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The trebling of university tuition fees has not only left a disillusioned student electorate but a broken funding system. Yesterday's report by the IFS demonstrates that the new system has saved very little money, while the Department for Business, Innovation and Skills is anticipating it will cost the taxpayer more than the system it replaced. As universities respond to the crisis by establishing a high-level panel to review the system, even the government is considering change. For those who seek a progressive alternative, a graduate tax looks increasingly like an idea whose time has come.
It's now clear that the current funding system is not just unfair but unsustainable. Back in 2010, universities minister David Willetts said uncollectable debt would not exceed 32% of the amount lent and attacked those, like the Higher Education Policy Institute (HEPI), who claimed that it would be closer to 38%. But the truth is worse. Willetts now estimates it at 45% and, in response to my questions at the BIS select committee in February, all but confirmed that BIS was modelling it at more than 50%. This takes it beyond the tipping point of 48.6% at which the system becomes more expensive than the one it replaced.
Nick Hillman, Willetts's main adviser in 2010 and now head of HEPI, admitted in February that his boss had got it wrong on debt, just as he was wrong when he said fees above £6,000 would be exceptional. So the extraordinary upheaval in our universities, ending all public funding for most undergraduate courses and trebling fees debt, was for nothing. The biggest change in university funding for a generation, which was intended to provide a lasting settlement, has failed in less than two years. So where do we go now?
Although Willetts is in denial publicly about the failure of the system, he is thinking about alternatives with an apparent interest in the Australian model. But this raises similar questions over uncollectable debt, leading to failed attempts to sell their loan book, while not generating enough funds for universities. It involves higher fees for some subjects and has steep "cliff-edges" in repayments – for example, on an income of $51,308 (£27,525), there is no contribution, but on $1 a year more, repayments kick in at $171 per month.
Despite denials from Nick Clegg, Danny Alexander has suggested that, like the Conservatives, the Liberal Democrats would not rule out fee increases. Some of our so-called elite universities would still like to lift the cap to enable fees of £15k or more, opening the system up to full marketisation. This would leave students choosing their course on their ability to pay, not simply on their ability to learn. Crucially, as the IFS points out, raising fees will not resolve the funding crisis, as it would simply add to the uncollectable loans debt.
So there's a need for new thinking. Speaking recently, Ed Miliband commented that: "Young people feel they have no control because they are going to get into mountains of debt if they go to university", adding that "we do want a radical offer on tuition fees". Graduate tax is the policy that Liam Byrne set out as Labour's aim in an interview in the Times Higher Education Supplement in December, shortly after being appointed shadow universities minister.
A graduate tax not only provides a sustainable model but a fairer system. It changes the principle on which students pay from cost to benefit. Graduates' contribution would not be based on what they need to borrow to get to university, but on the earnings they receive as a result of their study. It would mean an end to fees and a small increase in income tax – assessed by the IPPR last year at just 1.96% over 40 years.
The current broken system needs a fundamental overhaul and graduate tax provides the answer. It would necessitate a change in Treasury accounting rules, but the "smoke and mirrors" hides the real costs of the present system, and serves neither the interests of taxpayers nor students.
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