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Friday, 5 October, 2001, 23:17 GMT 00:17 UK
Voters prompt grants rethink
students in cafe
Student debt has proved controversial for New Labour
BBC education correspondent Mike Baker debates the government's decision to reassess the system of student loans and grants.

Only last week this column questioned whether young people still regarded going to university as a good deal.

Days later, the prime minister announced that "a better system" of student support had to be found.

I am not, you understand, claiming any credit for changing the government's mind and so prompting its first big U-turn on education policy. Clearly the voters did that.

Ministers have been heard to mutter about well-off students taking out the government loan to pay for their skiing holidays

Ministers have attributed the change of heart to the reception Labour candidates received on the doorsteps, and on campus visits, during the General Election campaign.

It is a strength, and also a weakness, of this Labour government that it is very sensitive to public opinion.

But this time it is not a response to focus groups or to the hostility of the media.

Rather the government seems to have been persuaded, against its own earlier judgement, that public perception of student debt has become an obstacle to further university expansion.


It has been a remarkable story from the start.

Labour's decision to abolish student grants within three months of winning the 1997 election was breathtakingly audacious.

It was one of those early actions taken to show that New Labour really was "new".

It is worth looking back to how they took a decision they have since come to regret.

Student protest over tuition fees
Students have often protested over tuition fees
The previous Conservative government had laid the groundwork.

Alarmed by the rising cost of funding university expansion, it had frozen the value of student grants and introduced loans.

Year by year, as the grant was eroded by inflation the loan became the essential means of student support.

Nevertheless, by 1997 the student grant was still worth up to 1,755 a year outside London.

Dearing review

The Conservatives, recognising radical change was needed, commissioned Lord Dearing to head a national inquiry into higher education.

It had not yet reported by the time Labour were elected.

The Labour Party's manifesto in 1997 was therefore rather cautious. It simply stated that university expansion could not be funded out of taxation.

It made no mention of charging students a tuition fee nor did it say grants would be abolished.

It did however suggest that the costs of student maintenance should be "repaid by graduates on an income-related basis".

Student contribution

When Dearing reported in July 1997, the new Education Secretary David Blunkett, welcomed the recommendation that students should pay 25% of their tuition costs.

Lord Dearing
Lord Dearing says restoring grants will help to attract students from working class backgrounds
However, he must have been disappointed that Dearing offered no support for abolishing grants.

Yet that did not stop the new government immediately announcing the demise of student grants and their replacement by larger loans.

Sensational news though this was, it was trumped by the introduction of fees and the ending of the long-standing principle of free education.

Such a radical move had hardly been spelled out in the manifesto.

However, Labour rode out the storm over the abolition of grants because most attention was focussed on the introduction of fees.

'A better way'

And so it seemed student grants were dead and buried until, in the middle of his conference speech on the Taleban threat, Tony Blair suddenly dropped his one-liner about the need to find "a better way" on student support.

If it had not been for the events of 11 September, the announcement about the review of student grants would have been one of the major news nuggets of Blair's speech.

As it was, the further details about the likelihood of some form of graduate tax only emerged afterwards in a series of hurried media briefings.

Good response

The government could have been accused of weakness and of making a belated U-turn.

In fact, most reaction was positive with student and university representatives giving ministers credit for listening.

Tony Blair
Mr Blair spoke of a "better way" over student finances
But will this positive response last once we start to see who is going to pay for the reintroduction of grants?

The two schemes under consideration both involve graduates paying a contribution to the costs of student support (in other words, funding the cost to the Treasury of paying student grants) once their earnings reach a certain level.

This "contribution" will be paid through the tax or national insurance scheme and graduates could be paying it for 20 to 25 years.

We have no idea yet what percentage of their income they would have to hand over.

One of the two schemes would involve restoring grants only for poorer students.

Yet, in a re-distributive move which bears the hallmarks of Gordon Brown, all graduates would have to pay the graduate tax whether or not they received a grant.

'Middle-class backlash?'

It will be interesting to see how middle-class parents and graduates respond if this option is chosen. Could there be a middle-class backlash?

The government is likely to justify such a change by arguing that until now the main beneficiaries of tax-payer funded student support have been the sons and daughters of the middle-classes.

In the days of generous student grants and cost-free tuition, working-class school-leavers contributed the taxes which supported their middle-class peers through university.

The latter mostly went on to earn higher salaries (and admittedly pay higher taxes) thanks, in part, to their degree.

Ministers have also come to regard the current student loans scheme as a subsidy to the middle classes.

Since the loans do not attract a commercial rate of interest they are, in effect, a taxpayer-funded subsidy which is available to all, irrespective of need.

Skiing holidays

Ministers have been heard to mutter about well-off students taking out the government loan to pay for their skiing holidays.

Whatever the outcome of the review, we are not about to see a return to "free" higher education.

Students may have to worry less about their finances once grants are reintroduced, but once they graduate they will have to pay something back, in some cases that will be considerably more than they received, particularly if they are high earners.

While it looks likely that tuition fees will also be scrapped, we are not about to return to the halcyon days of free university education.

Once again the financial "hit" will come, not during your student days, but once you have graduated and are earning.

Of course, this is what has already happened in Scotland and it is something which the Welsh Assembly Education Minister, Jane Davidson, has also been lobbying for.

It seems devolution is beginning to have its mark on education policy.

Mike Baker cannot always answer individual queries but the education team welcomes your comments at:
See also:

03 Oct 01 | UK Education
04 Oct 01 | UK Education
02 Oct 01 | UK Education
10 Sep 01 | UK Education
28 Sep 01 | Mike Baker
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