Financing higher education: tax, graduate tax or loans?

Abstract

This chapter discusses the controversial reforms in higher education finance in England in 2006, arguing that — contrary to popular belief — they are strongly progressive. The opening discussion sets out the 2006 system. The following two sections explore the historical confluence of ideas between Friedman's work and that of Glennerster and colleagues, and then the analytical principles that should underpin policy. The most elegant policy, however, will fail unless properly implemented (the easy part is to disburse the money; collecting loan repayments is harder); the next section briefly discusses this aspect of making social policy work. A further section considers the choice between a graduate tax (where a person's repayments continue permanently or until some date such as retirement) and a loan with income-contingent repayments (where a person's repayments are a fraction of earnings, but, in contrast with a graduate tax, stop once the borrower has repaid what he or she has borrowed, plus interest), and concludes that the general case that brings the two together is social insurance. The final section considers the unfinished agenda.