The main points of Shephard's system are:
1. Make student financial support available to cover all tuition and a modest cost of living.
2. Allow graduates to repay according to earnings with protection for poorer graduates.
3. Call HEFCE teaching grants “scholarships” and make students aware of their value.
4. Cap the level of funded fees plus HEFCE grant at the current level.
5. Allow universities to charge deferred fees.
a. When they are paid the money goes to the student’s university not to the state. These fees have no fiscal implications.6. In the long-run move to making the cost of living support simpler by
b. Bring some of the cash flow from deferred fees forward by working with a bank.
a. Providing more realistic cost of living support for all students.
b. Removing means-tested university bursaries for cost of living expenses.
c. Removing means-tested grants to students provided by the state.
Shephard goes on to say,
Whenever I refer to “financial support” I will mean the following. Students can opt to take out aThe Economic Logician comments,
financial support package to fully or partially fund their fees and/or cost of modest living. Whatever the size of the financial support package, students will be offered payment terms as graduates which are 9% of earnings above £15k until they have paid back the full amount (net present value) of support. The parts of support package which are not repaid due to low earnings are forgiven after 25 years. The interest rate should be the state’s cost of borrowing (currently 2.2% real). The system is run through the Student Loan Company (SLC).
I think this is a very good programme. It essentially boils down to students borrowing against future income, and seeing how the return to education is vastly superior to the financial cost, they should want to take this opportunity as long as there is a market. Universities are the ones providing this market and they are incentivized to provide a good educational product.One of the major problems for students with financing higher education is the inability to borrow against future income given the investment being made is in human capital which can not be used as collateral for a loan in the way physical capital can be. Shephard's idea does deal with this issue. The system also does have a real rate of interest (2.2%) applied to it. This at least should make students think about the worth of taking out financial support.