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November 22, 2010

Revised IFS analysis of student fees will be bad news for students - and ministers

The Institute of Fiscal Studies is likely to publish its revised assessment of the impact of the government's proposed reforms to student fees in the coming days. It is almost certain to be bad news for both students and ministers.

When it became clear to the IFS last week that the government had made unannounced changes to its plans, I happened to be in correspondence with the professor in charge of the work. Lorraine Dearden wrote to me highlighting four areas of concern. And in each case, the effect of the obscure changes is to make the government's plans more expensive for students.

There are three confirmed changes that the IFS has to include in its assessment this week.

First, the threshold for graduate beginning to pay back their debts is £21,000 in 2016 prices, not 2012 prices. The difference is about £2,500 and means that students will both face higher monthly bills and have to start paying earlier.

Second, the threshold will only be raised once every five years, not every year. "This makes a very big difference," said Dearden and increases the cost to all graduates.

Third, graduates will start paying the full rate of interest (3 per cent plus inflation) while still at university, not after.

The fourth issue is that Dearden suspected that the repayment period may have been lengthened from 30 to 35 years (it is currently 25). If true, this would push up the cost for any graduates that would have been let off their debts after 30 years.

The problem for the government is not just that these changes make the system look less affordable for all students. In each case, it can also be argued that low income students will be specially hard hit because less of their debt will be written off at the end of the loan's term. This in turn will dent the Coalition's argument that the reforms are progressive.

There is also the question of whether Vince Cable misled the House of Commons when he cited the IFS analysis on the day Browne's proposals were published, which turns on the question of whether the threshold for repayments is in 2012 or 2016 prices.

Ten days ago when the IFS released its initial report, it barely registered in the media. The revised analysis may be published as soon as today. This time, the effect is likely to be very different.

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