charge, results in savings of £5.213 billion to the Exchequer.

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