David Willetts

The Conservatives are today announcing plans to create an extra 10,000 new university places next year to help tackle youth unemployment and prevent a repeat of this year’s crisis in university applications. Thousands of new university places would be paid for by introducing an early repayment bonus for existing graduates repaying their debts to the taxpayer ahead of schedule. This would fund an extra 10,000 additional university places next year to help tackle the short term crisis.

The Conservatives are committed to a full review of university finance. Given the constraints on the public finances, both main parties and independent experts are clear that in future individuals and businesses will have to contribute if we are to ensure talent is properly nurtured. As Peter Mandelson has said: “Britain gains when every person who is capable can get the chance to go to university, get an apprenticeship or a new skill. But to make this possible in a tough public spending environment we all need to contribute - government, individuals and employers.”

David Willetts, Shadow Secretary of State for Universities and Skills, said:

“This summer has seen a crisis in university places. The government’s failure to create a fair and affordable system means that thousands of young people with good exam results have been unable to get the education they need.

“With one in six young people not in work or education or training, it is vital that we prevent a similar crisis next year. Our plan to give graduates a discount for repaying loans ahead of schedule will give thousands more young people the opportunity to go to university, rather than staying on the dole.

“This will extend new opportunities to young people who are being hit so hard in the recession.”

NOTES TO EDITORS

Problem

This summer, there has been a crisis in university places. Due to demographic pressures and rising youth unemployment, there were 10% more applications to attend university this year than there were last year, but the Government has failed to provide sufficient places to meet this demand.

Universities were awarded only 3,000 additional full-time undergraduate places in 2009/10, and in July, the Government executed a u-turn and promised another 10,000 places - but largely on an unfunded basis. Unwilling to accept students without the funding to pay for them, many leading universities have refused to offer the additional places.

Thousands of young people with good exam results have missed out a place at university this year because of the Government’s mismanagement. Next year, with the jobs market tight and people who failed to get a place this year re-applying, further shortages in university places are likely. Urgent action is needed if another summer crisis is to be avoided.

Solution

A Conservative Government would help to fill the gap between supply and demand by creating 10,000 more funded university places next year. Each additional student place has a cash cost of around £10,000 per annum, so the total cost would be £100 million a year, £300 million over the three years in which the new cohort would attend university.

We believe that investing in additional places for young people is a better and more efficient use of taxpayers’ money than unemployment benefits or pointless make-work schemes, but given the fiscal crisis it is vital that we identify new sources of funding to pay for them.

Our proposal to encourage early loan repayment in order to finance thousands of extra university places in 2010/11 is an emergency measure aimed at mitigating the effects of Labour’s mismanagement of higher education. In the future businesses and individuals will have to work with Government to ensure young people in Britain can benefit from a world class university system.

• An early repayment bonus on student loans. Students currently repay their loans at a rate of 9% of their earnings over £15,000, and have up to 25 years to repay their loans (after which they are written off). There are no incentives for graduates to repay their debts to the taxpayer ahead of schedule. Under our system, for the next three years, students would be given a 10% discount for early repayments over £500 and for up-front repayment of their loans. By creating incentives for graduates who can afford to do so to pay off their loans early, the system would provide additional short-term income to recycle into the higher education system. The outstanding student loan book was £26.0 billion in 2008/09 and is expected to be at least £30 billion in 2009/10 and £34 billion in 2010/11. We expect that offering a three year incentive for early repayment will bring in at least £300 million in additional voluntary repayments - just 1 per cent of the loan book. In New Zealand a similar scheme is being introduced and they are projecting early repayment to increase by more than 35% as a result. (Speech by New Zealand Education Minister, Hon Anne Tolley, Auckland University Business School, 3 July 2009). Our estimate is in line with this projection. In the UK last year £316 million of loans were repaid early. (Student Loans for Higher Education in England, Financial Year 2008-09 (Provisional)). We are estimating that, as expected in New Zealand, offering a discount will increase early repayment by more than a third. This would bring in at least £100 million a year, which will fully cover the cash cost of the 10,000 new places.
• Long-term review of student finance. We have been calling on the Government to begin an independent cross-party and comprehensive review of student finance since 2007. We now expect this to begin before the end of the year. If we are in Government, we will ask the review to consider the current structure of university funding and the contributions government, business and individuals must make to ensure young people in Britain can access a world class university system.