Could a student loan scheme save the third-level sector?

Spending cuts and rising student numbers mean universities are on verge of crisis

It all seemed so much simpler back when university fees were abolished 20 years ago.

In those sepia-tinted days, the rainbow government presented “free fees” as a system that would boost access to third-level education, provide guaranteed funding for colleges and narrow the gap between social classes.

It’s hard to recognise those aims now.

The student contribution fee introduced as part of the scheme has ballooned from £150 to a crippling €3,000.


There has been no significant narrowing in the participation gap between haves and have- nots. And many colleges are struggling to make ends meet.

After seven years of spending cuts, rising student numbers and falling numbers of academic staff, the sector is under pressure as never before.

State funding for universities has fallen by about half since the economic crisis. Falling numbers of academics are affecting their ability to provide high-quality education and qualifications.

Capital funding to expand overcrowded lecture halls and libraries has effectively ceased since 2008.

Pressure set to mount

The upfront contribution is so big that many students and families, especially those outside the grant thresholds, are struggling to meet the cost of college.

If anything, the pressure is set to mount over the coming years.

High birth rates in Ireland mean the number of students entering higher education is projected to grow by almost 30 per cent by 2028.

Annual funding will need to rise by another €1 billion or so just to meet this demand.

Third-level institutions have managed to plug many of the gaps to date through private sources, such as industry, philanthropy or fundraising. But for how long?

The Expert Group on Future Funding for Higher Education was established a year and a half ago to draw up a series of options on how to reform the funding system.

In its discussions, it has identified a series of different proposals: more State funding, rises in student fees, income-contingent loans and private sources such as employer contributions and philanthropy.

But against a backdrop of limits on Government spending and heavy financial pressure on families, it leans heaviest on one area in particular: deferred fees, or “income-contingent” loans.

Under this system, higher education is free at the point of access for students.

Their loan repayments are triggered only when they start earning over a minimum income level later in their career.

Manageable repayments

By linking repayment to income levels, it helps to remove the risk that the debt burden will become unmanageable.

This ensures that, at any time, the amount a graduate has to repay is a manageable portion of disposable income.

This system – pioneered in Australia and now adopted by a number of countries such as the Netherlands – operates by linking repayments to the level of income of the borrower.

It allows higher-paid graduates to repay proportionately more of the cost, and lower-paid graduates to repay proportionately less of the cost of their education.

The cost of loans could be kept to affordable levels by ensuring the State continues to heavily fund third-level education, as happens in the Netherlands and Australia.

Sources says there may also be scope to have a regulatory body – possibly the Higher Education Authority – to set the costs of individual courses.

This would prevent a rush by universities to increase their fees, as happened in England when it introduced a similar system.

Loan repayments could be collected by the Revenue Commissioners, according to an expert group discussion document, as it is by “far and away the most cost-effective, simple, efficient and transparent way to collect loan repayments.”

There are some obvious concerns about a system, however.

Many will worry that a loans scheme could put barriers in the way of low-income households, fearful about whether they will be able to pay the debt later in life.

Research by the European Commission and others indicates that, when balanced with student supports, fees do not necessarily have a negative impact.

Participation rates

In England, for example, which has a student loan scheme, participation rates at college have improved among poorer households compared with Scotland, which has "free fees".

Similarly, in Ireland the abolition of fees did not lead to a significant narrowing of the gap between social classes.

There is also the question of whether the State can afford to back a loan scheme that would require significant upfront funding.

The expert group does not go into this detail, but it would seem likely an arrangement to keep the costs off the State’s balance sheet would be needed.

But as the Irish Water debacle shows, this is easier said than done.

With an election looming, the Government is highly unlikely to commit to any of the report’s recommendations.

It will be a matter for the next government to address.

Political parties’ pre-election manifestos will be a key test of whether the proposals will have enough support to emerge in a new administration.

It is worth noting many of the main parties have been supportive of a move towards a student loan scheme.

Fine Gael supported a "graduate tax" in the run- up to the 2011 election, while Fianna Fáil's official policy is also supportive of income-contingent loans.

Student opinion seems mixed.

The main students’ representative body, the Union of Students in Ireland, is opposed to a student loan scheme, but Trinity’s students’ union recently defeated a motion calling for opposition to such a proposal.

If there is one certainty, it’s that the current, creaking, funding system is increasingly unfit for purpose.

"The status quo is not sustainable – current funding levels are insufficient and the funding model requires reform," wrote Peter Cassells, chairman of the expert group, in a discussion document.

If Ireland as a society, a State and an economy aspires to global competitiveness, it will need to urgently grasp the nettle of third-level funding.

Politicians are fond of praising the role of higher education in Ireland. Our universities – they regularly say – are creating jobs, raising living standards and giving Ireland an edge in the global marketplace.

But politicians will not be able to put off urgent decisions over the future of higher education for much longer.